causes of business failure essay

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Why Start-ups Fail

• Tom Eisenmann

If you’re launching a business, the odds are against you: Two-thirds of start-ups never show a positive return. Unnerved by that statistic, a professor of entrepreneurship at Harvard Business School set out to discover why.

Based on interviews and surveys with hundreds of founders and investors and scores of accounts of entrepreneurial setbacks, his findings buck the conventional wisdom that the cause of start-up failure is either the founding team or the business idea. The author found six patterns that doomed ventures. Two were especially common:

Bad bedfellows.

Other parties besides the founders—like employees, strategic partners, and investors—can play a major role in a firm’s demise. Quincy Apparel, for instance, was undone by weak support from its investors and factory partners and inflexible employees.

False starts.

Many overlook a crucial step in the lean start-up process: researching customer needs before testing products. Like Triangulate, an online dating start-up, they keep rushing to launch fully functional offerings that don’t fit any market needs.

The good news is, firms can avoid that pitfall by rigorously defining the problem they want to solve, getting one-on-one feedback from potential customers, and validating concepts with real customers in real-world settings.

It’s not always the horse or the jockey.

Idea in Brief

The light bulb.

Most start-ups don’t succeed. A foremost expert on entrepreneurship realized he didn’t understand why.

The Autopsy

An examination of start-up failures revealed two common mistakes by founders: failing to engage the right stakeholders, and rushing into an opportunity without testing the waters first.

Founders should take conventional entrepreneurial advice with a grain of salt, because it often backfires. They also should find the right investors and management team and avoid giving short shrift to customer interviews and research.

Most start-ups don’t succeed: More than two-thirds of them never deliver a positive return to investors. But why do so many end disappointingly? That question hit me with full force several years ago when I realized I couldn’t answer it.

• Tom Eisenmann is the Howard H. Stevenson Professor of Business Administration at Harvard Business School, the Peter O. Crisp Faculty Chair of the Harvard Innovation Labs, and the author of Why Startups Fail: A New Roadmap for Entrepreneurial Success (Currency, 2021).

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Business Failures: Reasons and Recommendations Report

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Introduction

Reason for business failure, source of advice when staring a business, how such services might help me, reasons for a business’s failure.

A report released by Bloomberg revealed that 8 out of 10 businesses fail within one and half years after their creation. There are several lessons that business people and entrepreneurs can learn from the colossal amount of failure experienced in the creation of businesses. They can apply the insights they gain from the failures to improve their businesses and prevent them from crashing and failing. Studies have shown that successful companies have certain characteristics in common. These include great customer service, innovative products and services, competitive pricing, focus on customer needs, differentiation in the market, superior business models, and articulate communication of value propositions.

If I were to start a business, the main reasons why it would fail include poor planning, focus on profits rather than customers, and poor leadership. Many businesses fail because people do not create short-term and long-term plans (Finlab, 2012). It is important to plan and decide the milestones that should be achieved in the next few months and the next few years. The success of the business would depend on the complete understanding of customers about their tastes, likes, dislikes, and needs (Finlab, 2012). It would be important to provide products and services that meet the needs and demands of customers (Bovee & Thill, 2014). Otherwise, the business would fail because of providing products that customers do not need. The dreams, values, and goals of customers are critical in the creation and running of a successful business (Bovee & Thill, 2014). Effective leadership includes aspects such as employee and financial management, quality decisions, training and development, and timely problem-solving (Finlab, 2012). Business failure could be avoided by creating both short and long-term goals, creating business goals based on the needs of customers, and hiring a competent individual to run the business (Finlab, 2012).

Three sources of information when starting a business include the internet, print, and television. Technological advancement has turned the Internet into the vastest and reliable source f information. Several subscription services allow users to access databases that provide information on how to start and run a business effectively. The Internet is a great source because it contains information that includes market demographics, case studies of business success and failure, financing, tax compliance, banking, registration of companies, and government laws and regulations (Smith, 2012).

Print sources such as books, magazines, and pamphlets are also a great source of information on how to start a business. Magazines and newspapers such as Wall Street Journal , Business Week , Fortune , Forbes , and Nation’s Business provide information on a wide range of topics regarding the proper running of businesses (Smith, 2012). These sources can provide information on aspects of starting a business such as creating a good business plan, financing, laws and regulations, effective business models, and what to avoid.

Television is also a source of business information even though it is not as extensive and reliable as print media and the Internet. Several programs are devoted to businesses that could provide useful information. These programs cover stories of businesses that succeeded and those that failed. They also invite professionals to talk about how to start and run a successful business enterprise.

If I wanted to start a business, the aforementioned sources of information would help me in various ways. First, they would supply information on all the requirements of starting a business. For instance, they would provide information on how to register a company, get financing, and act within the limits of the law (Smith, 2012). Besides, they would be useful when developing a business plan. Second, they would supply information on the common mistakes that en5erpreeurs make and how to avoid them when building a business. Gaining insights from entrepreneurs who failed is would be an integral part of learning to avoid making similar mistakes in my business (Smith, 2012). Third, the services would educate me and provide insights on making effective decisions. For instance, they would teach me about choosing a business structure, choosing a business location, business financials, filing and paying taxes, and hiring and retaining employees.

I have shopped at several stores and eaten in restaurants that led me to conclude that they were not going to make it in the business world. The reasons that prompted me to make that conclusion included poor customer service, bad location, and lack of competitive advantage.

The places I visited had poor customer service. The attendants were rude, slow, and inattentive. The service was poor and the attendants were unreliable. Another reason was the bad geographical location. I once shopped at a store whose demographics caused me to conclude that it would fail. It had low foot traffic, was inaccessible, and had inadequate parking, and there were few businesses and services in the vicinity. A larger competitor that offered cheaper products and was accessible was a few just blocks away. The store lacked a competitive advantage. It was small, poorly located, and offered products at higher prices than the larger and conveniently located competitor. In many cases, the location of competing companies matters in the success of a business because of comparison shopping. This is beneficial only if the business offers products of a higher quality than its competitor and at a lower price. The store was offering products of similar quality but at a higher price. Lower prices and ample parking space gave the competitor a competitive advantage.

Many businesses fail because of factors such as lack of planning, poor leadership, lack of differentiation, inability to learn from failure, lack of capital, and ignoring customer needs. Entrepreneurs need to develop certain skills and gain knowledge on how to run a business before starting one. Sources of information include print media, television, and the Internet. Successful businesses provide quality customer service, plan properly, and choose locations that are convenient to customers.

Bovee, C. L., & Thill, J. V. (2014). Business in action (8th ed.). New York, NY: Pearson.

Finlab, D. (2012). Why startups fail: And how yours can succeed . New York, NY: Apress.

Smith, J. (2012). Smarter business start-ups: Tips and techniques to start your dream business . Oxford, England: Infinite Ideas.

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#2 inadequate management, #3 ineffective business planning, #4 marketing mishaps.

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The 4 Most Common Reasons a Small Business Fails

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Many small businesses in a broad range of industries perform well and are profitable but a study by the U.S. Small Business Administration (SBA) that covered the years 1994 through 2020 revealed that only 67.7% of new small businesses survived their first two years. The five-year survival rate was 48.9% and the 10-year rate was just 33.7%. Only 25.6% of new small businesses made it to 15 years.

The most common reasons that small businesses fail include a lack of capital or funding, retaining an inadequate management team, a faulty infrastructure or business model, and unsuccessful marketing initiatives.

Running a business is not for the faint of heart. Successful business owners must possess the ability to mitigate company-specific risks while simultaneously bringing a product or service to market at a price point that meets consumer demand levels.

Key Takeaways

• Running out of money is a small business’s biggest risk.
• Owners often know what funds are needed day to day but they're unclear as to how much revenue is being generated.
• Inexperience with managing a business or an unwillingness to delegate can negatively impact small businesses.
• A poorly visualized business plan can lead to ongoing problems when the firm is operational.
• Poorly planned or executed marketing campaigns or a lack of adequate marketing and publicity are among other issues that can drag down small businesses.

A primary reason why small businesses fail is a lack of funding or working capital . A business owner is usually painfully aware of how much money is necessary to keep operations running on a day-to-day basis from funding payroll, paying fixed and overhead expenses such as rent and utilities, and ensuring that outside vendors are paid on time. Owners of failing companies are less in tune with how much revenue is generated by sales of products or services, however.

This disconnect can lead to funding shortfalls that can quickly put a small business out of operation.

Another reason that small businesses fail is that owners miss the mark on pricing products and services. Companies may price a product or service far lower than similar offerings with the intent to entice new customers and beat out the competition in highly saturated industries .

This strategy can be successful in some cases but businesses that end up closing their doors are often those that keep the price of a product or service too low for too long. Small businesses have little choice but to close down when the costs of production, marketing, and delivery outweigh the revenue generated from new sales,

The Small Business Administration offers a variety of loan programs to help small businesses find loans for a variety of needs.

Small companies in the startup phase can also face challenges in obtaining financing to bring a new product to market, fund an expansion, or pay for ongoing marketing costs. Angel investors, venture capitalists, and conventional bank loans are among the funding sources available to small businesses but not every company has the revenue stream or growth trajectory necessary to secure major financing from them.

Small businesses can be forced to close their doors without an influx of funding for large projects or ongoing working capital needs. 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's imperative to research and secure financing options from multiple outlets before funding becomes necessary. Business owners should already have a variety of sources they can tap for capital when the time comes to obtain funding.

Another common reason small businesses fail is a lack of business acumen on the part of the management team or owner. A business owner is the only senior-level person within a company in some cases, especially when a business is in its first year or two of operation.

The owner may have the skills necessary to create and sell a viable product or service but they often lack the attributes of a strong manager and don't have the time to successfully oversee other employees. A business owner has greater potential to mismanage certain aspects of the business without a dedicated management team whether it be finances, hiring, or marketing.

Most small businesses start with the entrepreneur's savings or money from friends and family and then look for outside financing to grow.

Smart business owners outsource the activities they don't 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. It's important for business owners to feel comfortable with the level of understanding each manager has regarding the business’ operations, current and future employees, and products or services.

Small businesses often overlook the importance of effective business planning before opening their doors. A sound business plan should include:

• A clear description of the business
• Current and future employee and management needs
• Opportunities and threats within the broader market
• Capital needs, including projected cash flow and various budgets
• Marketing initiatives
• Competitor analysis

Business owners who fail to address the needs of the business with a well-laid-out plan before operations begin are setting their companies up for serious challenges. A business that doesn't regularly review an initial business plan or one that's not prepared to adapt to changes in the market or industry meets potentially insurmountable obstacles.

Entrepreneurs should have a solid understanding of their industry and competition before starting a company. A company’s specific business model and infrastructure should be established long before products or services are offered to customers and potential revenue streams should be realistically projected well in advance. Creating and maintaining a business plan is key to running a successful company for the long term.

Business owners often fail to prepare for the marketing needs of a company in terms of capital required, prospect reach, and accurate conversion-ratio projections. It can be difficult to secure financing or redirect capital from other business departments to make up for the shortfall when companies underestimate the total cost of early marketing campaigns .

Getting your company's name in front of your customers is a crucial aspect of any early-stage business. Companies must ensure that they've established realistic budgets for current and future marketing needs.

Having realistic projections in terms of target audience reach and sales conversion ratios is critical to marketing campaign success as well. Businesses that don't understand these aspects of sound marketing strategies are more likely to fail than companies that take the time to create and implement cost-effective, successful campaigns.

What Is the Small Business Failure Rate?

Approximately 32% of small businesses fail in the first two years, about 51% fail within five years, about 66% fail within 10 years, and roughly 74% fail within 15 years.

What Are Some Signs That Your Business Is Failing?

Signs that a business is failing include small levels or lack of cash, inability to pay back loans on time, inability to pay suppliers on time, customers that pay late, loss of clientele, and an unclear business strategy.

What Is a Saturated Market?

The market for a product is said to be saturated when the product is no longer in demand. Its availability is significantly greater than customer demand. This can happen when high quantities of a specific product are manufactured or offered, more than there are consumers to purchase them. They effectively begin piling up and gathering dust on store shelves.

New businesses face several challenges when they first open their doors. Statistics gathered by the U.S. Small Business Association reveal a daunting failure rate. Running out of money and lack of experience are the greatest risks but new business owners have options to increase their odds of success. The Small Business Association offers and supports several loan programs. Seeking advice and education from experienced professionals can help, too.

U.S. Small Business Association Office of Advocacy. " Frequently Asked Questions ." Page 3.

U.S. Small Business Association. " Loans ."

CFI Education. " Market Saturation ."

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100 Business Failure Essay Topic Ideas & Examples

Inside This Article

Title: 100 Business Failure Essay Topic Ideas & Examples

Introduction: Business failures are an essential part of entrepreneurship. They provide valuable lessons and insights into the challenges faced by companies, the reasons behind their downfall, and the strategies that could have potentially saved them. Writing an essay on business failures allows students and researchers to analyze real-world scenarios, understand the complexities of the business world, and develop critical thinking skills. This article presents 100 business failure essay topic ideas and examples to inspire and guide individuals in exploring this intriguing field.

The rise and fall of Enron: Analyzing the corporate fraud that led to Enron's bankruptcy.

The impact of the 2008 financial crisis on small businesses.

The downfall of Kodak: How the digital revolution disrupted the photography industry.

Evaluating the reasons behind the bankruptcy of Toys "R" Us.

Learning from the failure of Blockbuster in the face of emerging streaming services.

The collapse of Lehman Brothers: The repercussions on the global economy.

The failures of Nokia: A case study on missed opportunities in the smartphone market.

Analyzing the downfall of BlackBerry due to fierce competition.

The decline of Sears: Understanding the impact of e-commerce on traditional retail.

The implosion of WorldCom: Examining the largest accounting fraud in U.S. history.

The bankruptcy of General Motors and its subsequent restructuring.

The demise of Borders: How digital books disrupted the traditional bookstore industry.

The failure of Pets.com: A lesson on the challenges of e-commerce in the late 1990s.

The downfall of Xerox: Analyzing missed chances in the copier and printer market.

The collapse of Bear Stearns: Examining the role of risky investments in the financial crisis.

The reasons behind the failure of the DeLorean Motor Company.

The impact of the dot-com bubble on various internet-based businesses.

The fall of Pan Am: Understanding the challenges faced by legacy airlines.

Analyzing the bankruptcy of Circuit City in the era of online electronics retail.

The decline of MySpace and the rise of Facebook: Lessons in adaptability and innovation.

The failure of the Concorde: Examining the difficulties in sustaining supersonic travel.

The downfall of the Hummer brand: Analyzing changing consumer preferences.

The collapse of the American Apparel brand: A case study on ethical controversies.

