what are the reasons for failure of business plan

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

Comments Cancel

Join 60,000 other leaders engaged in transforming their organizations., subscribe to get the latest agile strategy best practices, free guides, case studies, and videos in your inbox every week..

Leading strategy? Join our FREE community.

Become a member of the chief strategy officer collaborative..

Free monthly sessions and exclusive content.

Do you want to 2x your impact.

Why do business plans fail?

Table of Contents

Bad product ideas

Poor partnerships , a lack of detail , unrealistic financial planning , how a simple app can help improve your business plan.

Unfortunately, not every business will be a success. The failure of businesses is usually due to some issue in their business plan, and there are hundreds of different issues a business plan could have.

This article will describe some of the most common reasons a business plan might fail and how you can avoid them. We’ll look at common pitfalls such as:

• Poor partnerships
• A lack of detail
• Unrealistic financial planning

Sometimes, a business plan fails simply because it focuses on bad product ideas. A bad product idea means that the product or service your business specialises in does not sell well, and the lack of sales leads to an income problem for your business.

Business plans containing bad product ideas usually come about due to a misunderstanding of the term ‘ unique selling point ’. A unique selling point is what makes your product stand out from the products of the competition. It’s a feature that makes the product better as well as being unique. 

Many bad product ideas come from individuals that focus too much on the ‘unique’ part of the term unique selling point. While it is important to have a different product from anything else on the market, make sure you also know what your customers want from a product .

While it’s nice to have help running your business, it’s important to find the right person for the job before you write a contract for a business partnership . If you create a business plan as a partnership and your partner fails to fulfil their responsibilities, your business will struggle to succeed.

There are three things you may want to consider if you’re trying to avoid poor partnerships. The first is your partner’s skill set: look for someone with talents related to your business idea as well as talents you don’t possess. It’s helpful to have a diverse collection of skills within your business. 

Secondly, make sure your potential partner is as passionate about the business as you are. If they aren’t, you may find that you end up doing most of the work or that they leave the business as soon as things become difficult. While measuring passion and emotional investment is challenging, finding a business partner that matches your feelings regarding your business plan is vital.

Finally, create an exit strategy. While you may have found a perfect business partner, you never know what difficulties you’ll encounter in the future. So make sure you know what to do if there is an internal conflict in your company that you can’t resolve peacefully.

When you write a business plan , you need to make sure that you plan for almost anything. One of the biggest reasons business plans fail is because they don’t account for certain situations.

It’s impossible to plan for truly unexpected problems, but a detailed business plan will account for most situations by listing off your company’s weaknesses during a SWOT analysis . SWOT stands for strengths, weaknesses, opportunities, and threats, and it’s a standard part of most business plans. 

By using SWOT to list weaknesses in your business plan and potential threats to your success, you can start planning ways to deal with problems. For instance, you might identify a lack of sales as a potential threat. To account for this, you could invest in marketing or reduce your prices. If your business plan doesn’t account for these sorts of situations, it increases its chances of failure. 

Another reason for lack of detail in a business plan is low-quality research or not performing research at all. Without researching the market and industry you operate in, you’ll struggle to learn about your competitors or understand your customers’ needs. Thorough research is an essential part of avoiding business plan failure.

Financial planning is essential in business. You might not know the future of your business, but with a decent financial plan, you’ll be able to avoid most obstacles to success. If your financial plan is poorly thought-out or unrealistic, though, it might not be as valuable.

Financial plans are all about mapping out your company’s growth. If you’re too optimistic about this growth, it can cause serious problems. Unrealistic expectations can cause unprepared businesses to go bankrupt very quickly.

For example, say you expect to be making £1,000 a week in sales revenue by your second week of business. Your financial plan relies on this for you to pay rent and buy supplies. If it gets to that week and you’re only making £500, you’ll not be able to pay the bills that allow your business to operate. 

To avoid these problems, try lowering your expectations. Even if you think you have a fantastic product idea, it’s better to prepare for the worst than plan for the best and run into trouble. If you create a conservative financial plan that expects some success but accounts for things like low sales, your business plan is much less likely to fail. 

One of the biggest parts of your business plan is the financial aspect. To create a business plan that’s unlikely to fail, you’ll need to make sure you have a good understanding of accounting and a way to track how you’re spending your money.

The Countingup app offers built-in accounting software with its business account so that you can manage all your financial data in one place. 

With additional features like automatic expense categorisation, invoicing on the go, receipt capture tools, tax estimates, and cash flow insights, you can confidently keep on top of your business finances wherever you are. 

You can also share your bookkeeping with your accountant instantly without worrying about duplication errors, data lags or inaccuracies. Seamless, simple, and straightforward! 

Find out more here .

• Counting Up on Facebook
• Counting Up on Twitter
• Counting Up on LinkedIn

Related Resources

What insurance does a self-employed hairdresser need.

As a self-employed hairdresser, you’re open to risks in your everyday work. Whether

What are assets and liabilities in a business?

Anyone going into business needs to be familiar with assets and liabilities. They

Personal car for business use: How does it work?

Access to a car is a must for most businesses, meaning that travel

Advantages and disadvantages of using personal savings in business

Have you got a new business idea? And are you considering using your

How to pay Corporation Tax

Corporation Tax is the main tax your limited company has to pay every

How long do CHAPS & BACS payments take?

