Small Business Failure

Don't Let Business Die Young Part 2

Written by Jay Shapiro for Gaebler Ventures

It might seem negative to think about the possibility of failure when you're starting up a business. But by doing so you are more likely to be able to avoid the main pitfalls that put many well-intentioned concerns out of action. Once again, just as deadly sins come in batches of seven, so too do the reasons businesses fail.

In my initial article on how to avoid business failure, I discussed entrepreneurial characteristics and motiviations. Let's now take a look at some additional drivers of business outcomes.

Three important determinants of business success or failure are management skill, funding and location. Let's take a deeper look at each of these key failure factors.

Bad Management

Poor management is often cited as one of the primary causes of business failure.

Very often, new business owners lack the relevant business and managerial proficiency in such areas as:

  • Finances
  • Purchasing and selling
  • Manufacturing
  • Hiring/managing employees

Unless the business owner concedes that a given area isn't his/her forte, then they risk failure. It's far better to recognize the problem area and seek help from someone with expertise if you are not up to a task yourself.

Neglecting your business will also have dire consequences.

Particular attention should be given to the regular study, organization, planning and control of all the business's operations. Just because a business is set up and running, that doesn't mean there is no longer a need to examine market research results and customer data. These are often areas which get abandoned once a company has been established.

Generally speaking, the successful manager is a person with good leadership qualities who forms a work environment that will encourage productivity. He/she will be skilled at hiring competent staff and training them when necessary and he/she is comfortable with delegating. The good leader is a skilled strategic thinker, one who is able to visions realities, capable of confronting change, making transitions, and envisioning new potential for times to come.

Lack of Money

A frequent but fatal mistake many businesses make is that of not ensuring they have adequate operating funds. Many business owners seriously underestimate the amount of money that is needed. Because of this they are obliged to close shop almost before they have begun.

Often the new business owner has an inflated idea of how much revenue they will initially generate from selling.

It's crucial that you carefully calculate how much capital your business will need. And it's not just start up costs that need to be considered here, but also the costs associated with staying afloat in business. It's vital to take into account that a great many businesses need a year or even two to really find their feet and get established. During this period, you need adequate funds to pay all business costs until such a time as your sales can revenue can cover them.

Wrong Place

We hear the term "location, location, location" bandied about so much these days that it's become almost hackneyed. But, where you are located is a critical element regarding the possible success or failure of a business.

A good location might actually give a struggling business a better chance of survival, but a bad one will almost certainly do untold damage to a well-managed company.

Consider the following:

  • Where do your customers live and shop?
  • What is traffic flow like in the area - is parking a problem?
  • What is the location of your competitors?
  • What condition is the building in, how does this stack up in terms of safety regulations?
  • Are there any incentives for start-up business to locate in specific areas?
  • The culture and history of the location. Its community character and possible receptiveness to your new business in the neighborhood.

Any Other Reasons Businesses Fail?

With all these potential points of failure, it's amazing that any businesses make it. But we are not done yet. In my third and final article in this series, I'll cover yet a few more reasons that businesses don't succeed.

Jay Shapiro is a freelance writer based in the UK. Jay has a particular interest in the emotive aspects of the entrepreneur's character. "Alongside the nuts and bolts of business, the character of the person is often the ingredient responsible for success."

Share this article

Additional Resources for Entrepreneurs

Lists of Venture Capital and Private Equity Firms

Franchise Opportunities


Business Glossary


Conversation Board

We greatly appreciate any advice you can provide on this topic. Please contribute your insights on this topic so others can benefit.

Leave a Reply

Questions, Comments, Tips, and Advice

Email will not be posted or shared
Code Image - Please contact webmaster if you have problems seeing this image code

Problem Viewing Image? Load New Code