The Top 10 Reasons Small Businesses Fail

The Top 10 Reasons Small Businesses Fail In Nigeria
The Top 10 Reasons Small Businesses Fail

Thousands of businesses are both started and shut down yearly. While everyone starts out because of the prospect of growing a successful business, 20% of those businesses that start up won’t make it past the first year. 50% of businesses fail within their first 5 years, and 75% fail within their first 10 years.

Several factors affect business failure and success. A lot of potential entrepreneurs see studying the factors that make businesses fail before they start their businesses, as jinxing the future. But it’s important that every potential and existing business owner knows these factors, in order to increase their chances of survival and eventual success. Without forehand knowledge of what could ruin your business’s chances of success, there’s an 80% chance the business has already failed. Knowledge is too valuable in any endeavor, and so, you must be fully aware of the reasons small businesses fail and adequately equip yourself for success.

See Also: 10 Amazing Small Business Growth Strategies


Here Are The Top 10 Reasons Small Businesses Fail:


1). Starting The Business For The Wrong Reasons:

A lot of people start businesses because they want to make a lot of money and get rich. Some do it because they want to be close to their families, and many others because they don’t want to answer to anyone else. Most people who start businesses because of these reasons end up failing in the short term. It goes beyond these mere reasons to want to start a small business. If you want to start a business because you have a passion for the service you want to provide, and would genuinely love what you’re doing, then you’re on track to becoming an entrepreneur. If you’re naturally independent, highly disciplined, smart, possess an abnormal drive, and want to change people’s lives, then you’d make a great entrepreneur. Small businesses fail when people start them for the wrong reasons.


2). Not Doing A Comprehensive Market Research:

Before you settle on the business idea you want to start up, you need to do a thorough research to know all the perks of the industry you’re venturing into; in and out. If you’re starting up because you’re following a trend and unclearly assuming the extravagant profits you’d make, then you’re setting yourself up for failure. Doing a market research involves determining if the market is saturated or not, if the potential profits are numbers you can settle with, if the marketing effort to scale is okay by you, and many other factors surrounding that industry. For example, imagine trying to get into the toothpaste business. You’d need to consider the cost of setting up, marketing, and a lot more. This market is a saturated one with people already having preferences for specific brands. If you were to get in now, you might burn through a lot of money trying to promote your brand, and eventually close down your business after a year or two.

Businesses fail because they mostly don’t do a comprehensive research about their industry before they get in. Do a thorough research, so you can know the hidden expenses, commitments, and all that needs to go into the business. This way, you’d be better prepared for success. If you would like an example of someone who did just this, then consider David Zaslav. He did a lot of thorough research and is now the CEO of Discovery Communications.

See Also: Step By Step Guide On How To Start A Business In Nigeria


3). Business Plan Problems:

Without a solid & realistic business plan, the only direction your business would head towards is failure. Your business plan will help you identify your target market, help you set goals, help you know what your business plans to achieve, and a lot more. Your business plan will outline the strategies you intend to use to claim your market, and would also explicitly help you understand if there’s a true need for the business you want to start. With a good business plan to work with, you’d have a success map to follow.

When businesses operate without a plan, they walk blind, and eventually fall into a ditch. Small businesses fail because they mostly ignore having a proper business plan, and prefer to just dive into the daily operations. When you skip any step, it’s always difficult to start again. Create a good business plan or your small business would eventually fold up in the full view of everyone.


4). Lack Of Adequate Business Startup Capital:

One major mistake a lot of business owners make is to start their businesses without adequate start up capital. People mostly underestimate what is required to start and grow a business. When the capital is miscalculated, the business owner always gets caught up in the heat. He/she gets to a point when the business can no longer grow but only decline. A part cause of this is also mostly based on a gross miscalculation of the revenue/profit expectations. A business owner estimates huge numbers on paper, but when the business takes off and the numbers that are reflected appear far lesser than estimated, trouble looms.

It’s always best to start any business with twice the capital you estimated would be sufficient to run the business. This way, when you run out of your proposed budget, you can supplement the unexpected expenses with your capital reserve. Also master your emotions. This is because, if the original revenue/profit figures you estimated are not what you expected, you can remain calm and try different marketing strategies till your business starts to grow. You can get information on how to raise more startup capital for your business here.