The reasons behind the failure of the Segway personal transporter.

The bankruptcy of Lehman Brothers and the lessons learned for financial institutions.

The decline of Yahoo: Understanding missed opportunities in the search engine industry.

Analyzing the failure of the New Coke launch and its impact on Coca-Cola.

The downfall of Borders Group Inc.: Examining the challenges faced by brick-and-mortar bookstores.

The collapse of SunEdison: Understanding the challenges of the renewable energy market.

The failure of Pets.com and its implications for the pet industry.

The reasons behind the bankruptcy of General Motors and the subsequent government bailout.

The decline of Blockbuster and the rise of Netflix: Analyzing changing consumer behaviors.

The downfall of Lehman Brothers and its role in the global financial crisis.

The collapse of Enron and its impact on corporate governance and accounting practices.

Analyzing the failure of the DeLorean Motor Company and the challenges of the automotive industry.

The reasons behind the fall of WorldCom and its impact on telecommunications.

The decline of Sears and the challenges facing department stores in the digital age.

The failure of Quibi: Understanding the challenges of launching a streaming service.

The downfall of Thomas Cook: Analyzing the impact of online travel agencies.

The collapse of Arthur Andersen and the consequences for the accounting profession.

Analyzing the failure of Kodak to adapt to digital photography.

The reasons behind the bankruptcy of Toys "R" Us and the impact on the toy industry.

The decline of BlackBerry and the challenges of competing in the smartphone market.

The downfall of Nokia and its missed opportunities in the mobile phone industry.

The failure of MySpace and the rise of social media platforms like Facebook and Instagram.

The collapse of Blockbuster and the challenges faced by traditional video rental stores.

Analyzing the reasons behind the demise of Pan Am and the impact on the airline industry.

The decline of Xerox and missed opportunities in the printing and document management sector.

The failure of Circuit City and the challenges of electronics retail in the digital age.

The downfall of American Apparel and the implications of ethical controversies in the fashion industry.

Conclusion: Exploring business failures through essay writing offers valuable insights into the complexities of the corporate world. By focusing on various examples and topics, students and researchers can better understand the reasons behind these failures, identify crucial lessons, and develop strategies to prevent similar mistakes. The 100 business failure essay topic ideas presented in this article provide a starting point for individuals to delve into the fascinating world of business failures and gain a deeper understanding of the dynamics that contribute to success and failure within the business landscape.

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More Like this

Ten common causes of business failure.

Failure is a topic most of us would rather avoid. But ignoring obvious (and subtle) warning signs of business trouble is a surefire way to end up on the wrong side of business survival statistics.

What’s the survival rate of new businesses? Statistically, roughly 66 percent of new businesses survive two years or more, 50 percent survive at least four years, and just 40 percent survive six years or more. This is according to the study “Redefining Small Business Success” by the U.S. Small Business Administration.

Does Your Strategy Suck? Get this Free Guide to Find Out.

Learn how to avoid the most common pitfalls in strategic planning here .

With this information as a backdrop, we’ve put together a list of 10 common reasons businesses close their doors:

• Failure to understand your market and customers. We often ask our clients, “Where will you play and how will you win?”. In short, it’s vital to understand your competitive marketspace and your customers’ buying habits. Answering questions about who your customers are and how much they’re willing to spend is a huge step in putting your best foot forward.
• Opening a business in an industry that isn’t profitable. Sometimes, even the best ideas can’t be turned into a high-profit business. It’s important to choose an industry where you can achieve sustained growth. We all learned the dot-com lesson – to survive, you must have positive cash flow. It takes more than a good idea and passion to stay in business.
• Failure to understand and communicate what you are selling. You must clearly define your value proposition. What is the value I am providing to my customer? Once you understand it, ask yourself if you are communicating it effectively. Does your market connect with what you are saying?
• Inadequate financing . Businesses need cash flow to float them through the sales cycles and the natural ebb and flow of business. Running the bank accounts dry is responsible for a good portion of business failure. Cash is king, and many quickly find that borrowing money from lenders can be difficult.
• Reactive attitudes . Failure to anticipate or react to competition, technology, or marketplace changes can lead a business into the danger zone. Staying innovative and aware will keep your business competitive.
• Overdependence on a single customer. If your biggest customer walked out the door and never returned, would your organization be ok? If that answer is no, you might consider diversifying your customer base a strategic objective in your strategic plan.
• No customer strategy . Be aware of how customers influence your business. Are you in touch with them? Do you know what they like or dislike about you? Understanding your customer forwards and backwards can play a big role in the development of your strategy.
• Not knowing when to say “No.” To serve your customers well, you have to focus on quality, delivery, follow-through, and follow-up. Going after all the business you can get drains your cash and actually reduces overall profitability. Sometimes it’s okay to say no to projects or business so you can focus on quality, not quantity.
• Poor management. 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. If you don’t know where you are going, you will never get there. Having a comprehensive and actionable strategy allows you to create engagement, alignment, and ownership within your organization. It’s a clear roadmap that shows where you’ve been, where you are, and where you’re going next.

Running an organization is no easy task. Being aware of common downfalls in business can help you proactively avoid them. It’s a constant challenge. We know, but it’s also a continuous opportunity to avoid becoming one of the statistics.

36 Comments

This article is apt for everyone who’s planning to make a business, i admire this article so much ths more clear, understandable and realistic. I really appreciate this information, thanks for those people behind this informative thing. thumbs up!!!!!!!!!!

I have been looking at countless articles on why businesses fail. This one seems to make the most sense.

Thanks! David

Wonderful article thank to those behind this am really happy to read this article,u will be blessed in Jesus name (amen).

Awesome article

The article is very helpful and I have been assisted by it keep posting helpful thing.

I found this useful to us in Africa; especially Uganda

why is small business fail

Item number 8 is an eye opener for me thanks. More grace!

I found this useful to us in Africa; especially Uganda lol

mind opening article keep on posting

Cash flow or lack thereof is the #1 thing I evaluate when helping a company turn their business around. I am not disagreeing with any one of the 10 but unless you have enough cash you may not have enough runway to fix any one of the other 9 items to turn the situation around.

I thought I would have a look at the article and then add something that was missed as I have good understanding of these issues. Well darn and hats off Todd Ballowe. You have covered all the issues in a very tightly worded manner. Well done.

your article is good. keep on posting such important stuff. the information is helpful. thank you very much.

Right on point about why some businesses fail??

This is the richest article I have ever read while doing my research on the cause of business failure.

thank to the author, Keep up.

am very grateful about this article

The points are well put and straight to the point.

Thanks to the author we are now aware of whats causes our business to fail .

Sir/Madam! The article is fine. If you don’t mind, please specify the internal and external factors that influence a business to success or to failure. Because, in this modern world, specification i every field is appreciated. The tips are good, but quite mixed, please categorize them, thankyou

woo ,this article is awesome.I have found what i was looking for

what must a manager do to sustain a business growth?

this article is so helpful cause it contains sense why bussineses fail

Great article! Covered a lot of perspectives. Most owners believe that “knowledge is power” however they should understand that only “applied knowledge” is only the power that works! -great point. Came across a blog on Buymaster.co which really compliments and adds to this article. Take a look http://blog.buymaster.co/why-small-businesses-fail-or-fail-to-thrive/

thanks this artical is very helpful

Wow , great article. it touches an interesting field that i’m studying “Strategic management Accounting” This field seeks to involve the marketing environment with accounting as the strategy to gain sustainable competitive Advantage in the market. Thus , this articles highlights the importance of strategic tools in the market.

I am just a new comer in business, but I think this article can be a help for me.

Its a nice article but its just that we read these kind of articles only after failing in business and there are mistakes that we do again and again..as much as your articles helps me to understand the common reasons for failure I would like to point out some major reasons in my own way:

1) Lack of Capital- This is by far the most major reason for any business to fail although I am not saying this is the only reason. But it is often seen that people have capital to start up a business but in a long run they are not able to fulfil the internal and external demands of the business like salaries of staff, rent, raw materials etc. 2) Lack of Managerial expertise: This is also a major reason. It is often seen first time entrepreneurs lack management skills like planning, organizing, controlling etc. 3) Competition: This also plays in the success or failure of any business. Before or even after starting a business one must know who there competitors are and what are there strategy like what is the price of the products that they are offering, similarly quality,finish etc. Know your competition. 4) Random: There are many other reasons like understanding the needs and mentality of the customer. Know their likes and dislikes, their paying capacity, handling raw materials, keeping proper money/cash flow and accounting the same at regular intervals, having an open thinking and attitude, and their could be many that might not be present in what all I have stated. Please do give a feedback on this one

i found this article very useful , i have 40 years experiance in managing various business . thank you

Thaxs I loved the article since it opens up peoples’ minds.

Must say, this is an excellent article.

Covers the most important point in perfect details with no extra fluff.

It’s a great article and very knowledgable here are some pointers hope this could help you 1) Lack of Capital- This is by far the most major reason for any business to fail although I am not saying this is the only reason. But it is often seen that people have capital to start up a business but in a long run they are not able to fulfil the internal and external demands of the business like salaries of staff, rent, raw materials etc. 2) Lack of Managerial expertise: This is also a major reason. It is often seen first time entrepreneurs lack management skills like planning, organizing, controlling etc. 3) Competition: This also plays in the success or failure of any business. Before or even after starting a business one must know who there competitors are and what are there strategy like what is the price of the products that they are offering, similarly quality,finish etc. Know your competition. 4) Random: There are many other reasons like understanding the needs and mentality of the customer. Know their likes and dislikes, their paying capacity, handling raw materials, keeping proper money/cash flow and accounting the same at regular intervals, having an open thinking and attitude, and their could be many that might not be present in what all I have stated. Please do give a feedback on this one https://www.meshcowork.com/en/blog/read/620446883/failure-in-entrepreneurship

Thanks I have enjoyed the article ,,, very sensitive to understand especially to students who study financial management

It’s really very helpful. Thanks for sharing this amazing strategy

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There are all kinds of conflicting statistics and opinions for why businesses fail . The headline of one report might proclaim that “90% of businesses fail in the first 3 years,” while another asserts that by following their tips, “You can enjoy a 90% chance of success.”

It’s difficult to accurately aggregate the numbers and find global statistics on business failures, so we’ll use the United States as a microcosm for trends that are also relevant in Australia, New Zealand, Canada, the UK, and other parts of the world.

Here’s a look at survival rates when viewed at the end of the first, fifth, and tenth years:

• 80% of businesses survive their first year
• 50% of businesses survive 5 years or longer
• 33% of businesses survive 10 years or longer

While these statistics highlight the fact that there’s certainly a risk of failure, they’re higher than some of us might expect. Anytime you’re looking at a vast collection of disparate individuals attempting something difficult, you’re going to see similar trends.

For example, let’s look at how many first-time college students seeking a 4-year degree stay the course all the way to graduation day:

• 33% of students graduate with a bachelor’s degree in 4 years
• 57% of students have graduated with a bachelor’s degree by 6 years

Some of the remaining 43% of students who didn’t graduate within 6 years will likely go on to attain their degree in later years, but it’s too inconsistent of a number to show up in most studies. For thousands of different reasons, hundreds of thousands of students fail to attain their bachelor’s degrees.

So the percentage of businesses that survive 5 years or more is strikingly similar to the percentage of students who earn a degree by 6 years. Sure, things happen that derail many of the businesses and students. But at least half of them are still standing after 5-6 years.

Why Small Businesses Fail to Change

Just as many of those students who earned degrees switched majors during their college experience, it’s critical for business owners to maintain flexibility in their structure and operations. If the COVID-19 pandemic has taught us anything, it’s the immense value of a well-time pivot. Whether your change is compelled by a new idea or the pressures of the times, never hesitate to innovate.

As Dan Fries explains :

Sometimes a crisis, while always tragic, can force some positive effects. It might not feel like that right now, but by responding to COVID-19 will teach you some valuable skills. In other words, this is not the only crisis you are going to face as your business grows, and the lessons you learn in the next few months will be extremely useful when it comes to scaling your startup further down the road. In fact, some of the tools and processes above are likely to be relevant long after the current pandemic has passed.

When businesses embrace this open-minded approach, they usually find themselves among the 50% that are still strong after 5-10 years. As the old saying goes, “If you’re flexible, you’ll never get bent out of shape.”

Yet many business owners remain rooted in their old ways. It’s understandable that they believe in their products or services, and are attached to the business model. After all, it was these elements that inspired them to take entrepreneurial risks in the first place.

But if you love something, you need to take care of it. And part of nurturing your business is being willing to change directions when outside pressures are threatening it. Stubbornness can be mildly amusing in childhood friends or cranky great-uncles, but it can be devastating for a business.

Why do businesses fail when they resist change? Because they’re refusing to acknowledge the primacy of the customer. Let’s review a few examples of roadblocks to success that arose during the pandemic, and how they all connected back to the role of the customer:

• Lockdown prevents a restaurant from serving customers inside the building. This scenario has played out again and again in nations around the world. It presents many dilemmas, but none larger than the inability of a business to directly serve its customers. Successful restaurants found ways to provide new pickup and delivery options, serve their communities, and even send meal kits by mail. They kept providing a quality product, though it might’ve looked much different.
• The supply chain is disrupted. The inability to source the materials or ingredients necessary for your current model is problematic. But the main issue is that it prevents you from delivering what your customers are seeking. If replacements couldn’t be found for the supply chain, a pivot was required. For example, a bakery that couldn’t source eggs might stop selling baked goods and begin selling dry mixes to customers.
• Depleted finances make it harder for customers to make purchases. With customers in many areas struggling to meet financial obligations such as rent and mortgages, it’s no wonder that some had to curtail purchases. By finding ways to lower costs so you can lower your prices, introducing tiered pricing, or creating new product options altogether to meet your customers’ needs, successful businesses continued to meet the needs of those who historically had depended on them.

Whether you’re struggling with cash flow issues or have a broken supply chain, your ability to deliver for your customers will always be the real issue. And discovering new ways to meet their needs will always be the real solution.

The fact is that pandemics will emerge, trends will evolve, and economies will fluctuate. So if you insist on moving your business forward in the exact same way regardless of these external factors, you’ll instead find your trajectory rapidly nosing downward.

The alternative is to commit to meeting your customers’ needs no matter what occurs. While it won’t guarantee a smooth journey, this North Star will guide you through all manner of catastrophes and downturns.

9 More Reasons Why Businesses Fail

We’ve identified the inability to adapt to their customers’ needs as a major contributor to businesses that go under before reaching their 1-year, 5-year, and 10-year anniversaries. When your customer is kept at the forefront, all your other efforts will steer you in the right direction.