If you are making transfers frequently between banks in the UK, you have

11 common costs of running a business

When running a business, the various costs can quickly add up. If you

How to buy a vehicle through a limited company

Buying a vehicle through a limited company works similarly to how you may

What is a sales strategy? (with example)

When you run a small business, it’s important to consider how you’ll optimise

Preparing business packages for distribution

You may think shipping your product is as easy as popping it in

How to use cloud services for a business

The development of cloud computing is a game changer for businesses big and

How do EU imports and exports work?

In January 2022, the UK introduced new EU imports and exports regulations. If

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.

Brought to you by

Create a professional business plan

Using ai and step-by-step instructions.

Secure funding

Validate ideas

Build a strategy

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.

Clarify your ideas and understand how to start your business with LivePlan

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

Related Articles

16 Min. Read

85 Essential Startup Resources You Should Know About

17 Min. Read

How to Find a Mentor

5 Min. Read

Why You Should Surround Yourself With Inspirational People

8 Min. Read

How to Manage the Stress of Starting and Running Your Own Business

The Bplans Newsletter

The Bplans Weekly

Subscribe now for weekly advice and free downloadable resources to help start and grow your business.

We care about your privacy. See our privacy policy .

The quickest way to turn a business idea into a business plan

Fill-in-the-blanks and automatic financials make it easy.

No thanks, I prefer writing 40-page documents.

Discover the world’s #1 plan building software

EXCLUSIVE SUMMIT OFFER Join foundr+ and get Ecommerce Kickstarter program free!

• Skip to primary navigation
• Skip to main content

A magazine for young entrepreneurs

The best advice in entrepreneurship

Subscribe for exclusive access, why do businesses fail here are solutions for 10 common causes..

Written by Grant Olsen | February 2, 2022

Comments -->

Get real-time frameworks, tools, and inspiration to start and build your business. Subscribe here

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.

Related Posts

The 12 Best Business Startup Books Every Entrepreneur Needs

Business Ideas for Teens: Start Your Side Hustle Early

What to Sell in 2024: Unearth Profitable Products

How Reid Hoffman Became a Silicon Valley Icon

Shopping Cart Abandonment: Why It Matters and What to Do for Recovery

How To Develop a Million-Dollar Pitch Deck For Potential Investors

How Shipt Founder Bill Smith Had Three Exits Before 40

What to Sell on eBay: 5 Reliable Product Categories for Your eBay Store

How to Sell on eBay: A Detailed Step-by-Step Guide

Product Testing: It’s Worth Investing

How to Manufacture a Product: A Detailed Breakdown

How to Find USA Suppliers

How to Find Chinese Manufacturers to Bring Your Product to Life

AI Tools For Business: 6 Tools to Start from Scratch With

Business Not Making Money? Here’s the Reason(s) Why

FREE TRAINING FROM LEGIT FOUNDERS

Actionable Strategies for Starting & Growing Any Business.

Plan Smarter, Grow Faster:

25% Off Annual Plans! Save Now

0 results have been found for “”

 Return to blog home

9 Major Reasons Why Businesses Fail by Year 2 and How to Avoid Them

Posted january 28, 2021 by jake pool.

According to the Bureau of Labor Statistics, over thirty percent of private companies fail within two years.

Of course, there are external factors that businesses have no control over. Sadly, the COVID-19 Pandemic is a prime example of one. Since such events are unavoidable, let’s focus on internal factors that companies can act on.

9 common issues to avoid when running your business

As a new business owner, what are the traps to avoid from the start? And what can you do to stay in business? By understanding the following pitfalls you can hopefully avoid them and keep your business running smoothly for far longer than 5 years. Let’s dive in.

1. Insufficient funds due to weak forecasting

Without a doubt, poor financial forecasting is the main reason businesses fail.

It is relatively easy to plan fixed costs such as rent, payroll, utilities, hardware, etc. Entrepreneurs should vet this out extensively when writing their initial business plan.

However, it can be more challenging to forecast revenue generated from sales . Many new business owners are overoptimistic in their planning and vision. This results in an inability to amortize (pay off) an initial investment. Thus, the business fails.

Similarly, companies may be tempted to launch their product or services at a cheap price to be competitive. While it can work in the short-term, it’s not a sustainable business model. Once you start with a low price, it’s difficult to increase.

Goals should be ambitious, but attainable. And the budget should reflect accordingly.

2. The business lacks value

The success of any business hinges of its value. It might sound obvious, but it’s not that easy. As a business owner (or future), you probably think your product or service is great. But it’s not enough.

Before launching a business, always do extensive research (there is a lot of data available) on your target audience. Benchmarking and surveys are also a must.

Here are some generic survey questions to ask:

• Would you talk about this product or service with others?
• Have you ever heard of a similar product or service?
• How much would you pay for this product or service?

If your product is only valuable to you or a small group, or it doesn’t offer more value than your competition, it’s time to rethink things.

3. Inadequate business plan

As mentioned in the first point, budgeting is a key element of a business plan . But it’s not the only factor within the plan that will break a business.

A good business plan should include:

• A comprehensive description of the business
• Workforce needs and compliance (current and future)
• SWOT analysis
• Benchmarking Analysis
• Marketing Plan

But a solid initial business plan isn’t enough. Business owners should review and modify it regularly to keep with the pace of the industry and assess internal goals.

Many failed businesses in this scenario end up listed on business marketplaces like UpFlip because there are entrepreneurs out there equipped to change a poor business plan.

