15 Reasons Why Small Businesses Fail (and How You Can Avoid Them!)

When you are seeking to attain success in any area of life, it’s a good idea to consult with those who have achieved the goal you are seeking to reach. They may have some crucial lessons to share with you so that you don’t make the same mistakes that they made along their journey.

When is comes to business, it’s no different. Starting a business is an endeavor that many take on without enough forethought, which is why the failure rate of businesses is so high. Now this should not in any way discourage you, but rather get you to ask the questions, “why do small businesses fail and what can I do differently to succeed?”

Keep in mind that for many people, starting a business often means they are tired of working for someone else, and they want to take a shot at selling their goods or services to the market place. A large percentage of these would be entrepreneurs have no formal business training and rely on events such as the Abounding Business Conference to help get the training they need.

Below I will share several reasons why businesses fail and most of all, what you can do differently to succeed in several areas of business.

  1. A lack of Marketing. Some may say I am biased to this one since I am a marketer by profession. The reality is that there are so many things a business owner can do to market their business, so there really isn’t a good excuse for not marketing. For example, you can always reach out to people you know and ask for referrals, or you could engage your target audience via social media. Believe it or not, people actually still make money cold calling, too.At our upcoming conference on October 13th, I will be sharing with you several marketing strategies that you can implement (and many without cost) to get all of the customers to could ever want. I hope to see you there!
  1. Not Understanding Their Customers. With regards to customers, the most important thing is knowing who your customer is and what they need. Not knowing your ideal customer will have you potentially marketing to everyone (which is never a good marketing model). Not knowing what they need will have you wasting marketing efforts offering services or products that are unwanted.
  1. A Lack of Passion. Some people believe that money is a big enough driver for success, but I disagree. I have learned that being a small business owner is hard work, and in order to survive the tough times, you need to love what you do. Perhaps you have heard the saying “if you love what you do you will never work a day in your life” and it’s true. Some people ask me how I stay motivated to get up for what I do and why I love Mondays (and I really do LOVE Mondays). It’s because I love what I do. When I stop loving it that will be my sign that it’s time to do something else.We will have several speakers that will share about infusing passion into your business at the Abounding Business Conference. If you are in the Phoenix area you can join us live and if not, you can join us via live streaming.
  1. A lack of FOCUS. This is clearly one of the top killers of small businesses. Sadly, I have made the mistake of trying to build multiple businesses simultaneously and it rarely works, especially for those who don’t have unlimited financial resources. I have also watched friends hurt (actually destroy) their businesses by “diversifying” and taking on additional business ventures or “opportunities. The best business opportunity is most likely the small business that you are building right now. Focus on building that business until it runs without you while paying you a nice salary. Then you will know that you are ready to expand.
  1. Failure to Acknowledge Market Changes. Industries change and unless you change with them, you might find yourself out of business. I recall when the travel industry started to be impacted by the growth of online travel companies. There were some who thought they would still be able to run traditional travel agencies, and others who embraced the web and moved their businesses towards serving customers through the Internet. It’s no secret who didn’t make it. Watch for trends in your industry, stay on top of them, and don’t get left behind.
  1. Lack of Sales. While I don’t agree with everything Mark Cuban has to say, one of his “12 Rules for Startups” is “Sales Cures All” and that one I agree with. If you have sales (and proper margins) you are making money and earning profits. These profits will help you fund growth without borrowing money – which costs both time (to acquire) and money (in interest paid back). To produce sales, you need to generate leads and manage your pipeline well. Marketing often produces leads, however moving a prospect from a lead to a sale takes a consistent effort.


