Top 10 Reasons Small Businesses Fail

Top 10 Reasons Small Businesses Fail

Failure is most likely the darkest side of entrepreneurship. A main reason for this is that its causes are unknown to entrepreneurs. And a main reason for this is that entrepreneurs often think they are doing what is right for the business while they are in fact driving the business towards failure, often out of denial or ignorance of errors. If these entrepreneurs had acknowledged these mistakes, instead of blaming his or her partner, bank, or the government, his or her business may have been saved. But what are these fatal errors?

(1) There is not a sufficient market for the product to profit the business.

(2) Owners make it hard on themselves behaviorally or personally.

(3) Over-expansion ruins the business as it attempts to broaden its product reach to consumers or its product mix.

(4) Financial ignorance causes the firm to blindly stumble since it finds no support from accounting firms.

(5) A sudden misfortune can drain a business of cash or credit.

(6) The loss of potential customers through average or under-average goods, services and ideas leaves a business stranded.

(7) Overwhelming costs can prove to be lethal to a business in today’s economy and competitive environment.

(8) Poor management without vision, standards, focus, standards, or a dozen other things drive a firm into failure.

(9) Family businesses are discontinued as the previous generation passes away without leaving a succession plan.

(10) Businesses in declining markets, even theoretically successful ones, may be left behind in the dust due to uncontrollable forces.

Following this paragraph, I will discuss how some of these problems can be solved and failure can be averted as these problems relate to marketing.

Reason 1: An insufficient and/or unprofitable market

This could mean that the product has A SMALL/NO market, or there is a thriving market but larger firms, which can take advantage of things such as economies of scale.

To avoid the problem of there being a small/no market, market research could be conducted beforehand. As the entrepreneur proceeds through the six basic steps of market research (which include problem definition, preliminary investigation, research planning, information gathering, information interpreting, and conclusion research), he or she may discover there is not a sufficient, profitable market for the planned product. Although this can be expensive and/or time consuming for the owner-to-be of the small business, it can save him or her from failure.

If the market is thriving, but there are larger businesses which have lower priced or better known products, the small business may be overwhelmed by the competition. Advantages the companies have over small businesses, such as the benefits of economies of scale (which is the reduction of average costs due to an increase of business size), can be overcome with high quality, personalized products, or even a strong advertising campaign.

Reason 3: Over-expansion

Here, the successful business can be rundown with too many loans meant keep the business expanding, “growing pains”, or, as we will examine, moving into unprofitable markets.

As a small firm grows, it may wish to grow into other markets. These may be closely related, for instance from an auto-manufacturer to an auto-dealer, or they could be irrelevant, as from a restaurant to a hardware store. But in all cases, there is unfamiliar ground onto which the entrepreneur is stepping. Research and development, which includes market research, can help avoid this.

After the successful firm has researched the matter, which could be done thoroughly since the business has sufficient assets, it can either abort the idea and continue to market the same products, or it use the researched information to create a product which would satisfy the consumers needs.

Reason 6: Operational mediocrity

This means the business is okay; it’s not unlike other firms, so consumers are not compelled to purchase products from it.

This can lead to a fluctuant and random market of customers. Since they have no real reason to go to that firm as opposed to other similar businesses, they may or may not. This can lead to low sales. To such a business, each and every customer is crucial, so it needs to keep all it can get. By employing Customer Relationship Management (CRM), the business can retain its old customers, stand out amongst its competition, and gain new customers.

In the process of CRM, the firm could have its customers fill out response sheets on the firm’s products or general questionnaires about their needs and wants. This would give the business product feedback so it can improve its products or it could give the firm marketing information so improve overall sales. In addition to improving profitability by increasing customer quantity, the firm could improve consumer quality through relationship marketing, which is the establishing of “long-term, mutually satisfying buyer-seller relationships”.

Reason 10: A declining market

As we progress in the twenty-first century, technology changes daily, consumer demand is even more fluctuant, and massive companies with millions to spend continue to overwhelm small businesses. In this environment, even once popular business types, such as book stores, music stores, and printing shops, have begun to see decline. One method of combating this would be to employ an effective marketing campaign. This could spice up enough interest in the forgotten product so sales could once again rise.

Such a campaign would have to incorporate all aspects of marketing (product, price, distribution, and promotion) to achieve maximum effectiveness. Although small retailers are generally unable to have a large impact on the creation of products (books, music, paper), they can offer attractive prices for high quality products. This itself could bring a business off the brink of failure. Add to that an easily accessed location and possibly events to promote the product, and the business could thrive once more. However, the overall scope of the firm should not be forgotten as the owner plans and enacts all of this.

So, that is how the little guys fall and how they can catch themselves before they crash.