But there are many other specific risks facing young businesses. These are risks that you should anticipate early and be on the alert for as time goes on.

With that in mind, let’s now look at 9 other reasons why businesses fail:

1. Poor Planning

Coming up with a great business idea is only the first step because it can’t go anywhere unless it’s supported by a solid plan . Outline where you’ll go in your first month, first 3 months, first year, and first 3 years. Make the milestones measurable so that you’ll know if you’re on track.

Of course, things will occur that necessitate updates to your plan. But the point is that you have a master document that outlines how you’re going to stand out from the competition, how you’re going to deliver value to customers, how you’re going to build your culture, and how you’re going to ultimately thrive.

2. Hiring the Wrong People

We get it—there’s a lot of pressure to build your team in a timely manner so that you can launch a business. But rushing this stage can kill your chances for long-term success.

You need to find people who believe in what you’re doing and have the skills to improve the ways you’re doing it. In the crucial early stages of a business, negative employees can quickly sink morale and overall performance.

3. Failing to Foster a Good Culture

As you assemble your team, communicate openly about the culture you’re seeking to build. Ask their opinions and make a point of incorporating new ideas from your team. The businesses that prioritize profits over people or have a leaders-versus-employees dynamic often fall by the wayside because their toxicity trickles right out of the office and can be sensed by suppliers, partners, and ultimately, customers.

4. Growing Pains

Plenty of defunct companies launched with a strong culture but lost it as the company scaled. There’s obviously no way to maintain all your team’s perks and traditions as new employees swell the ranks, but you can keep the heart of who you are.

Make sure that you continue seeking your team’s input and act on their ideas. New hires will bring innovative suggestions to make things better, while the old guard can share the things that you should most think about retaining.

5. Failure to Stand Out

Even if your business idea is a gem, you’ve still got to communicate it effectively to your audience. Otherwise, you’ll just get lost in the shuffle.

Using the market research from your business plan, craft a unique selling proposition that boldly articulates what makes you different from the rest. Questions to answer include:

• What unique value do I offer?
• Why is my solution better for customers?
• How can I communicate these important differences?

The more you can differentiate your brand, the better your chances for success.

6. Not Focusing on the Essentials

Plenty of businesses lose their way in the first year as distractions pull them from the very things that give them a competitive edge. For example, if your quirky product packaging is beloved by customers, don’t ditch it as your business grows. Instead, find ways to make the packaging more efficient so that it complements your efforts to scale.

When your business stays focused, you’re better able to deliver on your unique selling proposition and to adapt to unforeseen bumps in the road.

7. Not Controlling Expenses

Launching a business is expensive. And growing that business involves a whole new set of financial demands. So it’s understandable that many businesses struggle to keep up with the pace.

You’ll put yourself in a much stronger position by carefully watching your expenses . If something doesn’t help you deliver an even better experience to your customers, it might not warrant the cost. This goes for everything from Netflix on the breakroom television to the vehicles you rent on business trips.

8. Not Managing Inventory

Balancing acts are hard enough for any person, which is why those who perform on the trapeze are referred to as “artists.” But business owners must control the inventory so they don’t lose sales from insufficient numbers or burn through capital by allowing too much inventory to pile up.

You can avoid these fates by investing in inventory management software that helps you track items through the supply chain, in your warehouse, and all the way to final deliveries .

9. Inadequate Profit Margins

It’s possible to bring in substantial revenue and still find yourself in financial danger. One of the factors that have claimed many young businesses is inefficient processes and poor pricing strategies that lead to low profits.

Your business provides distinct value to customers, so you should feel confident setting prices that reflect this fact.

Get the Skills That Won’t Let Your Business Fail

Want more strategies to help your business excel? We’ve prepared a library of free business courses that cover everything from finance to negotiations to advertising. Taught by proven entrepreneurs from a range of industries, they provide the type of insights that usually take years to acquire. In this way, you can fast-track your success and avoid many of the threats that impact other businesses in their early years.

About Grant Olsen

Grant Olsen is a writer specializing in small business loans, leadership skills, and growth strategies. He is a contributing writer for KSL 5 TV, where his articles have generated more than 6 million page views, and has been featured on FitSmallBusiness.com and ModernHealthcare.com. Grant is also the author of the book "Rhino Trouble." He has a B.A. in English from Brigham Young University.

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The 6 Reasons for Business Failure, and How to Address Them From a lack of customer awareness to loss of execution focus, how failure happens, and why you should never shy away from analyzing it.

By Lak Ananth Edited by Matt Scanlon Jan 6, 2022

Opinions expressed by Entrepreneur contributors are their own.

In my work with startups and company founders, I have found that the possibility of failure is a constant companion: it's always there, waiting around the corner. However, instead of fearing failure and doing everything we can to avoid it, I've found that a much more effective strategy is to anticipate and prepare for it, do everything we can to establish the reasons for it when it happens, then learn methods of improving.

While there are many ways to fail in business, let's consider some of the most common and what we can do as leaders to transform them into success.

1. Customer failure

After then-Tata Group Chairman Ratan Tata witnessed a family of four crash to the pavement as they rode an overloaded two-wheeled scooter through a slippery intersection in Bengaluru, India, he was moved to create a $2,500 "people's car": the Nano. Tata's vision for this vehicle was to democratize transportation — providing a safe and affordable way for potentially hundreds of millions of people to drive from villages to cities where higher-paying jobs were available.

Ultimately, the Nano was a failure. Only about 300,000 of the cars were sold during its 2008-to-2018 production run, most within the first few years after it was introduced, then sales quickly tailed off. The cause was a failure to fully understand the needs of its customers, and a marketing overemphasis on "cheapest", which is a reliable customer turnoff in this industry.

So, to avoid this brand of customer failure, have a destination in mind, a vision for the destination and the conviction that the journey is worthwhile. But beyond that, you need to know who the customers are for a new product, and that it needs to solve a problem that's sufficiently important to them. Without a customer, you have nothing.

Related: Determining Your Ideal Customer

2. Technology failure

Who can forget the Segway PT stand-up electric scooter, introduced to the world in 2001? It was a marvel of technology, incorporating a groundbreaking network of five gyroscopic and two acceleration sensors with the ability to analyze the environment and the rider's position 100 times per second.

Segway anticipated sales of up to 100,000 units a year starting in 2003. By mid-2006, however, only 23,500 had been sold and the company was acquired by the Chinese electric kick scooter manufacturer Ninebot in 2015.

An enduring lesson here is that it takes more than great technology to make a product successful. There also needs to be an ecosystem to support the adoption of the technology and the support of innovations. What's needed is to take a wider view of the entire innovation realm instead of narrowly focusing on execution. This can be done by focusing on two specific types of risk: co-innovation risk (what else needs to improve for my innovation to matter?) and adoption chain risk (who else needs to adopt my innovation before the end customer can assess the full value proposition?).

3. Product failure

In part using funds generated by sales of records by The Beatles, UK technology company Electric and Musical Industries Ltd. (EMI) first conceived the revolutionary computed tomography (CT) scanner and began selling units in 1972. Demand turned out to be off the charts, growing at more than 100 percent per year, and EMI had all the advantages: it was the first mover, it owned the patents and intellectual property, it had plenty of cash in the bank and it employed the technology's inventor.

Eventually, EMI's first-mover advantage eroded. The same year the company sold its first three scanners (which were limited to imaging human heads), Siemens started its own CT research and development unit, and in 1974 began hospital trials of a CT head-scanning machine. Siemens quickly realized, however, that the next big thing was going to be whole-body scans, and in 1977 it was the first to introduce a CT scanner capable of doing them. Sales for EMI units plunged, and the company exited the medical imaging business entirely in 1980.

EMI's failure was not expanding into the many available product adjacencies it could have tapped for second and third acts. Interestingly, and seemingly ounterintuitively, the first mover may have a higher risk of product failure than a fast follower, which has the opportunity to learn from the first's mistakes. A lack of speed kills, so maximize the pace of translating ideas into action, seeing results and getting feedback, then feeding what you've learned into your hypothesis — making required changes along the way.

Related: 7 Ways to Build Hype Months Before Your Business Launches

4. Timing failure

The Essential Phone, invented by Andy Rubin (founding father of Android), had everything going for it. After leaving Google, Rubin created Playground, a venture fund and startup studio, which he envisioned as a place where remarkable hardware, software, artificial intelligence and design would be merged to create great products. To this end, he attracted $300 million in investment and put together an enviable coalition of partner companies. The result was an innovative smartphone launched in 2017.

According to press reports, only 5,000 Essential Phones were sold through exclusive partner Sprint in its first month, just 88,000 units in the whole of 2017 (after delays, the phone started shipping in August 2017). Compare this with Apple's iPhone, which sold a million units within 74 days of its release. The Essential Phone was too little too late, and its exclusive partnership with Sprint limited visibility in the marketplace.

When introducing a new product, there is a golden window: that optimum period when a product will be adopted quickly. If you're too early, but most will ignore it. If too late, the market will already be overly saturated, and your product won't be sufficiently differentiated to spur people to buy. The key is to identify market transitions and take advantage of them before the competition does.

5. Business model failure

If you live or work in most any large city, you have no doubt seen the proliferation of electric ride-sharing scooters. Bird was the first electric scooter sharing company out of the gate, placing them on Santa Monica streets in September of 2017. After one year, Bird had sold more than 10 million e-scooter rides and was the fastest startup ever to achieve a valuation of $2 billion. However, in 2020, scooter usage dropped significantly (between 60 and 70%) jeopardizing the industry, which by that time included a slew of companies.

It is simply not enough to have a great product, amazing technology and customers whose problems you are going to solve. To succeed, you must also develop and focus on implementing a sustainable business model that will provide you with sufficient revenue and profit to grow your venture. This depends on getting unit economics right — creating profitable transactions for the company that solve a customer problem. As you work to get these economics right, you have three levers to work with: revenue, cost and differentiation. Each must make positive contributions for you to succeed.

Related: Follow the Laws of Business Building to Secure Your Startup's Success

6. Execution failure

Fully 99% of a business's success is based on just one thing: getting execution right. Amazon learned a very important lesson in this when, in 2013, UPS failed to deliver numerous packages in time for Christmas. The latter company was overwhelmed by an unprecedented volume of packages and wasn't prepared for the surge. To ensure that this would never happen again, Amazon set out to build its own in-house delivery system — transforming UPS's execution failure into a stunning example of execution at scale. By 2020, Amazon delivered more than half of its own packages to customers, and it is anticipated that both UPS and FedEx will deliver fewer packages than Amazon within the next few years.

One of my favorite sayings is, "A vision without execution is just hallucination". I believe that, ultimately, just 1% of a business's success is based on getting the things discussed above right: the customer, the technology, the product, the team, the timing and the business model. Fully 99% of success is based on one thing: getting execution right.

Applying lessons for success

So, it's important to get the basics done, including having sound unit economics, building a team with purpose, understanding customers' pain points, getting timing right and executing well. Unfortunately, companies often remain in the failure zone for some time — especially when they have the funds to keep them afloat, but the best find their way out as quickly as they can. So, when failure knocks at the door, and it will, don't shy away: take it on and break through to the other side… to your long-term success.

CEO & Managing Partner, Next47

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6 Reasons Why Small Businesses Fail and How to Avoid Them

7 min. read

Updated October 29, 2023

Roughly 20% of small businesses fail in their first year, according to recent U.S. Bureau of Labor Statistics data . About 50% fail in the first five years, and only one-third of new businesses are able to survive for 10 years. Research by the Small Business Administration found that about 1 in 12 businesses close in America every year.

If you’re a small business owner, another way to think about these statistics is that 80% of small businesses will survive their first year. Over five years, you have a roughly even chance of survival or failure. Looking out 10 years, you have a one-in-three chance of enduring.

What are the reasons businesses fail to thrive, given a 50/50 chance of survival and assuming a product or service for which there’s a demand? Let’s discuss six reasons businesses fail and some ways you can avoid business failure.

• 1. Leadership Failure

Your business can fail if you exhibit poor management skills, which can be evident in many forms. You will struggle as a leader if you don’t have enough experience making management decisions, supervising a staff, or the vision to lead your organization.

Perhaps your leadership team is not in agreement on how the business should be run. You and your leaders may be arguing with each other publicly, or contradicting each other’s instructions to the staff. When problems requiring strong leadership occur, you may be reluctant to take charge and resolve the issues while your business continues to slip toward failure.

How to Avoid Leadership Failure: Dysfunctional leadership in your business will trickle down and affect every aspect of your operation, from financial management to employee morale, and once productivity is hindered, failure looms large on the horizon.

Learn, study, find a mentor, enroll in training, conduct personal research—do whatever you can to enhance your leadership skills and knowledge of the industry. Examine other business and leadership best practices and see which ones you can apply to your own.

2.  Lacking Uniqueness and Value

You may have a great product or service for which there is strong demand, but your business is still failing. It may be that your approach is mediocre or you lack a strong value proposition. If there’s strong demand, you probably have a lot of competitors and are failing to stand out in the crowd.

How to Avoid Value Proposition Failure: What sets your business apart from competitors?  How do you conduct business in a way that is totally unique? What are your competitors doing better than you are? Develop a customized approach or service package that no one else in your industry is using so you can present it as a strong value proposition that attracts attention and interest.

This is how you build a brand . Your brand is the image your customers recognize and associate with your business. Your brand identity, including your logo, tagline, colors, and all the visible aesthetics and business philosophies that represent your company should be supported by your value proposition. It should separate you from the pack and present your individual perspective to your customers. Do everything you can to present that unique value proposition to your market so you can capture a market share and begin building your conversion rates.

To publicize your brand and set yourself apart, you will also need to step up your marketing plan and use as many venues as possible to present your brand to the public. You may be far better than your competitors but that won’t make any difference if your prospects don’t even know you’re in the game. 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.

3.  Not in Touch with Customer Needs

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? Are they even still interested in what you’re selling? These are all important questions to ask and answer. Maybe you’re offering a product or service that is fallen well below trend.

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.

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4.  Unprofitable Business Model

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.

5.  Poor Financial Management

SmallBizTrends.com, a business news resource, offers this infographic which states that 40 percent of small businesses make a profit, 30 percent come out even, and the remaining 30 percent lose money.

You must know, down to the last dime, where the money in your business is coming from and where it’s going in order for your business to succeed. Your business can also fail if you lack a contingency funding plan, a reserve of money you can call upon in the event of a financial crisis. Sometimes people start businesses with a dream of making money but don’t have the skill or interest to manage cash flow , taxes, expenses, and other financial issues. Poor accounting practice puts a business on a path straight to failure.