4. No connection with the target audience

The first questions any business owner should ask are — Do I know my target audience and do I understand what they need and want?

If you can’t answer those questions, it’s time to conduct more surveys and research. Otherwise, there is a disconnect, and the business will ultimately suffer and fail. It seems like a bold statement, but the biggest part of a purchasing decision is emotion.

Your product or service may have wonderful features and even value, but if it doesn’t connect with your target audience on an emotional level, it will fail.

For example:

If you run an office furniture business, obviously, the technical aspects of your premiere desk chair would be a sales point. But sturdy wheels and a comfortable backrest won’t differentiate you from the competition. 

Yes, you sell a chair. But also sell the idea of success, professionalism, or even luxury. The target audience must connect with your product on those levels. Otherwise, the business won’t stand out.

5. Competition is too stiff

Even with a comprehensive benchmarking analysis in the initial business plan, competition can evolve quickly. In many industries, there are new players every day in their respective markets.

To avoid failure, benchmarking must be a continuous effort. If your competitors are too big, it’s in the business’s interest to find a niche or some form of added value to your products or services.

Take TOMS Shoes , for instance. They broke into the highly competitive world of mid-level shoe sales by offering a socially conscious selling point to the value of their shoes. For every purchase, they give a pair of shoes to a child.

Note how their model also connects with their target audience at an emotional level.

6. Poor management

The success of a business comes from the top down.

Small business owners are often the only managers within a company. While it may work sometimes, it’s advisable to form a proper management team or at least hire a general manager.

Business owners don’t always have the necessary skills or time to be a good manager. Poorly managing or overlooking certain aspects of the business like human resources, marketing, or accounting can have a disastrous effect.

It’s important to learn to delegate to avoid wearing too many hats.

If you don’t have the money or infrastructure to hire full-time help (or in-house), think about outsourcing certain management tasks to a qualified freelancer via Upwork or a similar platform.

Otherwise, someone who can manage the company will soon take over.

7. Lack of a company culture

There is no happy company without happy employees. You may have a great business model and entrepreneurial skills, but the success of the company also depends on the staff.

It’s key to outline and implement a strong company culture from the beginning. And make sure that the people hired align with it.

Once in place, feed and maintain the culture mentality. Otherwise, you risk issues with high turnover. This has led to the internal collapse of many businesses in a shorter time span than two years.

8. Ineffective sales funnel

Getting leads is essential for any company, but your leads are worthless if they don’t convert. Many new companies focus on collecting data and leads and fail to nurture them properly.

To avoid bloating your sales pipeline , you need an effective sales funnel from beginning to end (and beyond!). It could vary depending on the industry, but be sure to nurture your leads as long as needed to complete the sale.

In the ideal sales funnel, leads convert when ready and become ambassadors of the brand. With a quality, automated system, you can sit back and watch it happen.

Here are a few ideas on nurturing leads:

• Send industry-related freebies (How-to Guides, Tools, White papers)
• Share relevant blog articles based on interest (personalization)
• Wish them a Happy Birthday! (Gift, Voucher)
• Set up a referral program with incentives
• Engage with leads on social media
• Use chatbot technology to answer FAQs when unavailable
• Newsletters (Old fashioned, but efficient!)

In other words, create and maintain a relationship even after the sale!

9. Bad marketing

In the early stages of a business, marketing is crucial. The key is to find the right balance between a reasonable budget and efficiency. Fortunately, this is possible thanks to digital marketing.

The two biggest advantages to investing in digital marketing campaigns are cost efficiency and measurable results (as opposed to traditional marketing methods such as print or tv advertising).

When setting up a marketing campaign, define the target audience, budget, and a realistic conversion rate. Again, if you need help, think about outsourcing for Google Ads or social media campaigns .

Many companies fail because of an inefficient marketing plan that allocates funds to ineffective channels or to ineffective content. And when it’s too late, it’s difficult to redirect funds to make up for the loss.

Awareness is key

As stated, some external factors that negatively affect a business are unavoidable, but there are many internal factors business owners can act upon to prevent failure. The first two years are critical to creating a perennial business.

Be aware of these reasons and don’t become a statistic!

Like this post? Share with a friend!

Posted in Management

Join over 1 million entrepreneurs who found success with liveplan, like this content sign up to receive more.

Subscribe for tips and guidance to help you grow a better, smarter business.

You're all set!

Exciting business insights and growth strategies will be coming your way each month.

We care about your privacy. See our privacy policy .

• Starting a Business
• Growing a Business
• Small Business Guide
• Business News
• Science & Technology
• Money & Finance
• For Subscribers
• Write for Entrepreneur
• Entrepreneur Store
• United States
• Asia Pacific
• Middle East
• South Africa

Copyright © 2024 Entrepreneur Media, LLC All rights reserved. Entrepreneur® and its related marks are registered trademarks of Entrepreneur Media LLC

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 • 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

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

Editor's Pick Red Arrow

• This 103-Year-Old Doctor Opened Her Medical Practice Before Women Could Have Bank Accounts — Here Are Her 6 Secrets to a Healthy, Successful Life
• Lock 5 Ways You Might Be Cheating on Your Taxes — And Why You Will Get Caught
• I've Had a Secret Side Hustle for Decades. It Keeps Tens of Thousands of Dollars in My Pocket — and Gets Me Into Places I Wouldn't Go Otherwise .
• Lock Here's How Steve Jobs Dealt With Negative Press and Avoided Brand Disasters
• One Factor Is Helping This Entrepreneur Tackle Business Ownership Later in Life. Now, She's Jumping Into a $20 Billion Industry .
• Lock Narcissism Can Help You Be Successful — Here's How to Harness It Without Going Too Far, According to an Ivy League-Trained Psychotherapist

Most Popular Red Arrow

This flexible side hustle is helping millions earn extra cash — and might be 'more attractive' than an office job.

