Starting a Business

The Root Cause of Failure in Entrepreneurship

Written by Chukwuma Asala for Gaebler Ventures

It is a well-known fact that all ninety-five percent of businesses fail within the first five years of inception. This article will take a look at some of the common pitfalls to succeeding as an entrepreneur and what to avoid when going through those first five years.

Most businesses are guaranteed to fail within the first five years for a number of different reasons.

The sad reality, however, is that most of these businesses fail due to their having been founded by inexperienced overly-enthused entrepreneurs.

This is usually the single most important reason for business failure early in a business.

The first step to fixing a problem is identifying what it is. So let's take a look quickly at some of the reasons why most businesses fail. If you are looking to start a business or have already started a business of your own, you can use these tips to hopefully avoid some of these pitfalls in your own business career.

Wrong Motivation

As a business owner you are hopefully starting for the right reasons. I cannot tell you what your reason should be but I can recommend it be something that you think about often, something that perhaps gets your emotions going, something other than just money. For most people it usually is a shock that most successful people are more passionate about something else that is dear to them which is why they are successful at what they do which is also why they make a lot of money.

Here's the big takeaway: if you start something for the wrong reasons, you will stop for the wrong reasons. If your only intention for getting into business is to make lots of money then your resolve and mental toughness will be test greatly if after five years you haven't even turned a profit. Attach the monetary value that you are shooting for to something bigger. Maybe you want to build a school, or donate money to charity, or retire your mother, something that will keep you going when life hits you upside the head.

Poor Management

Many a report on business failures cites poor management as one of the biggest reasons for failure. New business owners frequently lack relevant business and management expertise in almost all business functions and do not have enough capital to hire the necessary people to take care of what they do not know. Unless they recognize what they don't do well, and more importantly seek help, business owners may soon face disaster.

A successful business owner is also a good leader who creates a work climate that encourages productivity as well as innovation. You must be skilled at hiring competent people, training them and able to empower people to go above and beyond the call of duty. A good leader is also skilled at strategic thinking, able to make a vision a reality, and able to confront change, make transitions, and envision new possibilities for the future.

A tall order for someone who just gets into business, which is exactly why most people are not able to defeat the battle of attrition that comes with new business.

No Mentorship and Lack of Experience

A lot of the setbacks and hiccups, failures and hurdles that are encountered along the way can either be avoided or alleviated with the help of a business mentor. If you are starting out a business entirely on your own you might as well have started the journey five years ago blind-folded.

A mentor can help you identify potential pitfalls as well as confirm certain setbacks you will face if you continue what you are doing. They are an invaluable asset that you must seek to have in your corner if you want to be successful in business and at least get your business off the ground.

Failure to Change with the Times

The only constant in business is change. The ability to recognize opportunities and be flexible enough to adapt to changing times is a key ingredient to surviving and even prospering in the toughest business climate.

The challenge is that most new entrepreneurs are so excited about their idea that they fail to see some of the cons of pursuing it. They choose to ignore their competition that most times are more familiar with the industry and are leveraging the changes in the marketplace. Be sure that as you pursue your business venture you pay respect to the economy before you and the competitors you currently have. They have been running the marathon longer than you have and are still running.

That is a good enough reason to pay attention to what they are doing as well as how they are reacting to the economy.

Inadequate Goal-Setting

Business owners often fail to establish clear goals and create plans to achieve those goals, especially before starting out, when they fail to develop a complete business plan before launching their company. You can't achieve your goal if you do not have one. Having a goal gives you purpose and direction.

Goals act as your life map. They are like the dashboard on your car and chart your course and tell you when you have arrived at your destination. Most young entrepreneurs focus too much on the details versus just mapping out the end of the journey. You needn't worry about how you will achieve your goals. Simply concern yourself with the process of setting short term, medium term, and long term goals.

A written goal is infinitely more likely to be achieved that one that is merely kept in your thoughts or spoken aloud. Write your goals down and review them consistently.

Chukwuma Asala is an international student from Nigeria who is studying to earn an MBA from the State University of New York in Albany. He has analyzed more than 20 industry case studies throughout his education thus far, and hopes to bring some of his business knowledge to

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What's your take on the why small businesses fail so often?

  • Kristen posted on 2/13/2010
    Great Article. I started a business a year ago. However, I started researching and planning 2 years before I did any operating. I even moved locations in that 2 years because I thought the market would be better where I am located now. I also knew I needed help and someone to balance out my very Type A personality and who could be a good finance person. I met a girl I thought would be perfect. After a couple meetings, she was very excited. We met a few more times after that and then I didn't hear from her again for weeks. I was working between 80 and 100 hours a week doing EVERYTHING and this girl I promised a significant percentage of my business to just handed out her business card and made sure to tell everyone she was the owner. However, I was so busy working and before I knew it, 5 months had passed. We sat down and I gave her an ultimatum. She made a bigger effort, but it was still nothing compared to what a part owner should be contributing. The lesson is this: BE VERY CAREFUL OF PARTNERS. I should have ended this relationship months ago, but as it turns out, she is a great sales person (fooled me) but definitely not management material. This has been the biggest burden and somehow with divine intervention and lots of support from my family, I have managed to keep this thing moving in a very successful direction. If I had been less prepared, this would have destroyed my business. Not everyone is willing to make the sacrifice, has the life experience and handing out business cards doesn't make you a successful business owner.
  • db930 posted on 2/23/2010
    Kristen, I really wish I could talk to you. I am in the same BOAT. Would love to hear what you did to keep going.
  • segun posted on 7/26/2010
    I began a magazine business around 2005-2006 and by late 2006, I closed shop after investing personal, borrowed and family initial capital of about N500,000. I thought I did some research but my zeal and optimisim clowded my reasoning. The 1st edition was a diserster, little or no sale. like Kristen, I brought a friend who i assumed to be a good writer on board with profit cut, he intoroduced others that came help with sales, distribution and ad sourcing. They all proved to be a boarding. I couldnt let go my N500,000 without a fight so i got a girl on commission around the office i borrowed. After much motivation, the girl brought an Advert. At this time, there the money was not enough for anything but i Had to put my managerial instinct in play. I cut all unnecesary cost and I became, the editor, writer, reporter, the designer, printer, distributor and joined in advert chasing. what a way to be closer to death. The stress was toooo much. we managed to publish 2nd, 3rd, 4th and 5th edition before i succumb to family presure. I closed shop late 2006. I Have since then started a printing and branding business. I design myself and print.
  • ron posted on 9/15/2010
    I have found a MAJOR ISSUE for MANY small businesses is a lack of marketing knowledge. Businesses open because they know their product/service inside & out, but have little IF any expertise on properly publicizing/marketing their product to get traffic/sales. So many owners think...yellow page ad & open the door is their marketing solution. Not in this economy. They need to budget for "expert" marketing strategy that will give them the "biggest bang" for their money. To avoid becoming part of the small business failure statistics, they need to make sure they are advertising/marketing to the right people for their product/service.

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