How to Avoid Financial Mismanagement: Use professional business accounting software like QuickBooks or Xero to keep records of all financial transactions, including every expenditure and all revenues received, and use this information to generate income statements (profit and loss statements). Even better if you use a business dashboard tool like LivePlan that makes it easy to monitor your financials. This is valuable information that you need to run your business, know where you stand at all times, and keep it operating in the black. If you lack skill in financial management, consider hiring a small business advisor and professional bookkeeper or certified public account to help manage your financial affairs.

6.  Rapid Growth and Over-expansion

Every now and then a business startup grows much faster than it can keep up with. You open a website with a trending product and suddenly you are inundated with orders you are not able to fill. Or perhaps the opposite is true. You are so convinced that your product is going to take the world by storm that you invest heavily and order way too much inventory and now you can’t move it. These are both additional paths to business failure.

How to Avoid Growth and Expansion Problems. Business growth and expansion take as much careful and strategic planning as managing day-to-day operations. Even well-established and successful commercial franchises such as fast-food restaurants and convenience stores conduct careful research and planning before opening a new location. They measure local and regional demographics and spending trends, future development plans for the area, and other pertinent issues before they move forward. You must do the same for your business to avoid failure.

Conduct thorough research to ensure the time is right and the funding is available for expansion. Make sure the initial business is stable before expanding to an additional location. Don’t order inventory you’re not sure you can sell but have a plan already in place to fill orders quickly should the demand present itself. The key to successful growth and expansion—and avoiding business failure—is strategic planning.

• Avoiding business failure starts with planning

If 50% of new businesses fail, then 50% of new businesses can succeed. Starting a business is an exciting endeavor that requires a clearly defined product or service and a strong market demand for it. Whether you desire to start a new business or you’re already running a business, you must understand that success depends on careful strategic planning and sound fiscal management that begin prior to startup and continue throughout the life of the business.

Mike Kamo is the VP of marketing for Strideapp. Stride is a Cloud-based CRM and mobile app that helps small- to medium-sized agencies manage and track leads, as well as close more deals.

Table of Contents

• 2.  Lacking Uniqueness and Value
• 3.  Not in Touch with Customer Needs
• 4.  Unprofitable Business Model
• 5.  Poor Financial Management
• 6.  Rapid Growth and Over-expansion

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19 Reasons Why Small Businesses Fail (and How to Avoid them)

• by Lightspeed

minute read

Why do small businesses fail? That’s the million-dollar question. Starting a business is not easy, and there are countless statistics out there about the survival rate of startup companies.

Here are a few popular ones:

• Only about 20% of new businesses survive their first year of operation
• The U.S Census data shows that new business creation is nearly at a 40-year low
• Half of small businesses fail within their first five years

Whether you’re a seasoned small business owner or an entrepreneur just starting out, these statistics can be a little scary. What you probably don’t realize is the sample of small companies cited in these studies. 

The point is that while there may be some truth to these numbers, you shouldn’t let it kill your entrepreneurial spirit. Instead, try to understand the major reasons why small businesses fail. If you understand the mistakes of others, you can avoid following in their footsteps.

Here are 19 reasons why small businesses fail.

Profit and Loss Template

Examine the financial health of your business by highlighting exactly how much revenue is being generated versus what’s being spent.

19. No business plan or poor planning

This reason is especially true for brand new small business owners. What you think sounds like a good business idea on paper may not fare so well in reality. (For some hard truths, see the fastest-growing occupations as measured by the Bureau of Labor.)

This doesn’t mean you should ignore your passions. Instead, it means you need to do a little research and business planning.

A business plan forces you to define your Unique Value Proposition (UVP) — what differentiates your project from its competitors. In a sea of food trucks gathered in a parking lot, how will yours stand out? Is it the food? The service? Is it the neon hues and festively decorated truck? Is it the daily social media promotion? Likely, it’s all of the above. Maintaining a sustainable business model requires setting yourself apart from competitors.

Other important considerations include: Who comprises your customer base? How will they buy your product or service—in-store, online , or both? What’s your marketing plan? How will customers find out about your business? What are your cash flow projections ? Your startup capital? How far will your cash reserves take you? Remember to factor in both business and living expenses, as most businesses are not profitable during their first year.

Answering these kinds of questions while your business idea is still in the planning stage will help you boost the probability of your product or service becoming a success.

18. Neglecting the importance of a unique value proposition (UVP)

A well-crafted UVP serves as a critical communication tool, succinctly conveying the value your business offers to customers. It answers the fundamental question of why a customer should choose your business over others, by emphasizing unique features, benefits, or solutions that address specific needs or problems. 

Without a distinct UVP, businesses struggle to differentiate themselves from competitors, making it challenging to capture the attention of potential customers in a crowded market. 

Businesses that overlook the development of a strong UVP risk blending in with the competition, losing potential market share and ultimately facing difficulty in sustaining their operations. 

How to write a unique value proposition

• Identify your target audience: define who your ideal customers are. Understand their needs, preferences, pain points and what they value in a shopping experience. 
• Analyze your competitors: research your competitors to understand their offerings, strengths, and weaknesses. Identifying gaps in their services or products can help you pinpoint opportunities for your business to fill.
• List your unique features and benefits: compile a list of your products’ or services’ features and benefits. Focus on what sets your offerings apart from competitors. Consider quality, price, selection, customer service and any other factors relevant to your target audience.
• Articulate what solves customer problems: identify which features or benefits directly address your customers’ needs or pain points. This will form the core of your UVP, as solving these problems is likely what will attract customers to your business.
• Simplify your message: condense your findings into a clear, concise statement that communicates the value customers gain from choosing your business. 

17. Ineffective branding and positioning

Branding is more than just a logo or color scheme—it’s the heart of a company’s identity, embodying its values, mission, and what it stands for. When a business fails to establish a strong brand identity, it struggles to connect with its target audience on a meaningful level.

Building a strong brand identity

The cornerstone of successful branding and positioning is consistent brand messaging. Consistency ensures that every interaction customers have with the business—whether through advertising, social media or customer service—reinforces the same core message and values. This consistency builds trust and recognition, crucial components in a customer’s decision to choose one business over another.

Not sure if your branding is consistent enough? Run through a brand building exercise to see if you could make it stronger:

• Define your brand’s core values and personality: review what your business stands for, its mission and the values it embodies. These core elements should resonate with your target audience and reflect in every aspect of your business, from customer service to product selection. 
• Develop a consistent visual identity: your visual identity, including your logo, color scheme, typography and imagery, should consistently communicate your brand’s personality and values across all touchpoints. Ensure that your storefront, website, social media and all marketing materials present a cohesive look and feel that accurately represents your brand.
• Engage and connect with your audience: utilize social media, content marketing and in-store experiences to tell your brand’s story, share your values, and connect with your customers on an emotional level. Listening to customer feedback and adapting your approach can further strengthen your brand identity by showing that you value and respond to your audience’s needs and preferences.

Effective marketing and positioning strategies

Once you’ve reviewed and updated your brand identity, make sure you’re communicating it effectively. 

• Leverage omnichannel marketing: create a seamless experience for your customers across all channels, including in-store, online and through mobile apps. Omnichannel marketing ensures that your messaging is consistent and accessible, whether customers are shopping from their computer, smartphone, or physically in your store. 
• Utilize targeted social media campaigns: identify the social media platforms where your target audience is most active and engage them with content that resonates with their interests and needs. Use targeted ads, influencer collaborations and interactive content to increase brand awareness, drive traffic to your website or store and boost sales. 
• Create value through educational content: position your retail business as an authority in your niche by providing valuable and informative content to your customers. This can be through blogs, videos, tutorials or in-store workshops that educate your audience on topics related to your products or services. 

16. Overlooking legal and compliance issues

Legal and regulatory landscapes can be complex, with requirements varying significantly across different industries and regions. Understanding and adhering to these requirements is not optional. It’s essential for the survival and growth of any business.

Ignorance of the law is not a defense, and failure to comply can result in severe consequences, including fines, lawsuits or even business closure. 

For instance, not respecting intellectual property laws could lead to costly litigation, while neglecting employment laws might result in damaging disputes or sanctions. Demonstrating a commitment to legal and ethical practices enhances a business’s reputation and competitive edge, encouraging customer loyalty and attracting investment.

Navigating the maze of legal requirements can seem daunting. However, investing in legal advice is not just a cost, it’s a strategic investment in the business’s future. Legal professionals can provide invaluable guidance on the necessary licenses and permits, advise on the correct legal structure for the business, help draft solid contracts, and ensure that the business stays updated on relevant laws and regulations.

15. Failure to adapt to technology and innovation

Not adapting to new technology and innovation is a common pitfall that can lead to the downfall of small businesses, especially in retail. As consumer preferences shift towards convenience, personalization and seamless shopping experiences, staying current with technological advancements is crucial. Retailers who ignore these trends risk becoming obsolete.

For example, retail businesses that fail to establish an online presence beyond just their own website miss out on a vast digital market. Retailers should be selling on their site, major marketplaces and social media all at once, and using tools like Lightspeed eCom to keep the management of all those different sales channels simple.

Similarly, the implementation of data analytics can offer invaluable insights into customer behavior, enabling personalized marketing strategies and inventory management. Retailers not leveraging these tools may fail to meet customer expectations and lose to competitors who do.

Additionally, contactless payments and mobile wallets have become the norm, enhancing customer convenience and safety. Neglecting these payment options can lead to a decline in customer satisfaction and sales. 

Innovations in small business management

In the rapidly evolving landscape of small business management, several innovations have emerged to streamline operations, enhance customer engagement and improve overall efficiency. Here are three recent innovations:

• AI and machine learning: Artificial Intelligence (AI) and Machine Learning (ML) technologies are being increasingly adopted by small businesses for a variety of applications, including predictive analytics, customer service (through chatbots) and personalized marketing. These technologies help in making informed decisions, automating repetitive tasks, and enhancing the customer experience.
• Digital payment platforms: the rise of digital wallets and mobile payment solutions has transformed financial transactions, making them faster, more secure, and convenient. Small businesses are integrating these platforms into their payment systems to accommodate the growing preference for contactless payments, thereby improving customer satisfaction and operational efficiency.
• Social commerce: the shift towards online shopping has been accelerated by innovations in ecommerce platforms and social commerce, enabling small businesses to sell their products and services directly through social media platforms and websites. This not only expands their market reach but also provides valuable insights into consumer behavior.

14. Failure to understand customer behavior today

In our connected age, ‘the customer is always right’ rings more true than ever. For example, today’s consumers expect small brick-and-mortar companies to accept credit cards and “currencies” like Apple Pay, even if the shop is a tiny mom-and-pop operation. And they demand quality customer service . If you don’t deliver it, expect your customers to complain loudly on social media and with other communication tools.

For better or worse, review sites and platforms amplify word-of-mouth marking.

In our digitally obsessed society, it’s easier than ever for customers to share their thoughts and opinions about the businesses they interact with—which means it’s easier than ever for business owners to monitor and solicit customer feedback.

Not sure where to start? Here is a list of channels to help you monitor feedback and engage in conversations with customers.

Social media

All social media platforms (Facebook, Twitter, Instagram, Pinterest, TikTok, etc…) are great social listening tools that make it easier than ever to listen to your customers. In fact, in today’s world, using a social media platform to contact a business is often preferred by customers as a faster alternative than traditional phone calls. Thanks to push notifications that alert you when your business has been mentioned, re-tweeted, liked, pinged or poked, knowing when to engage with customers is easier than ever.

Yelp reviews

Yelp is one of the go-to destinations for people who want to find local businesses. With over 148 million cumulative reviews, it’s also a great place to find out what customers are saying about their experience with your business. If a company receives a poor review, Yelp encourages the business owner to jump into the conversation, so you have an opportunity to apologize or explain.

Google reviews

Just like Yelp, this a more passive channel than social media, but nonetheless, very important. Google is dominating the review market with 6 in 10 consumers now looking to Google for reviews. Since literally everything is Googled these days, your business’ Google reviews are likely one of the first things a user will notice about your business.

Dedicated customer advocacy website

One of the most trusted websites for consumer reviews is Trustpilot . With over 45,000 new reviewers each day, they’ve built an entire online review community dedicated to helping customers share their genuine experiences.

Customer surveys 

Surveys are still one of the best ways to ask customers specific and direct questions. If you collect customer email information at the point of sale, you can quickly identify your top customers and previous customers who are less engaged. Using this data, you can create a survey for free using SurveyMonkey to find out how you can improve your business. It doesn’t hurt to offer an incentive for completion, like a discount on their next purchase.

With 85% of consumers saying they trust online reviews as much as personal recommendations, it’s imperative that your online reputation is intact so that potential customers aren’t turned off by poor reviews. At the very least you should try to make sure your positive reviews outnumber the negative ones. While poor reviews may not bring down a startup on their own, they play a large role in the success of brick and mortar businesses.

At the very least, you need to keep your business information current across as many channels as possible.

13. Not prioritizing customer experience and satisfaction

In retail, personal interaction and customer service are paramount. Customers have endless options at their fingertips, making it easier than ever to switch to a competitor after just one poor experience. Retail businesses that fail to recognize the importance of customer satisfaction often see a decline in loyalty, negative word-of-mouth, and a drop in repeat business, all of which can lead to failure.

For example, a retail store with unhelpful staff, limited product information and a complicated checkout process will likely frustrate customers, driving them towards more user-friendly competitors. Similarly, an online retailer that neglects post-purchase support, such as handling returns and addressing customer complaints, risks damaging its reputation and losing customer trust.

Building customer loyalty programs

To prevent these outcomes, businesses should focus on building robust customer loyalty programs and personalizing the customer experience. Loyalty programs that offer rewards, exclusive deals and personalized discounts encourage repeat business and can turn a satisfied customer into a loyal advocate. 

Personalize the customer experience

Use Lightspeed’s built-in customer profiles to tailor experiences, recommendations and communications to individual preferences and behaviors. This can range from greeting customers by name to suggesting products based on past purchases or browsing history.

12. Ineffective online presence and digital marketing

An ineffective online presence and lack of digital marketing are significant obstacles for small businesses. With potential customers turning to the internet for shopping and product research, a strong online presence is not just beneficial—it’s essential. 

Retailers without a user-friendly website or active digital marketing strategies miss out on countless opportunities to attract and retain customers. Here’s how you can make sure you don’t get caught in this trap.

Have a strong website

Your website serves as your digital storefront, offering a first impression that can either attract or repel potential customers. It should be visually appealing, easy to navigate and optimized for mobile devices, as mobile shopping makes up around 60% of ecommerce globally.

Make sure you’re providing a seamless shopping experience with detailed product information, high-quality product photos , customer reviews and a secure checkout process. 