Side hustles remain popular for additional income — and have many questioning the 9-5 model altogether.

Demand For This Workforce Is Soaring – Here's How You Can Capitalize On This Thriving Talent Pool to Drive Your Company's Growth

Top platforms and practical tips for capitalizing on specialized independent talent.

Her College Side Hustle Led to an Immediately Profitable Product That Sells for Up to $450 — and She Didn't Even Consider Herself 'a Business Person'

Dr. Amareen Dhaliwal's STEM tutoring gig in undergrad set her on the path to entrepreneurship.

These Are Best Cities in the World for Remote Workers, According to a New Ranking

A recent report from Remote.com ranked over 100 cities in the world. Here's the best of the bunch.

Renowned Psychologist Adam Grant Says This 3-Step Leadership Method Will Help Fight Employee Burnout

We spoke to the bestselling author at BetterUp's Uplift conference last week.

This Revolutionary Tool Will Streamline Your Sales and Workload — Here's How You Can Harness It Today.

Custom GPTs are revolutionizing sales operations in 2024 by enabling personalized automation that boosts efficiency and conversions. These tailored AI solutions enhance customer interactions and streamline workflows, marking a significant advancement in sales technology.

Successfully copied link

• Search Search Please fill out this field.
• Not Investigating the Market
• Business Plan Problems
• Too Little Financing
• Bad Location or Marketing
• Remaining Rigid
• Expanding Too Fast

The Bottom Line

• Small Business
• How to Start a Business

Top 6 Reasons New Businesses Fail

It's often said that more than half of new businesses fail during the first year. According to the U.S. Bureau of Labor Statistics (BLS), this isn't necessarily true. Data from the BLS shows that approximately 20% of new businesses fail during the first two years of being open, 45% during the first five years, and 65% during the first 10 years. Only 25% of new businesses make it to 15 years or more. These statistics haven't changed much over time, and have been fairly consistent since the 1990s. Though the odds are better than the commonly held belief, there are still many businesses that are closing down every year in the United States.

According to the BLS, entrepreneurs started 1,054,052 new businesses in the year ending March 2023. From the historical data, we can expect approximately 210,810 of these businesses to fail within the first two years. With the right planning, funding, and flexibility, businesses have a better chance of succeeding. We'll go through some of the biggest mistakes that startups can make and figure out how to improve your chances of success.

Investopedia / Ellen Lindner

1. Not Investigating the Market

So you've always wanted to open a real estate agency, and you finally have the means to do so, but your desire to open the agency blinds you to the fact that the economy is in a down housing market and the area where you want to work in is already saturated with agencies, making it very difficult to break in. This is a mistake that will result in failure from the start. You have to find an opening or unmet need within a market and then fill it rather than try and push your product or service in. It's a lot easier to satisfy a need rather than create one and convince people that they should spend money on it.

2. Business Plan Problems

A solid and realistic business plan is the basis of a successful business. In the plan, you will outline achievable goals for your business, how your business can meet those goals, and possible problems and solutions. The plan will figure out if there's a need for the business through research and surveys; it will figure out the costs and inputs needed for the business, and it will outline strategies and timelines that should be implemented and met.

Once you have the plan, you should follow it. If you start doubling your spending or changing your strategies whimsically, you are asking for failure. Unless you have found that your business plan is overwhelmingly inaccurate, stick with it. If it is inaccurate, it's best to find out what's wrong with it, fix it, and follow the new plan rather than change how you do business based on quick observations.

The more mistakes you make, the more expensive your business will become and the greater the chance of failure. You may also be called to pivot when market conditions change drastically and impact negatively the chances of success based on the initial business plan. In this case, you revisit your plan and edit it fully based on the decided pivot.

3. Too Little Financing

If you have started a company and things aren't working out, and you have little capital and a struggling business, you're not in a good position to ask for another loan . If you're realistic at the beginning, you can plan to start with enough money that will last you to the point where your business is up and running and cash is actually flowing in.

Trying to stretch your finances at the beginning may mean that your business never gets off the ground, and you'll still have a lot of cash to repay. Lean management strategy is warranted in this phase in particular but can be applied even after this phase. Try to think of multi-channels for funding and financing. Get educated about this area and be creative searching alternative sources of financing.

4. Bad Location, Internet Presence, and Marketing

A bad location is self-explanatory if your business relies on location for foot traffic . Just as dangerous, however, is a poor Internet presence. These days, your location on the internet and your social media strength can be just as important as your company's physical location in a shopping district. An online presence will let people know that they can give you their business, so if the need is already there, the availability and visibility of your business is the next important step.

This is similar to marketing . Not only must you make sure that marketing reaches people, but it must also reach the right people. So make sure the type of marketing lines up with the audience you want to reach. Big billboards may not be the way to go for an internet company, just as online ads may not be the way to go for a heavy-construction business. If the need is already established, make sure you're reaching the audience who needs your product or service.