  1. You Do Not Differentiate. Can you answer the question “why would someone do business with you instead of a competitor?” Is the answer compelling enough for your prospects to take action? If it is, great! You are on the right track and probably seeing growth in your business. If you are not seeing the growth you would like, take a hard look at your business and make sure you have a strong differentiator and that you are communicating that in your marketing efforts.
  1. Lack of Leadership. Football legend Vince Lombardi appropriately said, “Leaders are made, they are not born” and businesses need leadership to survive. Many business owners fail to make developing their leadership skills a high enough priority. This can result in failing to effectively manage and communicate with staff members, partners, and other stakeholders, which can ultimately damage the business. A lack of leadership in business can also impede a business from attaining their goals due the inability to train future leaders for the organization.
  1. Lack of Financial Planning. Surely you’ve heard the term “start a business on a shoestring” and while it sounds catchy, it’s not fun when the shoestrings break. Often times startup entrepreneurs don’t do enough planning to understand precisely how much money they need to launch the business effectively and may run out of money before they even get it off the ground. Additionally, many don’t plan for not having sufficient income for the first 6 to 12 months and this often leads to stress resulting in “doing anything for a buck” as opposed to sticking with the business plan.We will have two finance experts at our event and you will glean lots of wisdom from them regarding taxes, accounting, and overall fiscal management. You won’t want to miss the conference!
  1. Not Implementing Systems & Processes. Systems are powerful because they are what often allow a business to run smoothly without having to invent the wheel with every customer engagement. There are out of the box systems that you can use such as QuickBooks to help with financial management, and there are also industry specific systems such as tools that help health practitioners run successful practices.It is also critical to document the processes that are related to the systems you use. This will help as you bring on new employees by reducing training time and allowing your customers to experience the same level of service because your staff can follow the procedures that your customers are accustomed to.Without systems and processes, you may find yourself working harder than you should and perhaps even approaching burnout. Additionally, you might find it hard to keep employees because they won’t have the direction they need, nor will you have the time to invest in showing them the steps that should be documented. Lastly, your customer service may suffer if an employee is left to “figure out the process” and it results in a less than desirable customer experience or something different than the customer is used to.
  1. Hiring the Wrong People. I heard a saying once with regard to hiring, “hire slow, fire fast.” Let’s focus on the hiring slow part. You really want to vet the people you are going to bring into your organization. Make sure they have the skills they say they have (test them). Call their references and learn something about them from their past. Be cautious when hiring friends and family; sometimes they will not know how to manage the “work versus personal” balance and the will expect different treatment. Other times it can create internal conflict, especially if favoritism appears to be taking place.
  1. No Business or Marketing Plan. Many small business owners have the misunderstanding that you only need a business plan if you are going to raise money. The reality is that a business plan will help you drive your growth and keep you focused on achieving your goals. Within your business plan, you should have a marketing plan which details who your target customer is and how you are going to reach them.
  1. Lack of Belief System. What if I told you that your success had more to do with your mindset and beliefs that you realize? Well, it is true that we can have limiting beliefs that hold us back in business and in life (and we may not even realize it). Furthermore, having a positive attitude simply attracts the good stuff in life. If you really want to go deep here and learn about the power of your subconscious mind, you need to be at the Abounding Business Conference to hear Dr. Matt Mannino – the subconscious expert – give you a new perspective that will allow you to see some pretty amazing shifts in your business and life in general.
  1. Poor Financial Management. As you are conducting business, it is critical to make sure that you are making a profit. I know it sounds silly, but you would be surprised to know that people often take money in and spend more than they take in without realizing it. It’s also common to undercharge, especially when you are starting out, so you need to make sure you know your numbers. Lastly, keep an eye on expenses. Over time, you might find that your monthly budget is increasing, so always make sure you know where every penny is going and don’t be afraid to cut any services you no longer need.
  1. Not Having Partners or Having the Wrong Partners. The subject of partners is a dicey one. If you try to grow a business all by yourself, it is a lonely and challenging road and you have only yourself to rely on. Taking on partners can be a great way to spread out the workload and risk, however having the wrong partner is definitely worse than struggling to do it all on your own.Let me clarify and say that there are two types of partners you many end up with. The first are actual partners that are part owners in the business with you. Ideally, all partners should invest the same amount of money in the business, or there will be an inequity and that alone can create ill feelings. I will also say that friends and family may not always make the best partners, but if you can make it work, it is a blessing.The second type of partner you will have are your strategic partners such as providers. These can kill your business as well if you are relying on them to fulfill a service and they let you or your customer down.In both cases, I recommend starting small and doing a small project together first before going all in.

This is one of the longest blogs post I’ve ever written and I hope you found it helpful. As a lifelong entrepreneur, I have encountered many of the challenges I described above. I have been blessed with great partners and great business outcomes. I have also had many hard lessons. My goal is to use these experiences to help others so they don’t have to suffer the heartache that I did. In fact, that is why our conference was created. We have a team of veteran entrepreneurs and business advisors who have been in the trenches for years and our goal is to see you not just survive, but to THRIVE in your business. It’s been said that roughly 95% of business fail within the first 5 years… we want to help you be in the 5% that make it.

I’d love to hear your thoughts, so feel free to comment below. I’d also love to meet you in person, so if you are able to make it to our conference on October 13th, I’d love to shake your hand and answer any questions personally.


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