Leverage social media

Platforms like Instagram, Facebook and Pinterest can be powerful tools for engaging with customers, showcasing products and driving traffic to your website. Creating consistent, high-quality content that resonates with your target audience can boost brand awareness and foster a community around your business.

Make sure you’re using social media for:

• Product launches and promotions: announce new product arrivals, special promotions or exclusive deals. Engaging visuals, limited-time offers and shareable content can drive excitement and traffic, encouraging both online and in-store visits.
• Customer engagement and feedback: create interactive posts, polls and live sessions to engage with customers. This direct interaction fosters community and provides valuable insights into customer preferences and feedback.
• Influencer collaborations: partner with influencers whose followers match your target audience. Influencers can showcase your products in a relatable and authentic way, expanding your reach and credibility among potential customers.

Utilize SEO (search engine optimization) strategies 

Strong SEO is vital for ensuring that your website and content are discoverable by potential customers searching online. 

Three areas of SEO you should be focusing on:

• Keyword optimization: research and use relevant keywords throughout your website’s content, including product descriptions, blog posts and meta tags. Targeting the right keywords helps improve your site’s visibility in search engine results for those terms, attracting more potential customers.
• Mobile optimization: ensure your website is mobile-friendly, with responsive design and fast loading times. 
• Quality content creation: produce high-quality, relevant content that addresses your target audience’s needs and interests. Regularly updating your site with valuable content, such as product guides, how-to articles, product reviews and industry news, can improve search rankings and engage customers.

Implement a variety of email marketing techniques

Email marketing remains one of the most effective techniques for directly reaching customers. Retailers can use email campaigns to announce new products and offer exclusive discounts to grow sales.

• Personalized recommendations: utilize customer purchase history and browsing behavior to send personalized product recommendations. This tailored approach makes emails more relevant to the recipient, increasing the likelihood of engagement and sales. Lightspeed Retailer Thread + Seed uses Advanced Marketing for personalized targeting: “Being able to see who our high spenders are and knowing how to target them means we can track their spending and figure out, who are our top spenders? Who do we want to be approaching for something like our one on one styling sessions, and so forth?
• Segmentation: divide your email list into segments based on criteria like purchase history, location and interests. Tailoring your messages to different segments allows for more targeted and effective communication, improving open rates and conversions.
• Exclusive offers and loyalty rewards: send exclusive discounts, early access to sales and loyalty rewards to email subscribers. This not only incentivizes purchases but also fosters customer loyalty and encourages subscribers to stay engaged with your brand.

11. Inventory mismanagement

Your business startup cannot be successful if your inventory is poorly managed. According to the Small Business Administration (SBA) , problems with inventory ranks among the major reasons new businesses fail. Poor management can often lead to inventory shortages and overages—silent cash flow killers.

It’s a rookie mistake that easily happens to new businesses that don’t understand their sales patterns. The best way to combat this is to use inventory management software or a point of sale (POS) system that can track inventory and provide reports detailing your best and worst selling products to help you identify sales patterns.

If you’re not keeping track of your top-selling items or when they’re in high demand, you’re going to experience inventory shortages that will shrink your profits.

As a merchant, you take on risk when you buy large amounts of inventory with the goal of selling it for a profit. If you don’t sell those products as quickly as you forecasted , they can lose value or become obsolete. This forces you to sell them at a deep discount, or not at all. Until you can recoup your money by selling the inventory you have on hand, your capital will be tied up in a lot of unsold inventory.

Picture this. Instead of thinking of stock items as inventory lining your shelves, think of it as piles of cold hard cash. Each product in storage or your local warehouse is cold hard cash you’ll never see since it’s not contributing a return on investment (ROI) .

The harsh reality is that U.S. retailers are sitting on $1.43 of inventory for every $1.00 in sales they make. Proper inventory management using modern tools will ensure you’re not one of them.

10. Financial mismanagement and lack of budgeting

Financial mismanagement and lack of budgeting are pivotal reasons small businesses, particularly in retail, face failure. 

Effective cash flow management is crucial. Without it, businesses may struggle to cover essential expenses like rent, inventory and salaries. Retailers must carefully balance stocking diverse and sufficient inventory against the risk of over-purchasing, which can tie up precious capital and lead to cash flow problems.

Another common pitfall is not allocating funds for marketing or underestimating the costs associated with acquiring new customers, which can stifle growth.

Effective budgeting strategies

Engaging a financial advisor can make a significant difference. They provide expert guidance on budgeting, financial planning, and investment strategies tailored to the business’s specific needs, helping to navigate financial challenges and avoid common pitfalls.

Here are some budgeting strategies you can use with your financial advisor: 

• Zero-based budgeting: start each new budget period with a base of zero and justify every expense, rather than using previous spending patterns as a baseline. This approach forces retailers to evaluate the necessity and ROI of every cost, ensuring that all spending contributes directly to business goals and helps in eliminating unnecessary expenses.
• Inventory management Optimization: use inventory management techniques such as just-in-time (JIT) to minimize holding costs or the ABC analysis to prioritize inventory based on profitability and turnover rates. Efficient inventory management can free up cash flow and reduce waste, allowing retailers to allocate resources more effectively to areas with higher returns.
• Flexible budgeting: implement a flexible budget that can adjust to changes in sales volume or operational costs. This strategy allows retailers to adapt their spending in response to actual performance and unforeseen expenses, ensuring that the budget remains relevant and effective throughout the financial period.

9. Poor employee management and training

Poor employee management and inadequate training are critical factors that can lead to the failure of retailers, fast.

In retail, the direct interaction between employees and customers means that every employee’s knowledge, skills and attitude can significantly impact customer satisfaction and loyalty. Without proper training, employees may lack the necessary product knowledge, sales techniques, and customer service skills to effectively engage with customers and close sales.

Poor management practices, like a lack of clear communication, failure to motivate and recognize employee contributions and inadequate feedback, can lead to low morale and high turnover rates. High turnover not only increases recruitment and training costs but also affects team cohesion and service continuity, which can further erode customer satisfaction.

Strategies for effective team leadership

Make sure your managers know the importance of:

• Empowering and engaging the team: effective retail team leadership involves empowering employees by involving them in decision-making processes, acknowledging their ideas and fostering an environment where they feel valued and motivated. 
• Continuous training and development: implement ongoing training programs to enhance product knowledge, customer service skills and operational efficiency. Regular training ensures that team members are up-to-date with the latest retail trends, technologies, and best practices. This commitment to development helps in building a knowledgeable and adaptable workforce capable of delivering exceptional customer experiences and driving sales.

Creating a positive workplace culture

If your business has a positive culture, employees will be less likely to leave.

• Recognize and reward: regularly acknowledge and reward employees for their hard work, achievements, and exceptional customer service. Recognition can be as simple as verbal praise, employee of the month awards or incentives for reaching sales targets.
• Foster open communication: encourage open, honest communication by creating an environment where team members feel comfortable sharing their ideas, feedback, and concerns. Regular team meetings and one-on-one check-ins can facilitate this, helping to build trust and collaboration among staff.
• Promote work-life balance: recognize the importance of work-life balance by offering flexible scheduling, considering employees’ needs outside of work and promoting a supportive atmosphere. 

8. Unsustainable growth

In business, slow and steady wins the race most of the time. Expanding too quickly , which usually entails financing on credit like a small business loan, can backfire if the market changes or you hit a rough patch.

Trying to take on more business than you can handle drains your working capital and usually results in a quality decline. You are overwhelmed and your product or service suffers.

Instead, be smart about which customers you court, and how you will pay back each business loan. Saying no is part of running a business.

7. Lack of sales

On the other end of the spectrum, nothing hurts a new business faster than not reaching its sales goals .

This can happen when you rely too much on one large customer. If your cafe depends on student traffic during the school year, you will need to diversify come summer to stay afloat.

The only way to make sure you’ll hit your sales targets is to gain analytic insights from existing data and use those insights to inform your sales strategy. A quality point of sale system is a good place to start.

6. Inadequate network and community engagement

Inadequate engagement can significantly hinder a retail business’s growth and lead to its failure. 

Networking is not just about making connections. It’s about building relationships that can offer support, insight and opportunities. Small businesses thrive on the strength of their local networks—customers, suppliers and fellow business owners. Without active engagement in these networks, retailers may miss out on valuable partnerships, shared resources and local customer loyalty.

Engaging with the local community involves participating in local events, supporting local causes and creating a space that serves as more than just a store. Such engagement fosters a sense of belonging and community support, which can be crucial during tough economic times.

Establishing partnerships and collaborations with other businesses can lead to cross-promotion opportunities and broadened customer bases. For instance, a clothing retailer could collaborate with a local jewelry artisan for a pop-up event, benefiting both parties through shared marketing efforts and customer cross-pollination.

5. Trying to do it all

Small business owners are a scrappy bunch, and tend to view themselves as Jacks (or Jills) of all trades. But entrepreneurs, like all people, have strengths and weaknesses, not to mention a finite number of hours in each day.

Delegation is your friend. Whether that means hiring your first employees or investing in software that cuts down on busywork, your business will only start making money once you offload some of your responsibilities onto other qualified shoulders.

4. Underestimating administrative tasks

When you were planning your company, maybe you imagined happy customers, smart marketing and of course, plenty of cash. You probably didn’t imagine spreadsheet after spreadsheet. But large chunks of running a business revolve around administrative tasks.

From inventory management to managing employees to all the bookkeeping and accounting involved in the endless quest to meet your financing goals and turn a profit, administrative responsibilities can easily eat up your entire day.

According to a poll conducted by SCORE , 47% of small business owners dislike the financial costs associated with bookkeeping, and 13% dislike the administrative headaches and the amount of time it sucks out of their workday.

So be prepared. Hire accordingly or outsource many of your rote tasks to technology. As an example, Lightspeed Accounting seamlessly integrates with QuickBooks , so you never have to manually input your accounting data. Shortcuts like this save you time, and time is money.

3. Refusal to pivot

That’s right, old-fashioned stubbornness comes in at #3 of the top reasons small businesses fail. It’s easy for entrepreneurs to become obsessed with their business idea or product, even when all evidence points to it not being a success.

Maybe by the time your brick-and-mortar store is celebrating its second anniversary, all the excitement and shininess of your new store has worn off, and fewer locals are walking through your doors. Now what? Do you become a statistic and resign to failure, or do you take the time to figure out where you need to adapt? Maybe you pivot to appeal to tourists, or stock a different type of merchandise that appeals to your customer base, or use your space to host weddings and parties on the weekends.

Sometimes an effort to pivot to ecommerce can backfire, if not done properly. Typically, physical stores and digital stores will share inventory. And while you may keep them in separate storage areas, if you sell out of an item online faster than in-store, you’ll have to fulfill some of your online orders from your store inventory. Unless of course, you’d rather ship to your warehouse first and then ship to the customer—causing unnecessary delays and a poor customer experience. To avoid this, invest in a POS system that offers a truly omnichannel ecommerce experience that automates the exchange between online and physical inventory.

2. Lack of data

Your small business is competing with cash-rich behemoths like Wal-Mart and Starbucks. What do those giants have at their disposal? Data. Tons of data.

Though your market is much smaller, you should still gather as much information as you can. If you don’t have insight into the performance of your business in real-time, it will drastically limit your ability to make smart, data-driven decisions.

For example, you need complete visibility into the revenue you collect and the expenses you pay. Without this knowledge, you are literally flying blind.

On the expense side of the equation, if you want to buy a new line of inventory or make some updates to your storefront, you need to know how it’s going to impact your bottom line. And it’s not just these expenses you need to keep an eye on, but all of your costs.

As a business owner, you need to know what percentage of revenue you can allocate to employee wages, utility bills or rent so you can set proper targets for cost savings. On the revenue side, you want your business to grow month over month or year over year.

If you don’t achieve your goals, you may want to examine areas of your business where you’re overspending—i.e., the expense side. To ensure your expenses don’t exceed your revenue and turn your business into a failure rate statistic, it’s helpful to know your net income.

Calculating your net income

First, you need to define your Gross Profit (GP) by taking the Cost of Goods Sold (COGS) and subtract the number from the total net sales. If you’re using a POS system like Lightspeed, you can find reports like these, and more.

The second factor you’ll need in this calculation is your Operating Profit (OP). To find the OP, you need to subtract your operating expenses (i.e., payroll, rent, utilities) from your gross profit. If you’re using accounting software, you’ll easily be able to retrieve this information.

Lastly, you have non-operating expenses. These are expenses that are not related to core business operations like your operating profits, but rather taxes or interest you may have on loans or cash advances. Non-operating expenses are subtracted from your operating profit to yield your net income.

The secret to running a lean business is a long-term, ongoing strategy that strives to eliminate waste to improve efficiency, agility and quality of business operations—all while maximizing value to customers.

While this seems like a contradiction, doing more with fewer resources, it’s much easier than you think once you break it down into small steps. The ideology of a lean business is built on the methodology of build-measure-learn.

The main idea behind build is that Rome wasn’t built in one day. Nor was Google’s Gmail, Apple’s iPhone or mega-retailer, Amazon. Businesses don’t start out doing all the cool and fancy things they’re known for today. For instance, Amazon started as an online bookstore, and now they deliver groceries to your home and provide streaming music services. The point is these companies started with a basic idea, or in the business world, a Minimum Viable Product (MVP) that they can introduce to the market.

Next, these companies measured. They measured the results of the MVP during the experimental stage. How did the market respond to your product or business? Did they react the way you expected them to, or was the reaction the complete opposite of your hypothesis?

Once you have some reliable data measurements, you can then determine which direction to move based on the results of that data. Have you been right all along and now you have the data to back it up? Or did the measurements provide you with some insight into areas you can improve?

Applying build-measure-learn

To apply this to your small business, you need to go back and look at your business plan. What are you trying to build? What are your goals? Finally, what is the bare minimum you need to get started?

Whatever the outcome, know that it is backed by reliable data that you can trust to help pivot your business in the direction that will help it be most successful.

Real-time data dramatically reduces lag time between data collection to data analysis , thus making your business more agile and responsive to changing trends. And if there’s one thing every small and medium-sized business has over big-box retailers is the innate ability to be agile because they don’t have to cut through the corporate red tape to make changes. They can see the data trends in real-time and respond accordingly.

1. Poor management

We’ve finally reached the #1 reason why a new business might fail. Entrepreneurs have power over their businesses, and with great power comes great responsibility.

Management is partly about attitude and mindset—and it does have an effect on your bottom line.

Sometimes small business owners become set in their ways when it comes to doing certain things. This is especially true for veteran business owners. For new entrepreneurs, make sure you don’t fall into this trap. And to be fair, it’s not just business owners. It’s everybody. It’s human nature, and we are all guilty of it at some point in our lives.

