Why does a Business Fail?

This is not a tricky question, but it does have many answers.  I have been in business for 38 years.  I have seen businesses open and close, including 2 of my own businesses.  When I had to close these two businesses, I lost a lot of confidence in myself.  It took me more than 6 months to open another business, but in the process, I learnt valuable lessons, which has built character and tenacity.

I have compiled a list of reasons which I believe can cause a business to fail. For fear of being called a chauvinist, I have to state that when I say he, his, or himself, it includes the female version as well.

Reasons why Businesses fail

The business owner does not believe in himself and his ability to run a business. In many instances the business owner had the will to start the business and had a workable and excellent vision for the business.  Then his family started complaining about him not spending enough time with them, never being home, not attending school functions because he had to visit a customer.  The business owner starts to feel alone and starts wondering if he will be able to have a business and keep his family off his back.  While all this is on his mind, his business is definitely not on his mind.

I know of another instance where the business owner’s wife did not believe that her husband could run a business since he attended a special school.  Unfortunately the deal was already signed, sealed and paid for and he could not back out.

This man could sell ice to an Eskimo, but his wife did not think that he was knowledgeable or good enough to run a business. On her frequent visits to the business she would fight with her husband in plain sight of the customers because he “loved the business more”.  Very bad for business!

Lack of vision and a clear business strategy backed up by a written business plan also accounts for many business failures. A business plan is not only a document that has to be filed with the financial institution where the business owner applies for funding.

A business plan is a map that has to be followed so that the business owner can make sure that the business progress as it should.  The business plan will alert the business owner if a problem is encountered, for example spending too much on a project.

Poor management selection, especially when the business owner is absent from the business for long periods, can also cause business failure.  Add the wrong employees to this mix, a lack of dedication and low staff morale and any business, good or bad, can fail.

It is always dangerous to sell one product only.  Example: if a business manufactured funeral products such as coffins and caskets the business profit would fluctuate with the amount of deaths occurring in the region.  This would make it difficult for the business owner to cover expenses during times when the death rate decreases.   If the business owner were wise, he would include other wood working products.  The machinery and tools used for manufacturing the coffins and caskets would also make other woodworking products. 

Badly produced products that do not conform to standards can make a business fail.  No one wants to buy a product that is un-useable.   If the product is not up to standard, service would most probable also be lacking, causing customer complaints and dissatisfaction.  A business that has to constantly replace or repair products will lose customer goodwill and be forced to close down.

Another cause of business failure is a business owner that treats his business as his personal piggy bank.  Everything, even personal items is paid with money which belongs to the business.  When payments become due, the business lacks the funds to pay the bills.

If you own a business make sure that people know where you are and how you can make their lives easier.  It does not matter if your product is the best ever, if people do not know about it, they cannot become customers. 

Many businesses fail because the owner thinks that marketing the product is less important than making the product.  This is the biggest mistake that any business owner can make.  If the business owner cannot delegate the functions that he cannot perform, such as marketing, he is a fool not to appoint someone who can market the business.  This business will surely fail without marketing intervention.

Some business owners makes the mistake of building a relationship with only one or two suppliers. Come the day of strikes in a supplier business and your business cannot obtain the product.  Even the most reliable supplier can fail to deliver due to unforeseen circumstances. No products, no sale, no sale, no business.  If a supplier becomes unreliable, take action immediately!

Another big cause of business failure is the fact that the new business owner cannot work with money and do not prioritise projects.  You will, for example, find that someone who wants to start a wood working business spends all available funds on top of the range wood working machinery, forgetting that the business needs wood for the machines to cut and assemble into a product.  Buy only what you need, add other machines and tools as the business grows.  This will leave you with funds to spend on other must have items.

Some entrepreneurs do not have enough technical and practical knowledge about the business that they want to start.  They do not want to spend the time or money to attend training or courses,  so they spy on the opposition.  Whatever is picked up in this manner is never enough.  It is always best to learn as much as possible about the business enterprise that you want to start.  Beware, though, it is easy for people to mislead you if they think that you are spying on their business.  No-one wants competition; even if everyone says competition is good.  Most people only agree with this statement if their business is not affected.

Another big cause of business failure is the fact that entrepreneurs do not follow up on what they learnt during training or courses.  Some skip market research because it is not their forté.  Big mistake!  If you cannot do it, find someone who can!

Others are frantic that their employees will learn from them and then go in competition with them.  This can be a valid argument, especially in businesses where the start-up costs are affordable.  The problem arises when the business owner cannot produce enough products to satisfy his market.  Everyone knows that to make lots of money, you need to sell lots of product.  To sell make lots of product means that you have to employ or outsource the product manufacturing.  Many entrepreneurs fear doing this and in the process their business fails.

Some entrepreneurs want to build their business in a very short time. They think that because they are the boss, others should do the work.  They are frequently away from the business and when the money does not materialise they blame the business and the employees instead of themselves.  They quickly jump on the next “profitable business wagon” coming along, and the next, and eventually give up.  After all, Rome wasn’t built in a day, everything that is worthwhile having, takes time, work, dedication and patience to build. Manna does not fall from heaven unless you work for it.