5. Remaining Rigid

Once you've done the planning, established your business, and gained a customer base, don't become complacent. The need that you're fulfilling may not always be there. Monitor the market and know when you may need to alter your business plan. Being on top of key trends will allow you lots of time to adjust your strategy so that you can remain successful. One must only look at the music industry or Blockbuster video to know that successful industries can undergo huge changes.

6. Expanding Too Fast

Now that your business is established and successful, it's time to expand, but you must treat the expansion like you're starting all over again. If you're expanding the reach of your business, make sure that you understand the areas and markets into which you'll now be reaching. If you're expanding the scope and focus of your business, make sure you understand your new products, service and intended consumer as much as you do with your current successful business.

When a business expands too fast and doesn't take the same care with research, strategy, and planning, the financial drain of the failing business(es) can sink the whole enterprise.

Though the rate of business failure in the first two years is around 20%, it doesn't mean that you have to fail. Through research, planning, and flexibility, you can avoid many of the pitfalls of a new business and be a part of the approximately 25% that make it to 15 years and beyond.

U.S. Bureau of Labor Statistics. " Table 7. Survival of Private Sector Establishments by Opening Year ."

U.S. Bureau of Labor Statistics. " Table 5. Number of Private Sector Establishments by Age ."

• Terms of Service
• Editorial Policy
• Privacy Policy
• Your Privacy Choices

How a great business plan will maximize your risk of failure

The business plan is a great execution tool. Yet, requiring a business plan during the early stages of idea development might maximize the risk of failure. Large organizations in particular still require business plans. That is an error. In this post we outline three reasons why companies should drop business plans in favor of a more rapid and iterative approach.

While business plans are less and less common in the startup world, they persist in large corporations. In large companies it’s not uncommon that a team of several people spends a couple of weeks developing a business plan. They will first spend time on market research. Then they will craft a detailed plan with an impressive financial spreadsheet looking 3-5 years ahead. Finally, all of this will be summarized in a beautiful slide deck to convince top leadership or investors of the brilliance of the idea.

Great business plans can look so good and have such convincing arguments that it becomes hard to doubt them. Unfortunately this false illusion of security may also maximize the risk of failure (or waste time and money at the very least). No company wants that. Let’s look at three reasons why requiring business plans is a bad idea.

1) Getting too granular too early = you risk wasting time

One of the dangers of writing a business plan is to spend too much time refining an idea before it is really proven. Unfortunately, “no business plan (however smart it looks) survives first contact with customers”, as Steve Blank the initiator of the Lean Startup movement likes to say.

Rather than refining an idea at the early stages, you should test it immediately and evolve it based on market feedback. Otherwise you risk wasting time working on refining an idea that nobody cares about. The problem is that you’ll only realize that much, much later. 

TIP: Keep your early ideas very rough (e.g. on one page with the Business Model and/or Value Proposition Canvas) and immediately test them. Gradually refine your ideas with increasing  evidence.

2) Selling an idea & plan to leadership or investors  = You risk getting locked-in

Where it starts getting dangerous is when a team sells their top leadership or investors a polished and refined business plan - before rigorously testing the underlying business model and value proposition(s) in the market.

When leadership or investors buy and finance a plan they expect that success is a mere execution problem. They expect that beautiful and detailed spreadsheet in the business plan to materialize exactly how you projected it. In other words, you just got locked into a plan that was entirely made up. You are forced to execute an idea that is yet to be proven. If you want to change direction later on, it will be difficult to convince leadership because you sold them something else.

TIP: Don't sell leadership a polished and refined business plan. Sell them an opportunity and a rigorous process that will turn your idea into an executable business model by producing market evidence. Show them how this approach will minimize the risk of failure, as opposed to a business plan which maximizes the risk of getting locked into one direction that is yet to be proven.

3) Hiring based on an idea & plan = you risk premature scaling

The biggest risk of business plans is that they may lead to premature scaling. This happens when you hire people and spend money on key resources based on a plan rather than market evidence. In other words, you get into "execution mode" before you fully finished the "search" for the right business model and value proposition(s). We wrote about this in a recent post on how Great Execution of Bad Ideas Kills Businesses . 

This type of premature scaling of great looking business plans can lead to enormous financial losses. My "favorite" examples are Flo TV by Qualcomm ($1+ billion loss) or  Better Place , a startup that aimed at getting people to use electric vehicles ($850 million loss).

TIP: Don't invest in execution until you have strong evidence that your idea will work. Otherwise you risk premature scaling and running out of money.

Burn your business plan before it burns you

At Strategyzer, we are no enemies of business plans if they are used purely for execution purposes. Unfortunately we've seen too much damage from business plans used during the early stages of idea development - particularly at large organizations.

There is no place for a business plan when you are still searching for the right business model and value proposition for your idea. It's simply the wrong tool for the task and it might even lead to maximizing your risk of failure.

Business plans should be replaced by a more dynamic approach until you have sufficient evidence that your idea will work. Only then should you consider crafting a business plan. Until then, we suggest you burn your business plan before it burns you.  

Does your organization still require business plans? What's the impact?

About the speakers

Dr. Alexander (Alex) Osterwalder is one of the world’s most influential innovation experts, a leading author, entrepreneur and in-demand speaker whose work has changed the way established companies do business and how new ventures get started.