Assumption and complacency typically happen when a business is doing well and fall into a false sense of security that your business is operating in the best possible and most productive way. That’s precisely when fallacy swoops in and wreaks havoc if you’re not careful.

Planning your road to business success  

Operating a successful business is not something you can leave up to chance or luck. It takes a clearly defined business plan, strategic operations and sound financial management from startup and throughout the life of your business. 

These 19 reasons should give you a solid understanding of how to turn around a failing small business so your company doesn’t become a failure rate statistic. While you might not be able to avoid every single reason listed above, it’s important to be aware and think preemptively about what you can do to tackle each of them, and come out winning. If you want to get started on proper inventory management, analytics, and ecommerce, let’s chat !

What is the #1 reason small businesses fail?

The number one reason small businesses fail is inadequate cash flow management. Without sufficient cash flow, businesses struggle to cover daily operations, invest in growth or manage unexpected expenses, leading to financial instability and ultimately, failure.

What is the biggest mistake small businesses make?

The biggest mistake small businesses make is neglecting to plan thoroughly. This includes failing to develop a solid business plan, underestimating the importance of financial planning and not preparing for market changes. Without a clear strategy and adaptability, businesses struggle to navigate challenges and seize opportunities, leading to potential failure.

How do you revive a failing business?

To revive a failing business, start by conducting a thorough analysis to identify the root causes of its struggles. 

Restructure your business plan focusing on viable products or services, streamline operations to reduce costs and enhance customer experience to boost loyalty. 

Consider diversifying offerings or exploring new markets. Improving financial management and seeking external funding if necessary are also crucial. Engage with customers and stakeholders for feedback and support.

Lastly, don’t hesitate to seek advice from mentors or industry experts who can provide fresh perspectives and strategies.

How long does the average small business last?

The longevity of a small business can vary widely by industry, location and other factors. 

According to data from the Bureau of Labor Statistics, about 50% of small businesses survive at least five years , and roughly 33% survive ten years or more. 

What year do most small businesses fail?

Most small businesses face the highest risk of failure within their first five years. Specifically, around 10% of small businesses fail in their first year , around 31% in their second year, and by the end of the fifth year, almost 50% have ceased operations. This critical period highlights the importance of solid planning, financial management and adaptability in the early stages of a business.

How many startups survive 5 years?

Approximately 50% of startups survive past their fifth year. 

How many businesses make over $1 million?

Less than 10% of U.S. businesses generate over $1 million in annual revenue. Achieving this level of revenue typically requires strategic planning, effective marketing, strong customer relationships and continuous innovation to stand out in competitive markets.

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Lightspeed is a cloud-based commerce platform powering small and medium-sized businesses in over 100 countries around the world. With smart, scalable and dependable point of sale systems, it's an all-in-one solution that helps restaurants and retailers sell across channels, manage operations, engage with consumers, accept payments and grow their business.

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The anatomy of business failure: A qualitative account of its implications for future business success

European Journal of Management and Business Economics

ISSN : 2444-8494

Article publication date: 3 July 2017

The purpose of this paper is to analyze the aftermath of business failure (BF) by addressing: how the individual progressed and developed new ventures, how individuals changed business behaviors and practices in light of a failure, and what was the effect of previous failure on the individual’s decisions to embark on subsequent ventures.

Design/methodology/approach

The authors resort to qualitative methods to understand the aftermath of BF from a retrospective point of a successful entrepreneur. Specifically, the authors undertook semi-structured interviews to six entrepreneurs, three from the north of Europe and three from the south and use interpretative phenomenological analysis.

The authors found that previous failure impacted individuals strongly, being shaped by the individual’s experience and age, and their perception of blame for the failure. An array of moderator costs was identified, ranging from antecedents to institutions that were present in the individual’s lives. The outcomes are directly relatable to the failed experience by the individual. The authors also found that the failure had a significant effect on the individual’s career path.

Originality/value

While predicting the failure of healthy firms or the discovery of the main determinants that lead to such an event have received increasingly more attention in the last two decades, the focus on the consequences of BF is still lagging behind. The present study fills this gap by analyzing the aftermath of BF.

• Business failure
• Entrepreneurship
• Consequences
• Interpretative phenomenological analysis
• Learning from failure

Dias, A. and Teixeira, A.A.C. (2017), "The anatomy of business failure: A qualitative account of its implications for future business success", European Journal of Management and Business Economics , Vol. 26 No. 1, pp. 2-20. https://doi.org/10.1108/EJMBE-07-2017-001

Emerald Publishing Limited

Copyright © 2017, Artur Raimundo Dias and Aurora A.C. Teixeira

Published in the European Journal of Management and Business Economics . Published by Emerald Publishing Limited. This article is published under the Creative Commons Attribution (CC BY 4.0) licence. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this licence may be seen at http://creativecommons.org/licences/by/4.0/legalcode

1. Introduction

Business failure (BF) is a constant in today’s business world, being considered an essential and significant part of new business ventures ( Ucbasaran et al. , 2013 ; Walsh and Cunningham, 2016 ). From the extant literature on the topic of the costs bared by the entrepreneurs, it is undeniable that BF is essentially a learning process ( Cope, 2011 ).

Although BF is hard to define, all definitions relate to the same significant event in the lives of organizations and individuals – the defining moment that unfolded over time where the survival of a company ends, creating losses for investors and creditors alike ( Jenkins and McKelvie, 2016 ). How that moment is determined varies widely among authors who have analyzed the phenomenon ( Ucbasaran et al. , 2013 ; Khelil, 2016 ).

There is considerable debate regarding the narrative of the creation and performance of entrepreneurial efforts, but failure has received much less attention ( Mantere et al. , 2013 ; Shepherd et al. , 2015 ). The literature has thus far focused on predicting the failure of healthy firms, namely through prediction modeling using financial ratios (e.g. Altman, 1968 ; Zopounidis and Doumpos, 1999 ; Andreeva et al. , 2016 ); the discovery of the main determinants that lead to such an event ( Lane and Schary, 1991 ; Ooghe and De Prijcker, 2008 ; Ejrnaes and Hochguertel, 2013 ; Artinger and Powell, 2016 ); and the consequences that ensue from the failure ( Jenkins et al. , 2014 ; Mueller and Shepherd, 2016 ). While the first two research areas have received increasingly more attention in the last two decades, focus on the consequences is still lagging behind (see Amankwah-Amoah, 2015 ).

This paper aims to contribute to the scarce empirical research on the outcomes of BF for individuals (as emphasized in Ucbasaran et al. (2013) ). Many researchers highlight the need to analyze the aftermath of BF, specifically addressing: how the individual progresses and eventually develops new ventures ( Mantere et al. , 2013 ); how individuals change business behaviors and practices in light of a failure ( Cope, 2011 ); and what is the effect of previous failure on the individual’s future career path and/or decisions to embark on subsequent ventures ( Ucbasaran et al. , 2013 ). The gap includes the learning process and all the actions and changes that are born from it. Questions like “How can these different outcomes be explained? What is it about certain individuals, BFs, and/or the nature of the stories that obstruct – rather than generate – action?” ( Ucbasaran et al. , 2013 , p. 197) are yet to be answered and require a better understanding.

The study thus intends to contribute to the empirical literature on the consequences of BF by developing insights into the consequences of BF and the reasons/conditions that enable entrepreneurs to succeed or otherwise hamper their success after a BF.

The pertinence of the study of failure is widely asserted, as are the benefits that emerge from such an experiences. The authors also believe that there is a key progression in time for the individuals, as successful business leaders are not born successful but rather fail continually until they achieve success – a concept that could prove useful to institutions and aspiring entrepreneurs.

To achieve this, we will focus on currently successful entrepreneurs who have failed in the past and try to understand the consequences of their past BF in the creation of new business ventures. Although many consider failure a pathway to success due to it being a learning experience ( Cope, 2011 ; Mueller and Shepherd, 2016 ), there is a lack of research dealing explicitly with prior failure as a condition for success or other considerations that reflect long-term orientations for the individual ( Ucbasaran et al. , 2013 ; Singh et al. , 2015 ).

Qualitative research is key to understanding the “how” of the phenomenon, especially when trying to understand the development of the individual within his/her context ( Yin, 2009 ). Thus, personal accounts and narratives are essential to understand the process, although it has only recently been applied to this field ( Mantere et al. , 2013 ; Byrne and Shepherd, 2015 ; Singh et al. , 2015 ). Specifically, we will employ the Interpretative Phenomenological Approach ( Smith and Osborn, 2007 ), using a set of six selected case studies of entrepreneurs from several countries.

2. Research synthesis

2.1 defining bf.

BF is a not a simple concept to define ( Wennberg and DeTienne, 2014 ). Many authors (e.g. Deakin, 1972 ; Chen and Williams, 1999 ) do not feel the need to define the concept, while others (e.g. Dimitras et al. , 1996 ; Everett and Watson, 1998 ; Bell and Taylor, 2011 ), present a wide array of definitions in order to be as comprehensive as possible.

An analysis of 201 journal articles on the topic showed that besides the studies that do not provide an explicit definition of BF (about 70 percent of the total), [1] those that explicitly give a definition focus on one or several dimensions of BF, most notably: bankruptcy, business closure, ownership change, and failure to meet expectations.

This paper considers that BF occurs when a business closes, either for financially related reasons or willingly, which in the latter case can be due to the owners not achieving their expectations (e.g. not enough current return, no growth expectation, poor performance, etc.) in contrast to personal reasons (e.g. retirement, relocation, family issues, etc.).

2.2 On the consequences of BF

BF occurs over several distinct phases, usually contiguous to a significant event that is considered the tipping point of “failure.” The process includes the analysis of the conditions and series of events that lead to BF. It also considers the post-failure situation, focusing on the consequences of going through such a stressful situation.

The relevant literature can be categorized into three main research streams (see Pretorius, 2008 ; Ucbasaran et al. , 2013 ; Amankwah-Amoah, 2015, 2016 ): BF prediction through modeling; determinants or causes of BF; and consequences of BF.

A brief bibliometric analysis of the documents published in journals indexed in the Web of Science (reference date: January 28, 2017), using as search keywords the combination of “business failure” or “start up failure” or “company bankruptcy,” limited to the field of Business Economics, resulted in 201 journal articles that focused on BF. More than one third of these studies analyze the determinants of failure (36 percent), with 31 percent trying to predict failure in organizations through mathematical models. The aftermath and outcomes of BF is only analyzed in 14 percent of the studies [2] .

To better understand the consequences of BF, researchers draw on many theories from the field of psychology, such as Attribution Theory ( Mantere et al. , 2013 ; Amankwah-Amoah, 2015 ) and grieving ( Bell and Taylor, 2011 ), in order to determine what each individual goes through when they experience a BF. Others look at specific conditions of BF that might affect the impact of the costs, such as applying the personal bankruptcy law in a given region and the asset protection it provides ( Hasan and Wang, 2008 ), and factors associated to Institutional Theory. Based on Ucbasaran et al. ’s (2013) work, it was possible to summarize the main theoretical contributions that frame this stream of research (see Table I ).

When widening the view, Figure 1 draws the theoretical framework for studying BF, in particular the consequences of BF. As illustrated, BF is a continuous process with key moments that require further study. The determinants of BF are intimately related with the consequences and the outcomes, as well as the psychological processes involved, and should not be separated from the individual, given the cognitive, behavioral and personality theories involved – all leading up to a key stage: rising from failure to achieve success.

Most of the studies analyzing the consequences of failure are focused on the individual. This may be justified by the fact that such individuals are either the survivors of the failure or the ones that support most of the consequences. In this vein, it comes as no surprise that most of the research done in this field is based on theories from psychology (e.g. Shepherd et al. , 2009 ; Yamakawa et al. , 2015 ). This specific literature stream usually considers failure a traumatic event ( Ucbasaran et al. , 2009 ; Byrne and Shepherd, 2015 ), where the individuals related with the failure gain a series of costs and benefits during the following period. Researchers feel that it is important to understand the different phases that one goes through after the trauma, which can resemble, in many ways, the death of a family member ( Bell and Taylor, 2011 ; Jenkins et al. , 2014 ).

Ucbasaran et al. (2013) divide the consequences of BF into three main timeframes: the Aftermath – the instant consequences that are supported after the event; Sense-making and the learning process – an evolving process that starts and takes place for an variable amount of time after the failure; and the Outcomes – the long-run outcomes for the individual affected by the experience.

In the first stage, Aftermath, Ucbasaran et al. (2013) refer essentially to the costs, which they basically classify as financial, social and psychological. The financial costs of failure may imply the loss of a main source of income, with the possibility of personal debt ( Cope, 2011 ; Bruton et al. , 2011 ). These costs might be increased or reduced by several factors, such as the entrepreneur’s current investment portfolio or the ease which they may have in obtaining new income sources ( Ucbasaran et al. , 2013 ). Another factor is personal asset protection related to the bankruptcy laws that exist in some regions ( Eidenmüller and van Zwieten, 2015 ; Wakkee and Sleebos, 2015 ). As Hasan and Wang (2008) explain that exemptions might allow entrepreneurs to shield part of their assets, serving as a cushion for negative consequences.

When considering the social costs, they can understandably be devastating to the individual, both in personal and professional terms ( Ucbasaran et al. , 2013 ; Nielsen and Sarasvathy (2016) . Drawing knowledge from Institutional Theory and Network Theory, the authors in this field argue that relationships suffer through this process, leading to stigma and negative discrimination toward future professional endeavors ( Ucbasaran et al. , 2013 ; Simmons et al. , 2014 ; Nielsen and Sarasvathy, 2016 ). An example of a factor that increases the social cost of failure is given by Kirkwood (2007) , when he concludes that a culture with Tall Poppy Syndrome can be more unforgiving of high achievers who fail, pending on the perception of blame.

The media also often attributes BF to mistakes made by the managers (varying from region to region), being mostly linked to the impact and consequences the failure generates on its environment – all leading to a strong stigma ( Cardon et al. , 2011 ). Of the 389 failure accounts in Cardon et al. ’s (2011) data set, 331 contained statements on the impact of the failure being reported. The most frequently reported impact of failure (125 accounts, 38 percent) was the development of a sense of stigma around entrepreneurs who had experienced failure. One account stated that (see Cardon et al. , 2011 , p. 87) “Failure leads to exile and an abrupt end to one’s career path.”

Singh et al. (2015) view stigma as a process rather than a static label, considering that it occurs before and after the failure, arguing that it influences the failure itself and future endeavors. They also describe some situations where the stigma actually motivates the failed entrepreneur into starting a new venture, increasing the complexity of the social phenomenon.