Never start a project without adequate resources.

See Also: How To Get Seed Funding For Your Small Business In Africa


5). Failing To Keep Your Expenses In Check:

Paying no attention to your business expenses is like ignoring a raging lion. It destroys everything in it’s path till there’s nothing in sight. One of the most common reasons businesses fail is because they incur a lot of debts, and have numerous uncontrollable expenses. If your business expenses aren’t checked from day one, your business would be on it’s way to the mud. If you survive your first year with a raging expenses sheet, then you know you experienced a miracle.


6). Bad Management:

A lot of research always sites poor management as a major cause of business failure. We would highly recommend investing in a business telecoms system such as to keep your communication between both customers and the business strong. Without the right team running the business and managing the phones, there would be a lot of irregularities constantly occurring and reoccurring. This also applies for the IT side of each business. Without the correct management of your IT, your business can fail. IT support is something that may need to be considered if this is the case. Every business poised for success must have expertise in buying, selling, finance, hiring & managing employees, and a lot more. The management team must be made of strategic thinkers with highly valuable skills that would eventually determine the business success.

A lackadaisical attitude among the management and staffs would mostly lead to poor customer service and employee incompetence which could ruin the business. Without strong managerial expertise in a small business, it’s bound to experience rough times and would end up a failure.

See Also: 7 Sure Ways To Cut Your Small Business Expenses And Increase Your Profit


7). Poor Choice Of Location:

Where is your business located? Are your ideal customers located in that area? Can they easily notice your business? If your business is a brick and mortar store, the location and it’s customer friendliness is highly important. Your business must be located at a place with the highest concentration of your target customers. If instead you run an internet business, it’s important you must be on the right social networks, have your items uploaded on the right online marketplaces, and a lot more. Don’t let a cheap rent or lease lead you to picking the wrong location for your business. The longer you remain in the wrong environment, the closer the end is for your small business.

See Also: How To Pick The Right Bank For Your Small Business


8). Growing Too Fast:

When your business is growing, generating revenue, and gaining acceptance, you begin to think about expansion to newer environments, cities, and larger locations. Where so many businesses get it wrong is they mistake rapid expansion for real growth. Without carefully studying new markets, doing intensive research, testing the waters, and many other activities before fully setting up in a new location, you may have already set the business up for failure. It’s important you take the right steps and not just take steps. “Direction is more important than speed”. If you’re expanding too fast without proper planning and research, it’s a matter of time before your finances totally sink your small business. Rapid expansions have destroyed so many million dollar businesses worldwide. Imagine what it would do to your small business. Take your time to grow, and you’d remain successful on the long run.

See Also: 5 Warning Signs For You To Immediately Stop A Business Expansion


9.) Underestimating Your Competition:

You can’t just run your business without keeping an eye open for your competition. There’s a reason they’ve got loyal customers. Find that reason and use it to your advantage to also gain theirs. Customer loyalty is not an easy feat to accomplish. You need to earn it. Watch your competition’s steps while you focus on acquiring more customers. This would keep you one step ahead of them.


10). Being Too Rigid & Failing To Change With The Times:

Times change, industrial revolutions come & go, and events take new tolls. If your business cannot be flexible enough to provide the trend that people want at a particular time, your business would eventually fail. What sells isn’t what you want, but what the customers want. Find out how their needs, taste, lifestyle, and more shifts, and properly place your business in whatever trend they find themselves. With this strategic marketing skill, your business would be poised for success.


With these reasons clearly stated, it’s mandatory that you check all these factors while you run your business. “Money comes and goes, but time only goes.” Checking your business against these points will ensure your time is not just only perfectly utilized but your return on investment becomes highly laudable.


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What are your thoughts on these 10 reasons small businesses fail? Let me know by leaving a comment below.


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Stan Edom
Stan Edom
I'm an entrepreneur with expertise in supply chain management, international trade, small business development, e-commerce, internet startups, renewable energy, and agriculture. I'm also a network engineer, I.T security expert, and computer programmer. In my spare time when I'm not working out at the gym, I try to solve problems people face in their everyday lives with whatever means necessary.

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