Download your free copy of this whitepaper now

Explore other examples, get strategyzer updates straight in your inbox.

Accessibility links

• Skip to content
• Accessibility Help

You are using an outdated browser. Upgrade your browser today for a better experience of this site and many others.

If you are having trouble viewing this website and would like some information please contact us on the details below...

Tel: 0208 731 0777

Email: [email protected]

Address: New Burlington House, 1075 Finchley Road , London NW11 0PU

Cohen Arnold

Tel: 0208 731 0777 - Email: [email protected]

New Burlington House, 1075 Finchley Road , London NW11 0PU

• Resources >
• Your business >
• Developing your business >
• Planning and strategy >
• Six reasons why business plans fail

At Cohen Arnold we can provide help with writing a business plan, based on our experience of working with business in the Golders Green area. Here are six reasons why business plans fail – and how to make them succeed…

You may well have prepared a business plan some years ago to present to your bank manager. If you revisit that plan now, you will probably be surprised by how little relationship the position of your business now bears to that predicted in the plan. The reality is that most business plans fail. Here are some of the traps to avoid:

1. A dead document

A business plan that is created for a purpose and then discarded will always become obsolete quickly. Making your business plan a living document is essential if you don't want the whole process to be a failure. Only a regularly reviewed and updated plan can be the spur to look critically at your business on a recurring basis.

2. Over-optimism

Most business plans are over-optimistic, especially as regards predicted sales, often massively overestimating the size of the market. Research your market thoroughly. Too many business plans include a SWOT analysis, but concentrate on the strengths and opportunities and ignore the threats and weaknesses.

3. Ignoring the competition

Business plans commonly assume that the competition will make no competitive response or indeed, will have no new initiatives of their own. Study your competitors and try to second-guess their plans. A living document will take into account their actions.

4. New or old?

Too many business plans depend on doing something new, when what is needed is to find a better way of doing what is being done now.

5. Ignoring risk

What are the risks attached to the plan? Think through these and the costs of failure as well as the rewards of success.

6. Profit or turnover?

If expansion is planned, it should result in increased profits, not just sales. Expansion requires finance, people and other resources. Can you get them?

Remember, a good business plan is as much about the process as the final document. Creating your plan will open your eyes to the realities of your business. Keeping it updated will help you stay on the right track. For help with developing your plan, call us .

Start-ups and established businesses in the Golders Green area looking for help with writing a business plan should contact Cohen Arnold for more help and advice.

Planning and strategy

• An introduction to strategic planning
• Avoiding traps in strategic planning
• Building strategic alliances
• Finding your market niche
• How to survive when times get tough
• Innovate to grow
• Make your planning meetings count
• No business is an island
• Pricing strategies
• Six steps to an effective business plan
• Small is profitable
• Strategies for increasing revenue
• The right kind of growth

The Flexitank Division at Kricon Group BV

Submitted “application for vale of leven windfarm planning submitted”, cibse introduces innovative chartered organisation program to enhance building services engineering standards, ivanti neurons for itsm now integrated with happysignals and ctms service management in new partnership launch.

• Entries feed
• Comments feed
• WordPress.org

Featured Posts

Let`s get social, common reasons why businesses fail: understanding the key factors.

Last Updated on: 22nd November 2023, 02:02 am

Many entrepreneurs dream of starting their own business and being their own boss. However, the harsh reality is that not all businesses succeed. In fact, statistics show that the majority of new businesses fail within their first few years of operation.

There are many reasons why businesses fail, and it is important for aspiring entrepreneurs to be aware of these common pitfalls. One of the main reasons is lack of market demand. It is essential for a business to have a product or service that people want or need. Without a strong market demand, a business will struggle to attract customers and generate revenue.

Another common reason for business failure is poor financial management. This can include inadequate cash flow, overspending, and failing to plan for unexpected expenses. Without proper financial management, a business may struggle to pay its bills and stay afloat. It is crucial for entrepreneurs to have a solid understanding of financial management and to seek professional advice when needed.

Understanding Business Failure

Business failure is a common phenomenon that affects many entrepreneurs worldwide. Understanding the reasons why businesses fail can help entrepreneurs avoid pitfalls and increase their chances of success. While there are many reasons why businesses fail, some of the most common ones include:

• Poor management: Poor management is one of the leading causes of business failure. This can include a lack of leadership, poor financial management, and a failure to adapt to changing market conditions.
• Lack of funding: Many businesses fail due to a lack of funding. This can include a failure to secure investment or loans, or simply running out of money before the business becomes profitable.
• Failure to innovate: Businesses that fail to innovate and keep up with changing market trends are at risk of becoming irrelevant. This can lead to a loss of customers and revenue.
• Competition: Competition can be fierce in many industries, and businesses that fail to differentiate themselves from their competitors may struggle to survive.
• Economic conditions: Economic conditions can have a significant impact on businesses, particularly during times of recession or economic downturns. Businesses that are not prepared for these conditions may struggle to survive.

It is important to note that business failure is not always a result of poor decision-making or incompetence. External factors, such as changes in the economy or market conditions, can also play a significant role in business failure.

By understanding the common reasons why businesses fail, entrepreneurs can take steps to mitigate these risks and increase their chances of success. This may include seeking out funding and financial advice, investing in innovation, and staying up-to-date with changes in the market.

Importance of a Robust Business Plan

Creating an effective business plan.