The other costs considered in this framework are the psychological ones. These costs can be either motivational or emotional ( Shepherd et al. , 2009 ; Ucbasaran et al. , 2013 ). Indeed, failure can be emotionally very stressing, creating negative emotions that are “inextricably linked to its complex social cost” ( Cope, 2011 , p. 611). Cope (2011) and Yamakawa et al. (2015) present empirical evidence where shame and embarrassment arise in failed entrepreneurs, derived from their strong commitment to the business stakeholders. These negative emotions often lead to withdrawal and, eventually, to loneliness, possibly impacting so strongly on the individual to the point of interfering “with the individual’s allocation of attention in the processing of information” (Shepherd, 2003, p. 320).

An example of an intensifier of psychological costs which is presented by Cannon and Edmondson (2001) is the individual’s own personal life experience and early socialization processes. The authors argue that parents often shield their siblings from harm while schools reward students who committed fewer mistakes, creating control-oriented behavior rather than learning-oriented behavior that leads to a significant decrease in self-esteem when focusing on one’s own failure. This ultimately leads people to engage in activities that improve their self-esteem rather than potentially damaging ones (i.e. to say, riskier situations of failure).

Motivation may also take a deep hit with failure, creating “a sense of helplessness, thus diminishing individuals’ beliefs in their ability to undertake specific tasks successfully in the future and leading to rumination that hinders task performance” ( Ucbasaran et al. , 2013 , p. 179). However, it may also serve as a boost for future endeavors as a compensation for missing a self-defined goal ( Cardon and McGrath, 1999 ; Ucbasaran et al. , 2013 ).

Ucbasaran et al. (2010) conclude that both serial and portfolio entrepreneurs were less emotionally attached to their businesses, being less likely to have an adjusted optimism bias and having more resistance to psychological costs. Ucbasaran et al. (2013 , p. 180) also mention that entrepreneurs displaying “learned optimism” are prone to make sense of failure in a more beneficial way, motivating them to engage in future entrepreneurial activity and to see adversity as a challenge, for instance.

The sensemaking and learning dimension highlights the social-psychological process associated with failure, which might be framed by grief ( Bell and Taylor, 2011 ; Jenkins et al. , 2014 ) and attribution theory ( Mantere et al. , 2013 ; Yamakawa et al. , 2015 ), as well as the positive learning from experience ( Cope, 2011 ; Singh et al. , 2015 ).

An important article to consider here is that of Mantere et al. ’s (2013) on narrative attributions of BF, where the authors attempt to reconstruct and define the determinants of failure through the attributions of different point of views related to a single situation, thus analyzing how the individuals make sense of reality. Through an inductive analysis, the study categorizes seven distinct categories of attributions: catharsis, hubris, betrayal, mechanistic, zeitgeist, nemesis and fate. The authors ultimately relate these attributions with the sensemaking and recovery process, concluding how they are “driven by the cognitive and emotional needs of organizational stakeholders to maintain positive self-esteem and recover from the loss of the venture” ( Mantere et al. , 2013 , p. 470).

As Shepherd (2003) highlights, the experiential nature of learning from one’s mistakes is also present in owners of businesses that failed, prompting a revision on the individual’s knowledge of how to manage their own business effectively. However, the author also clearly establishes that failure induces a process of grief, creating an obstacle to learning from the event experienced (Shepherd, 2003). This is allied with the need to make sense of the situation, as it is “an interpretive process [that] requires people to assign meaning to occurrences […] and involves ongoing interpretations in conjunction with action […]. It [sensemaking] involves both the cognitive and emotional aspects of the human experience” ( Ucbasaran et al. , 2013 , p. 184).

Interestingly enough, Yamakawa and Cardon (2015) find evidence that entrepreneurs that focus on their role in the failure are most likely to learn more from their experience than individuals that focus on external influences.

The last dimension is related to the long-term Outcomes for the individual due to the experience he/she had with the failure, its costs and how he/she made sense of them ( Ucbasaran et al. , 2013 ; Mueller and Shepherd, 2016 ). This includes how much the individual learned and how the individual changed their business practices. As Cope (2011) argues, the importance of failure lies in all the changes that follow from it, where the individual reviews a set of ways and might even create longer-term positive consequences.

Deriving from cognitive and behavioral theories, Politis and Gabrielsson (2009) conclude in their work that experience with business closure is associated with more positive attitudes toward failure. Basing on the Experiential Learning Theory, the authors argue that “experience from closing down a business seems to lead to a more positive attitude toward failure by rendering existing behaviors and routines inadequate, which in turn can trigger change in underlying values and assumptions” ( Politis and Gabrielsson, 2009 , p. 376).

Cardon et al. (2011) and Rider and Negro (2015) further explore the impact of failure on the future career path of entrepreneurs, finding that some prefer to continue to engage in entrepreneurial activities while others opt for jobs in more established companies.

3. Methodology

The method of qualitative research employed in this study consists of a set of case studies, using the methodology design advanced by Yin (2009) , based on a collection of personal accounts from individuals that meet pre-defined criteria through face-to-face interviews, using the Interpretative Phenomenological Analysis (IPA) ( Smith and Osborn, 2007 ). The IPA approach has been used before in the research on “BF Consequences” ( Cope, 2011 ) and enables an introspective view of experiencing failure. Cope’s (2011 , p. 608) use of interpretative phenomenological research is justified with “the strength of a qualitative research design such as this lies in its capacity to provide situated insights, rich details and thick descriptions. Richness is provided by paying close attention to both context and process […].” This methodology allows the researcher to empirically achieve a better understanding of the emotional consequences of failure and its relation with the learning process.

For the purposes of this study, the main advantage of this methodological approach lies in the possibility of thoroughly investigating an individual and his/her progression over time, within a real-life context ( Yin, 2009 ) – which, as we have determined from the framework (cf. Figure 1 ), is fundamental for the appropriate analysis of the experience.

The analysis will start with an account of the BF process, trying to extrapolate what the individual considered were the determinants of the failure. The research should therefore include a full overview of the BF. The analysis will then focus on understanding the impact of the aftermath, in terms of the financial, social and emotional costs ( Ucbasaran et al. , 2013 ; Singh et al. , 2015 ; Nielsen and Sarasvathy, 2016 ). This includes not only identifying the moderators of the cost, but also an effort to identify how the individual managed to overcome those costs, acting on the assumption that they are closely related to the learning process ( Cope, 2011 ; Yamakawa and Cardon, 2015 ; Mueller and Shepherd, 2016 ). Since this is reported through a personal account, it is also part of the sensemaking process ( Cope, 2011 ; Yamakawa et al. , 2015 ). In a following stage, we will focus on the sensemaking process, learning process and the outcomes of the individual.

Particular attention should be paid to the psychological processes that influence learning, such as grieving ( Cope, 2011 ; Jenkins et al. , 2014 ), narrative attribution ( Mantere et al. , 2013 ; Amankwah-Amoah, 2015 ), and loss of orientation strategy (Shepherd, 2003).

Figure 2 summarizes the main steps and the guideline research questions of the empirical work.

The individual must be an entrepreneur, being directly involved in the creation of both the failed and the successful business;

part of the venture’s founding process;

CEO or other high management level position; and

personal or family-related ownership stakes in the venture.

there must have been significant losses associated with the failure (e.g. initial round funding, years of dedication); and

the reason for closure must not be personal (e.g. retirement, as mentioned by Watson and Everett, 1996 ).

The successful business should have a significant commercial success with a considerable profit rate, solid enough to support the founders or show sufficient recognized potential growth.

For this study, and in line with other qualitative studies in the area (e.g. Cope, 2011 ; Pal et al. , 2011 ; Singh et al. , 2015 ), the cases selected were purposive by nature, meaning that any individual that filled the pre-requisites would be of significance for the research project. An effort was made to not contain the search within a single country, in particular the concentration within a single region in Europe, although admittedly being difficulty due to the selection criteria defined and the very own personal nature that study subject demands.

To obtain these case studies, extensive contacts with potential candidates were made through personal networks, social networks, references and internet research. In total, the research was advertised through several European social networks of entrepreneurs, 12 personal reference requests plus 2 academic research reference requests. This initial effort resulted in 19 potential case studies (from a variety of countries, namely Belgium, Denmark, Finland, France, Portugal, Spain, and The Netherlands), of which 13 contacts were followed through. Of these 13 contacts, four did not respond and three failed to pass the pre-verification phase. The final result yields the six case studies presented in Section 4 , composed of individuals that generously agreed to participate in this study.

Six data collection interviews were conducted with successful entrepreneurs from two main regions in Europe, specifically the Nordic region (with Finnish and Danish representatives) and the South of Europe (with Portuguese representatives) (see Table II ). Although two studies on the consequences of BF already focused on individuals located in Nordic countries, most notably Denmark ( Nielsen and Sarasvathy, 2016 ) and Sweden ( Jenkins et al. , 2014 ), no study has yet analyzed individuals from the South European countries, less so in comparison with their Nordic counterparts. Such comparison is potentially very interesting as these two regions contrast significantly in terms of culture, particularly in terms of uncertainty avoidance and indulgence ( Hofstede and McCrae, 2004 ), two traits significantly associated with entrepreneurial behaviors and attitudes ( Mueller and Thomas, 2001 ). Though from the South of Europe we only have Portuguese representatives, according to Hofstede’s cultural dimensions Portugal and the other Southern European countries (Italy, Greece, and Spain) share common traits. These countries are characterized by very high uncertainty avoidance and very low indulgence, which means that in these cultures innovation may be resisted, security is an important element in individual motivation, and there is a tendency toward pessimism. In contrast, Nordic countries (Denmark, Finland, Iceland, Norway, and Sweden) citizens do not need a lot of structure and predictability in their work life and evidence a tendency toward optimism (see https://geert-hofstede.com/ ).

As can be observed in Table II , the Nordic representatives are younger (26 years old, on average) than their Portuguese counterparts (44 years old, on average), presenting lower levels of formal education (at most they have a bachelor degree, whereas the Portuguese entrepreneurs have master degrees or MBA). Regarding the business areas of the ventures that have failed, they were diverse, including manufacturing (food cutlery, medical/cosmetics), and low (food and leisure) and high knowledge intensive (sound and automation engineering) services. When disclosed, the amount of financial investment in the failed venture was relatively low (between 7 and 300 thousand euros). The failed ventures were, on average, six years in operation, with the time invested in the business being higher for the Portuguese (seven years, on average) in comparison to the Nordic (four years, on average) entrepreneurs. All the new entrepreneurial ventures operate in a distinct business area of the failed venture. They seem to be rather successful, with more than five years in business (at the time of the interview), entailing a considerable investment (Cases 4 and 6) or yielding relatively large revenues (Cases 1-3).

After an initial contact and agreement to participate in the study, a pre-screening meeting with the selected entrepreneurs was scheduled, followed by the data-gathering interview where additional information was required to prepare the interview script. The semi-structured interviews, which had specific questions prepared in scope of the proposed research framework, took place during the months of February, March, May and June 2014 in various physical locations, such as company headquarters and college campuses, but also via Skype. They were recorded, transcribed and analyzed through the IPA methodology and the predefined framework in Figure 2 during the months of April and June 2014.

4.1 How the individual progresses and eventually develops new ventures

The first aspect considered was what follows a BF, in particular how the individual progresses and eventually develops a new venture. Related to this topic, a cost-benefit trade-off analysis seems relevant.

The benefits seem to be truly significant for the individuals, even when costs are not. The individuals also naturally tend to focus on the benefits, telling the lessons learned when they were asked for the narrative – particularly visible with Brian, André and Marius. Furthermore, there are key events that can be directly related to the creation of the future successful business – Brian met one the future business partners who had acted as a mentor of his failed project, Paulo decided to go back to college only to find the next business idea, and Marius kept the same partner in all of the started 4 companies. Business connections are known to be synergic, thus it is no surprising to find that the effect continues even when amidst failure.

It is worth noting that some of the successful projects were already being started while the failures were taking place, most specifically at the end. Mikko was already quite involved in the first steps of the subsequent successful business when before the sale of the failing family business; and Marius was preparing a crowdfunding campaign when the first company closed.

Another dimension to consider after the failure is how the individuals deal with the costs. As previously discussed, none of the cases present overwhelming financial losses, meaning that the individuals required minimal effort in order to overcome them. This was mainly attributed to institutions that served as moderators (e.g. governments, family). The reduced financial costs generated relatively minor social and psychological repercussions ( Ucbasaran et al. , 2013 ).

Still, a few actions taken to restore normality to the individuals’ lives are discernable. Paulo admitted to cutting back on the family budget, taking fewer vacations, along with also going back to college – an action that could surely be connected to a sensemaking process. Actions during the failure are also visible, very likely an anticipatory sign of grief ( Shepherd et al. , 2009 ). These actions are visible in the projects that are described as “fading,” for instance, when André claimed that the focus shifted back on the full-time day job or when Marius admits to have focused on creating new businesses rather than just investing in one.

Focusing on the psychological costs, they were visible for some of the younger entrepreneurs but the serial experienced entrepreneurs appeared minimally affected. Mikko and Brian admitted to have suffered a significant amount of stress, while Marius felt that it would have been much worse with the absence of the previously created successful ventures by the time the first one failed. Paulo reduced the costs to a “post-failure depression” to a 24-hour period, while José merely admitted to some frustration for nearing loss immunization. André rationalized the failure as a calculated risk and is proud of it for being a rich experience. The fact that both André and Marius’s project faded away could be pivotal for their emotional reaction, in particular in the case of Marius, admitting some attachment to the failed company.

It is also arguable how opportunity costs are smaller when the entrepreneur is younger. Paulo’s narrative focused much more on the family responsibility, while Marius’ focus was on where the nature of such a professional life would take.

It is also very easy to identify the benefit of certain skills gained during the BF. For example, Marius admitted to the usefulness of learning how to set up a company in the first business while Mikko valued the knowledge of how to manage a financial budget. These skills seem to be more prevalent in younger individuals, as would be expected, since they have much more to learn. André recognized this, stating that the professional experience stemming from entrepreneurial business or established business is similar, only the risk involved changes.

Similarly to the costs/learning relationship, a small-scale business investment does not necessarily mean that it does not yield important lessons for the individual. Brian claimed learning a lot in terms of working with teams, considering that it was good that it happened with an investment of €7,000 rather than a much higher amount. This also includes time investment, with Marius and André both admitting to have gained a great deal from a relatively small investment of time when compared to their other projects.

Actually, when we said to each other “Hey, okay, it’s over […]”[…] it was a big relief. It was like taking the biggest backpack off your shoulders […] it was a really great feeling, I can so easily remember where we were sitting, what the weather was like and the feeling in my body. It was a crazy feeling, only kind of positive somehow.

Such a detailed description is revealing of the importance of the event and the backpack actually illustrates perfectly the figurative burden off the shoulders.

