Why industries fail

A primary reason why small businesses fail is a lack of funding or working capital. In most instances a business owner is intimately aware of how much money is needed to keep operations running on a day-to-day basis, including funding payroll; paying fixed and varied overhead expenses, such as rent and utilities; and ensuring that outside vendors are paid on time. However, owners of failing companies are less in tune with how much revenue is generated by sales of products or services.

This disconnect leads to funding shortfalls that can quickly put a small business out of operation. A second reason is business owners who miss the mark on pricing products and services. To beat out the competition in highly saturated industries , companies may price a product or service far lower than similar offerings, with the intent to entice new customers. While the strategy is successful in some cases, businesses that end up closing their doors are those that keep the price of a product or service too low for too long.

When the costs of production, marketing, and delivery outweigh the revenue generated from new sales, small businesses have little choice but to close down. Small companies in the startup phase can face challenges in terms of obtaining financing in order to bring a new product to market, fund an expansion, or pay for ongoing marketing costs. While angel investors, venture capitalists, and conventional bank loans are among the funding sources available to small businesses, not every company has the revenue stream or growth trajectory needed to secure major financing from them.

Without an influx of funding for large projects or ongoing working capital needs, small businesses are forced to close their doors. To help a small business manage common financing hurdles, business owners should first establish a realistic budget for company operations and be willing to provide some capital from their own coffers during the startup or expansion phase.

It is imperative to research and secure financing options from multiple outlets before the funding is actually necessary. When the time comes to obtain funding, business owners should already have a variety of sources they can tap for capital.

The percentage of small businesses that fail within the first 10 years, according to the Small Business Administration. Another common reason small businesses fail is a lack of business acumen on the part of the management team or business owner. In some instances, a business owner is the only senior-level person within a company, especially when a business is in its first year or two of operation. While the owner may have the skills necessary to create and sell a viable product or service, they often lack the attributes of a strong manager and don't have the time to successfully oversee other employees.

Without a dedicated management team, a business owner has greater potential to mismanage certain aspects of the business, whether it be finances, hiring, or marketing. Smart business owners outsource the activities they do not perform well or have little time to successfully carry through. A strong management team is one of the first additions a small business needs to continue operations well into the future.

Lack of a business plan and an unwillingness to adapt the plan as challenges arise can create structural problems for a small company that are ultimately insurmountable. Small businesses often overlook the importance of effective business planning prior to opening their doors.

A sound business plan should include, at a minimum:. Management of a business encompasses a number of activities: planning, organizing, controlling, directing and communicating.

The cardinal rule of small business management is to know exactly where you stand at all times. A common problem faced by successful companies is growing beyond management resources or skills. No planning. As the saying goes, failing to plan is planning to fail. Having a comprehensive and actionable strategy allows you to create engagement, alignment, and ownership within your organization.

Comments 34 Comments chris says:. October 12, at pm. David says:. January 5, at pm. April 26, at pm. Joel says:. January 14, at am. Benard says:. May 29, at am. August 21, at am. Okpoh Sunday says:. August 26, at am. September 1, at pm. May 5, at am. Roger says:. January 18, at pm. Eric Daly says:. January 23, at am. April 29, at am.

Tyrone Bryant says:. June 9, at pm. Bul Garang says:. June 27, at am. Signing out of account, Standby There's a fierce tide of potential for failure in business. Half of all businesses won't make it to the five-year mark.

While startup life seems glamorous at best when it comes to dizzying valuations and unsustainable bubbles that help to prop up newly-formed businesses in the hottest sectors, the truth of the matter remains that 70 percent of all businesses with employees fail within 10 years.

According to the Bureau of Labor Statistics, this has less to do with the economic climate, but numbers do vary according to different industries. If you're a business that has employees, this should give you reason for alarm. Business failure is a harsh reality. While 80 percent will make it past that first-year mark, the rate begins to drop off substantially each year thereafter. Only about two-thirds of all businesses with employees are able to survive their second year.

The fifth year? Just half. Ten years out? Just 30 percent. That means that seven out of 10 businesses will fail within the year mark. However, as wild-eyed entrepreneurs looking to start a business , we don't think that way. We don't want to group ourselves in some category. That doesn't help, does it? Yet, ignoring that proverbial pound gorilla in the room won't make it go away.

Now, there are some specific reasons why these businesses are failing. There are certain things that they seem to overlook, ignore or push aside to the wayside, helping them to become just another statistic.

If you don't want this to apply to your business, there are some steps you need to take to avoid failure. Clearly, you won't fail unless you entirely give up. At the end of the day, it won't really matter how many times you fail Henry Ford's first two automotive efforts went bust if you hit it out of the park just one time. That's all. You could fail 20 times and reincarnate your business 21 times. If on the 21st time you make it, you didn't actually fail because you didn't give up.

Rather than brood theoretically here, let's look at the steps you need to take to avoid failure. If you don't want to be labeled as just another statistic, there are some ways to combat this. Most of that has to do with just how much you sweat the so-called small stuff. If you fail to pay homage to certain principles of success , and you don't put your customers first, the potential for failure skyrockets.

If you're an entrepreneur who's knee-deep in the trenches battling it out, or you're simply someone looking to enter the startup fray , then the looming prospect of failure is ever-present and always there to catch you when you're slipping. With so much demanding our time as business owners, it's easy to be caught off guard.

If you're not prepared for those often-occurring trials and tribulations, you could easily find yourself on the streets of failure. Now, if you're looking to avoid business failure, there are definitely some things you should being doing, and other things that you shouldn't be doing. Take heed of these 10 recurring reasons for why most businesses fail, and do your best to ensure that you address these before they address you.

Some might be easy to overlook. Others are usually rather obvious. Use social media, word of mouth, cold calling, direct mail, and other tried-and-true marketing techniques. Ensure you have a well-optimized online presence, develop lead generation and contact information capture techniques such as offering high-quality content on your site, a subscriber newsletter, and information giveaways.

Your business will fail if you neglect to stay in touch with your customers and understand what they need and the feedback they offer. Your customers may like your product or service but, perhaps they would love it if you changed this feature or altered that procedure. What are they telling you? Have you been listening? Or is the market declining? These are all important questions to ask and answer.

How to Avoid Losing Touch with Customers: A successful business keeps its eye on the trending values and interests of its existing and potential customers. Survey customers and do market research and find out what their interests are and keep abreast of changes and trends using customer relationship management CRM tools. Effective use of CRM can help keep your business from failing. Akin to leadership failure is building a company on a business model that is not sound, operating without a business plan , and pursuing a business for which there is no proven revenue stream.

The business idea may be good but failure may come in the implementation of the idea if there are no strategic guidelines in place. How to Build a Good Business Model: Research and review the way other businesses in the industry operate. Develop a complete business plan that includes financial forecasting based on predictable revenue, strategic marketing, and challenge management solutions to overcome potential obstacles and competitor activities.

Create a milestone chart with specific tasks and objectives assigned along the timeline so you can measure success, solve problems as they occur, and stay on track. A sound business model that incorporates best practices can help your business avoid failure.