A well-crafted business plan is essential for the success of any business. It serves as a roadmap that outlines the company’s goals, strategies, and tactics for achieving success. A business plan also helps to identify potential risks and challenges and provides a framework for decision-making.

Creating an effective business plan requires careful planning and research. It should be a comprehensive document that covers all aspects of the business, including market analysis, financial projections, and marketing strategies. The following are some of the key components of a robust business plan:

Market Analysis

A thorough market analysis is essential for understanding the competitive landscape and identifying potential opportunities and threats. It should include an assessment of the target market, customer needs, and industry trends.

Financial Projections

Financial projections are a critical component of any business plan. They provide a roadmap for revenue growth, profitability, and cash flow. It is important to be realistic when projecting financials, as overestimating revenues or underestimating costs can lead to significant challenges down the road.

Marketing Strategies

Marketing strategies are essential for reaching and engaging with customers. A robust business plan should include a detailed marketing plan that outlines the company’s target audience, messaging, and promotional tactics.

In summary, a robust business plan is essential for the success of any business. It provides a roadmap for achieving success and helps to identify potential risks and challenges. Creating an effective business plan requires careful planning and research, including market analysis, financial projections, and marketing strategies.

The Role of Market Research

Market research is an essential component of any business strategy. It provides valuable insights into the market demand, customer base, and trends that can help businesses make informed decisions. In this section, we will discuss the two critical roles of market research in the success of a business: understanding your target market and monitoring market trends.

Understanding Your Target Market

One of the most significant reasons why businesses fail is a lack of understanding of their target market. Market research allows businesses to gain a better understanding of their customers’ needs, preferences, and behaviours. By conducting market research, businesses can identify their target audience, their buying habits, and the factors that influence their purchasing decisions.

Market research can be conducted through various methods, including surveys, focus groups, and online research. By gathering data from these sources, businesses can create a customer profile that outlines their target audience’s demographics, needs, and preferences. This information is vital in creating marketing campaigns that resonate with their target market.

Monitoring Market Trends

Another critical role of market research is monitoring market trends. Business environments are constantly changing, and it is essential to keep up with the latest trends to remain competitive. By monitoring market trends, businesses can identify emerging opportunities and threats that may affect their operations.

Market research can help businesses identify the latest trends in their industry, such as new products, services, and technologies. By staying up-to-date with the latest trends, businesses can adapt their operations to meet changing market demands and remain competitive.

In conclusion, market research plays a crucial role in the success of a business. By understanding your target market and monitoring market trends, businesses can make informed decisions that will help them remain competitive in a constantly changing business environment.

Customer Value and Satisfaction

Customer value and satisfaction are essential components of any successful business. If a business fails to meet the needs and expectations of its customers, it will ultimately lead to its downfall. In this section, we will explore the importance of customer value and satisfaction in the success of a business.

Identifying Customer Needs

One of the key reasons why businesses fail is the failure to identify and meet the needs of their customers. A business that does not understand its customers’ needs is unlikely to provide products or services that meet their expectations. Therefore, it is essential for businesses to conduct market research to identify their customers’ needs and preferences.

Market research can be conducted through surveys, focus groups, and other methods. By gathering data on customer needs and preferences, businesses can tailor their products and services to meet those needs. This will help to increase customer satisfaction and loyalty, which are crucial for the success of any business.

Ensuring Quality of Products and Services

Another important factor in customer value and satisfaction is the quality of products and services. Customers expect to receive high-quality products and services that meet their needs and expectations. If a business fails to deliver on this, it will result in dissatisfied customers and ultimately lead to business failure.

To ensure the quality of products and services, businesses must have processes in place to monitor and maintain quality standards. This can include quality control checks, regular inspections, and ongoing training for employees. By maintaining high-quality standards, businesses can improve customer satisfaction and build a loyal customer base.

In conclusion, customer value and satisfaction are critical components of any successful business. By identifying customer needs and ensuring the quality of products and services, businesses can improve customer satisfaction and build a loyal customer base. This will ultimately lead to increased revenue and long-term success.

Financial Management

Effective financial management is crucial to the success of any business. Poor financial management can lead to a range of issues, including cash flow problems, inadequate funding, and even bankruptcy. This section will explore two key aspects of financial management that businesses must pay close attention to: maintaining healthy cash flow and securing adequate capital and funding.

Maintaining Healthy Cash Flow

Cash flow is the lifeblood of any business. It refers to the movement of money in and out of a business, including income from sales, expenses, and investments. Maintaining healthy cash flow is essential for businesses to meet their financial obligations, such as paying suppliers, employees, and taxes.

One of the most common reasons why businesses fail is due to poor cash flow management. For example, if a business has too much money tied up in inventory or is not collecting payments from customers on time, it can quickly run out of cash. To avoid this, businesses must closely monitor their cash flow and take steps to improve it if necessary.

Some strategies for improving cash flow include:

• Reducing expenses: Businesses can reduce expenses by negotiating better deals with suppliers, cutting unnecessary costs, and improving efficiency.
• Improving collections: Businesses can improve collections by invoicing promptly, following up on overdue payments, and offering incentives for early payment.
• Managing inventory: Businesses can manage inventory by forecasting demand, reducing excess stock, and optimizing supply chain management.

Securing Adequate Capital and Funding

Securing adequate capital and funding is another critical aspect of financial management. Businesses need capital to start, grow, and expand their operations. However, securing funding can be challenging, particularly for new or small businesses.