It is interesting to see other individuals that were not as lucky to have those types of moments, where the connection was simply cut off. Paulo was still in legal court battles at the time of the interview, a decade after the BF. It was clear the whole tiredness of dealing with the issue. José also stressed a failed expectation to shut down the eventually failed venture much faster than it actually happened, admitting that the goal was to be as fast as possible in order to cut losses, unattainable due to facing a lot of slow-moving stakeholders that delayed the process several months.

Of course, the situations illustrated here do not have significant follow-up costs, like many entrepreneurs with personal debt issues and the lack of a source of income. Still, it might be relevant in removing the uncertainty that is so stressful for many.

The likelihood and profitability of progressing toward a new business are increased when (a) individuals perceive positive learning benefits from the BF (b) individuals share meaningful/useful business connections and/or support from science and technology infrastructures (c) failed projects did not present substantial personal financial loss and (d) there are moderate factors, such as the support of formal (government) and informal (e.g. family) institutions, that curb the perceived costs involved in the BF.

Age impacts significantly on the perceived psychological costs of BF.

Age moderates the effects of learning benefits perceived from BF.

4.2 How individuals change business behaviors and practices in light of a failure event

In business, learning usually means a change in “how things are done.” In the case of the defined framework, these changes are usually most visible in the longer-term outcomes.

In terms of cognitive changes, the existing literature focuses on optimism ( Ucbasaran et al. , 2013 ), an aspect this study does not specifically address. Instead, it focuses on other cognitive changes, especially on the perception the individuals have of themselves, entrepreneurship and other life-related topics that were brought up in the non-rigidity nature of the interviews. The behavioral literature focuses on the intention of continuing to launch ventures (which was a pre-requisite for this study) and changes/improvements in business practices, which is also addressed in the course of this study.

In light of this, several key points were identified that could support the current literature, add other relevant information and indicate further paths to better understand the phenomenon.

The main question lies is in what way do the individuals change their business behaviors and practices in light of a previous failure event – a process that turned out to be easily observable with clear links between the two different experiences.

For instance, and as previously discussed, it is easy to associate Paulo’s values and the measures implemented by the entrepreneur of the successful company with the betrayal previously experienced by the failure. One could identify that it does relate these with these aspects on some levels, such as in the attention paid to drawing up much more tightly written contract with the owners of his business to avoid litigation and ill intentions. Brian also claimed some business practices changes, specifically regarding team picks, much as André said that on the following projects, the partners were chosen in a very different way from the previous project.

Marius also learned cognitive changes that shaped his behavior, by discovering that, in this particular case, the motivation was affected by what was daily developed, asserting that it was not enjoyable to just focusing on developing a product without having business tasks, a feature that drove Marius to start new businesses. However, the narrative progressed to another important behavior change, where it’s decided that one could not be running multiple successful businesses and a much needed focus in order to produce better results, culminating in the closure of two projects and the launch of the latter most successful one.

A specific type of behavior worth analyzing is the individual’s actions with regard to risk after failure. While it is evident that these cases present a somewhat biased analysis for this factor, it seems clear that the individuals maintained the same attitudes toward prospecting and assessing new market opportunities. Even though they failed, they kept trying, with many reporting an increase in confidence. André, Brian and Marius also admitted that they have invested more of themselves and taken more risk in the projects, claiming to value more attitudes such as a “commitment,” “focus” and “100% in” within their projects.

Of course, these behavioral changes are also accompanied by significant cognitive change. As stated, confidence and self-awareness of their skill was repeatedly brought up by the interviewees. Brian and Mikko also said that knowing they can survive failure is important, most certainly increasing their resilience. This might indeed support Shepherd’s (2003) conclusion that being aware of these normal negative emotions resulting from failure can in fact reduce the stress associated with it.

André was proud of the failure and Marius called it a unique learning experience. This outlook is mostly highlighted by the younger individuals, whereas the older entrepreneurs tend to focus much less on this dimension, although some changes in their behavior are still visible (perhaps to lesser degree), as previously discussed. For instance, Paulo decided to no longer work for the Portuguese market and ended up with a Portugal-based international company without a single Portuguese client; and José admitted to have never used venture capital money again, stating that forward such financing would be raised in a much more careful way.

BF tends to entail changes in subsequent business behaviors and practices (e.g. legal procedures/contracts; choices of the management team; choices of the funding partners/sources; strategic business focus).

4.3 The effect of previous failure on the individual’s future career path and/or decisions to embark on subsequent ventures

Regarding the effect that the failure has on the future path of the individuals, it is safe to say that it had a significant impact. The literature usually refers to changes in career path as a coping mechanism to overcome financial costs ( Ucbasaran et al. , 2013 ). Ucbasaran et al. ’s (2013) study, however, does not have such a narrow view of career change (although one of the individuals admitted this applied in his case). It tries to identify smaller shifts in the entrepreneur’s progression, such as changing industries, changing roles and even investing in further education to achieve a different career path.

First and foremost, it should be noted that these cases present a biased view of how the careers may possibly progress – after all, by design, these are considered people who followed and became successful entrepreneurs.

But even within the entrepreneurial culture, differences and deviations can be found between success and failure. For instance, Paulo shifted from a low-tech venture to a full-fledged tech start-up, focusing mostly on research and development. This was fully intentional, as it was one of the reasons why Paulo went back to college, to afterwards engage in such a project with expectations of entering the international market.

In truth, all the interviewees changed their industry when they started new projects. Mikko shifted from food services to event management and Brian focused on entrepreneurship education. André preferred to stay on the path of corporate job career and invested in the IT retail market, re-applying the knowledge previously gained, taking advantage of opportunities detected previously and compensating for the costs of the failed venture. José also showed no indication of continuing to invest in projects within the music equipment industry, admitting that it was an extremely difficult industry to enter.

Marius presented an even clearer picture, by claiming that the failure was a help in deciding what professional career to choose. The failed business was in medical/cosmetic products and the successful one in pure consumer electronics, but they do however share key traits – they both focus on a physical product with global potential. Marius adds that it is exactly what he wants to do with his career, acknowledging that the latter successful investment was identified and pursued based on the knowledge gained with other businesses and the failed venture.

BF is likely to significantly impact on individuals’ future career path.

Subsequent business ventures tend to operate in distinct business areas of the former failed ventures.

Subsequent business ventures tend to require new knowledge and/or the application of entrepreneurs’ accumulated knowledge to new areas.

4.4 How can these different outcomes be explained? What is it about certain individuals, BFs, and/or the nature of the stories that obstruct – rather than generate – action?

An entrepreneur’s lifestyle is often considered a continuous iterative process. André appears to share this vision, when claiming that individuals that share these kinds of traits will try again until they are successful – only to later distance themselves and support new projects, by developing or investing in them. This progress is not always continuous.

Considering this sample, many individuals had to launch several projects until they achieved a desirable level of success. Marius owned three companies at a point, until identifying his current venture, deciding to separate from all other projects and focus on the one that foresaw the highest return. Paulo, after having businesses in the IT industry, real estate industry and leisure industry, decided to put his professional activity on hold to return to college in order to be able to start a different kind of company. Another example of how this progression is somewhat chaotic is the case of Mikko, who was already involved in his next project while still tied to the failing venture. André kept working for the IT company for years while gathering the required resources to launch his technological start-up.

Context seems to influence the actions and decisions of the individuals in the short term, but a wider view shows that success can be achieved in spite of unfavorable environments, as it appears to stem from the nature of these remarkable individuals. These individuals found success most likely due to the characteristics they possess, such as resilience, favorable personal background to overcome the costs and, perhaps, a bit of luck.

The individuals’ cognitive traits and the changes they experience could also prove to be pivotal for the future outcomes. A good example is when Paulo firmly states that managing a business is key driver, along with wanting to lead and to be the boss. Paulo shows great self-awareness when admitting to be stimulated by unstable environments – a contrast with André’s case, which seems to be very risk averse but, nevertheless, manages to plan a career in accordance in order to avoid high exposure to the risk of failure.

Another important phenomenon occurs when Marius distances himself from the failure. Dwelling on the fact that of previously creating two other relatively successful companies when the first one was nearly shutting down, admitting that had the focus been put exclusively on the one company that failed it would have been a “more personal failure.” Marius talks later about being unsure of he would have invested in the last and more successful business if the previous had not occur – specifically, if the chance of learning “what to do and what not to do,” the chance of trying different things and projects, or even if the focus had only been set on one project, concluding that actually would never have met his current partners of the successful business.

Still on the issue of factors that can generate or prevent action, a common important narrative point is related to how the business venture ends. The interviewees seem to value a decisive and fast closure, as the source of stress seems to derive more from “failing” than from the actual “failure.” The contrast is also visible in cases that dragged out over time and passed from stakeholder to stakeholder, battling in procedural and legal disputes.

Even if the individual wishes to try again or keep the venture going (as previously mentioned, a possible method of anticipatory grief; Shepherd et al. , 2009 ), when the time comes to inevitably shut the business down, there is evidence that the faster it happens the better it is for the individual to move on – much like removing a bandage quickly.

Subsequent business success encompasses business intermittence and several past BFs.

Fast closure of the failed venture is likely to push entrepreneurs to subsequent new business creation.

5. Conclusions

5.1 main contributions of the study.

The evidence gathered shows that previous failure impacts on individuals strongly. Such an impact appears to be conditioned by the individuals’ experience and age, and their own perception of blame within the failure. However, for these particular individuals, it does not appear to be affected by the size of the project or the amount of financial loss.

Moreover, certain antecedents, specifically, the involvement of institutions in the individuals’ lives, can significantly curb the costs suffered after the failure. Some case studies reported a feeling of relief when the failed business closed. It is possible that a quick cease of contact with the failure may be beneficial, in contrast to the case that endured long legal battles.

It was also found that all the individuals’ career paths were influenced by the failure, with some having a much more significant impact than others. Failure or failing were a pivotal moment in the lives of the participants in this study – some individuals were even already developing or had already developed their next full-time project while the failure occurred, having immediately changed focus afterwards.

5.2 Implications of this research on theory and practice

Theoretical and practical implications can be drawn from these conclusions. For young and aspiring entrepreneurs, their future ventures should be seen first as a learning experience and should be prepared with serious consideration for failure. They should adapt their expectations to the fact that, in case of failure, it is not a lifetime ban on success. It is possible to bounce back and the lessons that they acquired during the failure may prove very significant in the future. Evidence was also found on the development of key cognitive and behavioral changes that the individuals directly relate to the failure and are considered crucial for their current success. Other key aspects that influence success were identified from the previous failure, like meeting a future business partner or connection during the process.

With regard to the implications for institutions, cases have been described where entities restricted or inflated the aftermath costs. In the case of NGO and education professionals, failing to maintain a business venture is still a very significant learning experience, especially at a young age. In these cases, three individuals participated in such programs and two launched businesses within a prepared risk-controlled framework, later growing out of it. Thus, preparation of a controlled environment for failure appears to produce truly interesting results. Bolinger and Brown (2015) make a similar case when claiming that entrepreneurship education should take a role in focusing the positive consequences of failure.

Regarding public institutions, there were positive aspects produced with the reduced risk funding programs that some individuals opted for. These benefits appear to have been mostly at the level of the individuals that owned the business. Cost enhancers were also visible, specifically with the complications that some individuals faced in closing their venture. Long legal battles were the main reason for this, and should be considered very detrimental for entrepreneurial development within a country.

5.3 Limitations of this research

This research focuses on the personal point of view of the subjects, which for most of them occur in a point of time after a certain kind of redemption has been achieved from their past failed projects. This view is somewhat reductive of the full scope of the phenomenon, not capturing the advent of the failure, the immediate following period nor the atonement achieved later on.

Additionally, it should be noted that this study only focuses on individuals that successfully tried again to launch a business of their own after having failed previously. However, insufficient evidence can support or steer future research on a path to better identifying the factors that hinder or foster action toward future entrepreneurial efforts, either based on individual actions or originated from the context. For example, as discussed in the section on financial cost moderators, all the cases had significant help from others or other sources of income that shielded them from more damaging costs. This could certainly be an important factor for their careers. It is also a rather poorly research topic, since most of the institutional theory in BF research focuses on bankruptcy law – the government, however, is not the only institution that affects the lives of the entrepreneurs.

5.4 Future research recommendations

Implications for the further development of this field are mostly related with the need for further empirical evidence (both quantitative and qualitative). This study focuses on individuals that failed and then found success in entrepreneurial ventures – there is still a wide array of longer-term outcomes (or stages in life that can be considered different outcomes) that need to be analyzed, as they can produce very interesting results.

Relating to each of the stated conclusions, one could draw on the observations and potentially identify many research opportunities for the future. For instance, one could learn more from the entrepreneurs’ personal and professional development if analyzed through a longer period of years and in different contexts and stages of his/her life. The identified key events of their lives, social developments, specific skills and learning points, and perhaps even personal and financial cost bearings would most likely be identifiable in a quantitative research initiative, perhaps providing a much clearer insight.

A much wider sample might also allow a deeper understanding of the conclusion present in Section 5.2, as the research project is only designed to analyze one specific outcome after a BF. For example, the analyzed set of individuals kept the same attitude toward new business ventures and potentially risk assessment – one could argue that it might not always be the case after a traumatic experience. It also relates to the point stressed in Section 5.3 – the changes on one’s persona potentially led to a specific outcome, a future career that involved another business venture. It would also be interesting to see how these changes are perceived by a larger target – would the eventual success be attributable to the previous traumatic experience? Would the weight of the costs be worthy? Relating to Section 5.4, and perhaps even more interestingly, would failure be a significant variable in the explaining of eventual success? In a quantitative research, it would be difficult to perceive certain decisions in a timeline, but some clear key event would still be identifiable – business creation and business closure, cost moderators and investment risks. Correlation between events and outcomes could guide research to a better understanding of the phenomena.

Finally, evidence was found of significant factors and patterns within the cases that deserve a more in-depth and qualitative analysis. For instance, younger individuals showed a much more emotional response to the phenomenon, also reporting much deeper lessons. In contrast, senior individuals showed lower psychological costs. Similar to other studies, context is still very present within the narratives of the entrepreneurs, as are the antecedents of the failure – although it is not a focus of this study, several relationships were established between previous facts of the failure, expectations of the venture, and the process of failure itself with the aftermath costs endured by the individuals and the sensemaking process.

The resilience shown by the “serial entrepreneurs” analyzed lets them endure cost after cost, feeding their drive even when they actually achieve success. These individuals deserve a study dedicated only to them.

A theoretical framework for studying the process of business failure for an individual

Operationalized framework for studying business failure (BF) experiences

Theoretical frame of the consequences of BF research stream