Top Reasons Why Small Businesses Fail

The SBA says that 50% of all businesses fail within the first year, and 95% fail within the first 5 years.

I’ve seen dozens of top 10 lists that highlight why small businesses fail. Here are some of the reasons I’ve read on lists from dozens of articles:

  1. -poor record keeping
  2. -bad location
  3. -lack of qualified leads
  4. -lack of product diversification
  5. -poor planning of workload
  6. -making a hobby a business
  7. -no business plan
  8. -lack of discipline
  9. -too much entrepreneurial enthusiasm
  10. -run by technicians, not business owners
  11. -undercapitalization
  12. -poor money management
  13. -ignoring the competition
  14. -ineffective marketing
  15. -lack of sales (no closers)
  16. -poor customer service
  17. -entrepreneurial burnout (inability to survive the hard early years)
  18. -ignoring customer needs
  19. -incompetent employees
  20. -cutting corners
  21. -not embracing technology
  22. -being unprepared for seasonal fluctuations
  23. -improper delegation of tasks
  24. -failure to research
  25. -fear

Those are just the top 25 I’ve discovered. But those aren’t the reasons small businesses fail. All of those things listed above are merely symptoms of the real entrepreneurial downfalls. There are truly only three reasons why small businesses fail.

1. Lack of peer relationships

So much can be gotten from having a group of peers, fellow entrepreneurs and business owners, to get together and share experiences. Too many small business owners try and go it alone, and as a result, they feel alone. That sense of isolation often leads to depression and feeds symptom #25…fear.

2. Lack of entrepreneurial education

Read over that list of 25 syptoms again. How many of them could be avoided by gaining the specialized knowledge required to run a business? Small business owners, going it alone, often attemtp to continuously reinvent the wheel. Some one has done it before. If it isn’t someone in your peer group (see reason #1), then most certainly someone has done it and written an article, book or information product on. Investing in yourself and your specialized knowledge is truly the best investment you can make for your business.

3. Lack of a mentor (or mentors)

If your peers haven’t been there before, and you don’t know where to find the information, where do you turn? Your mentor. A good mentor has walked the path through the minefield before you, and they made a map of the mines to avoid. A mentor’s job is to point you in the right direction, then let you go! And to be there for you when you reach the next fork in the road. A good mentor doesn’t do it for you, walk you through the process, or hold your hand. She’s a directional beacon…helping you know where to go when things seem dark.

With those three things in place; a peer group, education, and a mentor, every one of the 25 symptoms that lead to business failure can easily be avoided.

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