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Why Small Businesses Fail: Top 6 Reasons For Startup Failure

A small business is one such business where a minimum capital is involved. This does not mean that a start-up is any less of a business. We all have seen start-ups flourish so quickly and escalating high enough to become the biggest profit turners of all time.

However, no one ever talks about business ideas, which fail because of any number of reasons. Sometimes poor execution or lack of standing on the market kicks you out of business. Nevertheless, the question remains, ‘Why do small businesses fail?’

“Failure is not something that most people think at the time of starting a business. The statistics say that an entrepreneur must take control and due care on the below-mentioned six points to ensure the rise of your business.”

Following are the top six reasons for start-up failure:

Why Do Small Businesses Fail?

#1. Wrong Reason To Start Business:

It is very important to consider when a business person concentrates his/her mind at the right place and has a long vision to achieve through his/her business. Most people think of starting their own business is when they need to make a lot of money.

Several reasons will lead you to start your own business:

  • Make sure that your service or product fills a gap in the market. Your passion and your love for business should be based on proper study and research.
  • When others do not believe in your dream, throw into your determination, goal, patience, and drive to run your business and turn it into a profit.
  • Trust in the learning process. Learn from your failures. Mistakes are made every day, learn from them and bring your company where it is meant to be.
  • You are in-charge, but take your decisions considering what experts have to say about the matter, you will have the best solution right in front of you.
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#2. Poor Management Skills:

The number one reason for most start-ups to fail is ‘Poor management’ according to a survey. It is not necessary that an owner of a business is an expert in entrepreneurship or is experienced in the field at all. Newly born businesses lack management skills and expertise in areas of finance, selling, production, managing employs and hiring the best ones for the job.

It is very important for a business owner to realize where her/his business lacks expertise and bring that positive change. If s/he fails to do so, the start-up is in jeopardy.

As a solution to this problem, start-up owners must learn the required skills and knowledge or instead hire skilled professionals to do that job for him and even choose the option to outsource the work to experts.

“A successful manager is supposed to be the backbone of a business”

#3. Insufficient Funds To Run:

Having insufficient capital funds at the beginning of the business is the third biggest reason for failure. Having unrealistic confidence in yourself is one thing, but practical ignorance is below the bridge.

A freshly born business owner may not be that skilled to understand the cash flow in a business start-up. As a result, their business shuts to the ground even before they have had a fair chance to fight for it.

In an expert’s opinion, you should not only calculate the funds to get your business started, but also to stay relevant until the company breaks-even. Usually, it takes a year or two for a start-up to stand on its feet in the market.


#4. Inappropriate Location Choice:

Your business books said rightly, ‘location is essential for the success of local start-ups’.

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If your start-up requires you to have walk-in clientele or a professional meeting place for business, a good location in the right market is crucial for survival.

A bad location will hurt your business even with the best management.

Essential factors to consider:

  • Location of your customer niche.
  • Traffic, lighting, parking, accessibility to your office.
  • Know the location of your competitors in the market.
  • Proper safety measures are to be considered.
  • Consider the receptiveness of previous businesses in that area.

‘If your business does not require you to have walk-in clientele, you might as well start a business from your home.’

#5. Improper Planning:

Let us consider an example of a college event, successful event managers admit that if it were not for proper communication, methodological process, strategic planning, cautiousness, and hard work, they would not have tasted success for that event.

Similar is the case with successful start-ups.

A strong fundamental plan for the start and running of a business is a critical aspect. A business manager must realize what their shortcomings are through proper planning and procedure.

‘Study the current information on your business to predict the next move for your future.’

Consider the following components for your business:

  • A proper mission and vision statement and jotting down keys to success, for clarity of the job.
  • Analyze your niche market.
  • Required workforce assumption.
  • Troubleshoot potential problems and find solutions.
  • Financial clarity: capital funds, equipment costs, financial statements, expenditure to income ratio.
  • Analysis of competition.
  • Start-up marketing and Public Relations.
  • Funding and managing the business.

Most business companies and investors seek for your business plan to help with extra funding to predict a profitable investment and reduce the chance of losses.

#6. Lack Of Social Media Presence:

Nowadays it is very important to consider the fact is, ‘what sells is what is seen’. If you have a business today, it must have an attracting website and social media presence.

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Gone are the days where an advertisement in a newspaper classified was enough to spread the word. It is the 21st century and nothing is more powerful as a social media platform.

A professional look and best web development must be included in your vision and mission for the business. It is a guide for the customers on how to avail your service and products. If your business deals with serving the local market, then your address and telephone, contact must also be mentioned on your website.

Remember, ‘The first impression is the last impression’.

Therefore, having a proper social media accounts on Instagram, Facebook, and other platforms are necessary for this era to spread the word about you in the market.

Final Note:

When it comes to a successful business, it is relevant to notice that a Business owner or even the managers are the biggest assets to the company. The proper mindset, positive attitude, determination, and patience are a few facts needed to bring together for a start-up to reach the statures of success.

It is better to be cautious about the obstacles that might get in your way than to sight them and move towards failure. Most successful entrepreneurs are billionaires with an average intelligent quotient, but what sets them all apart is their willingness to learn new things every day and consider their failures as a learning opportunity.

Gaurav GuptaAbout the Author:

Gaurav Gupta was one of the earliest software developers at SlideShare-LinkedIn which was followed by working for companies like, Educomp, Tata Institute of Fundamental Research, etc. He is a techie not only by profession but also by passion and believes that going online is the future of education that’s why focuses on giving the best App and web development services.

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