There are several options for businesses to secure funding, including:

• Bank loans: Businesses can apply for loans from banks and other financial institutions. However, loans often require collateral and can be difficult to obtain for new or small businesses.
• Venture capital: Venture capitalists provide funding to businesses in exchange for a share of ownership. However, venture capital can be expensive and may require businesses to give up control.
• Crowdfunding: Crowdfunding allows businesses to raise funds from a large number of people online. However, it can be challenging to stand out among the many crowdfunding campaigns.

In addition to securing funding, businesses must also manage their finances effectively to ensure they can repay any loans or investments. This includes creating a budget, monitoring expenses, and forecasting cash flow.

In summary, financial management is a critical aspect of running a successful business. By maintaining healthy cash flow and securing adequate capital and funding, businesses can avoid common financial pitfalls and set themselves up for long-term success.

Effective Leadership and Management

Building a strong management team.

One of the key factors in the success of any business is having a strong management team. This team should be made up of individuals who have the skills and experience necessary to lead the organisation in the right direction. Effective leaders are those who can inspire and motivate their teams to achieve their goals. They should also be able to make tough decisions when necessary, and be willing to take responsibility for the outcomes of those decisions.

To build a strong management team, businesses should look for individuals who have a track record of success in their respective fields. They should also look for people who have the ability to work well with others, and who are willing to collaborate and share their knowledge and expertise.

Developing a Clear Vision and Mission

Another important aspect of effective leadership and management is having a clear vision and mission for the organisation. A vision is a statement of where the business wants to be in the future, while a mission outlines how it plans to get there. These statements should be communicated clearly to everyone in the organisation, so that everyone is working towards the same goals.

Having a clear vision and mission can help to keep the organisation focused and on track. It can also help to motivate employees, as they will feel that they are working towards something meaningful and important.

Cultivating a Positive Organisational Culture

Finally, effective leadership and management involves cultivating a positive organisational culture. This means creating an environment where employees feel valued and supported, and where they are encouraged to be their best selves.

To cultivate a positive organisational culture, businesses should focus on building strong relationships with their employees. This involves listening to their concerns, providing opportunities for professional development, and recognising and rewarding their achievements.

By building a strong management team, developing a clear vision and mission, and cultivating a positive organisational culture, businesses can set themselves up for success. Effective leadership and management are essential for any business that wants to thrive in today’s competitive marketplace.

Embracing Innovation and Technology

In today’s rapidly evolving business landscape, embracing innovation and technology is crucial for any business to survive and thrive. This section will explore two key aspects of this: Staying Ahead with Innovation and Leveraging Technology for Business Success.

Staying Ahead with Innovation

Innovation is the lifeblood of any successful business. It is what drives growth, attracts customers, and keeps businesses relevant in an ever-changing market. However, many businesses fail to innovate and instead rely on outdated strategies and products.

To stay ahead of the competition, businesses must foster a culture of innovation. This means encouraging creativity, experimentation, and risk-taking. It also means being open to new ideas and embracing change.

One way to foster innovation is to invest in research and development. This can involve creating new products, improving existing ones, or exploring new markets. It can also involve partnering with other businesses or universities to share knowledge and resources.

Leveraging Technology for Business Success

Technology has revolutionised the way businesses operate. From cloud computing to artificial intelligence, there are countless tools and platforms that can help businesses streamline their operations, reduce costs, and improve their products and services.

Startups, in particular, can benefit from technology. By leveraging the latest tools and platforms, startups can quickly scale their operations, reach new customers, and compete with larger, more established businesses.

However, it’s important to note that technology is not a magic bullet. Businesses must still have a solid strategy and a clear understanding of their customers’ needs and wants. Technology should be used to support these goals, not replace them.

In conclusion, embracing innovation and technology is essential for any business looking to succeed in today’s fast-paced market. By staying ahead with innovation and leveraging technology effectively, businesses can stay relevant, attract new customers, and achieve long-term success.

Strategic Business Decisions

Strategic business decisions are crucial for the success of any business. A well-planned strategy can help a business to stay ahead of the competition and achieve its goals. However, making the wrong decisions can lead to failure. In this section, we will discuss some common strategic business decisions that businesses make and how they can affect the success of the business.

Choosing the Right Business Model

Choosing the right business model is one of the most important strategic decisions that a business can make. A business model is the way in which a company generates revenue and makes a profit. There are many different business models, and each has its own advantages and disadvantages.

For example, a business can choose to sell products directly to consumers or sell products through retailers. A business can also choose to offer services instead of products. When choosing a business model, it is important to consider the target market, the competition, and the resources available.

Understanding and Navigating Competition

Competition is a major factor that can affect the success of a business. It is important to understand the competition and how to navigate it. This can involve researching the competition, identifying their strengths and weaknesses, and developing strategies to differentiate the business from its competitors.

For example, a business can offer better customer service, lower prices, or higher quality products. It is also important to monitor the competition and make changes to the business strategy as necessary.

Planning for Business Expansion

Business expansion is another strategic decision that can affect the success of a business. Expansion can involve opening new locations, introducing new products or services, or targeting new markets. However, expansion also involves risks and challenges.

It is important to plan for expansion carefully and consider factors such as market demand, competition, and resources. A business should also have a clear plan for financing the expansion and managing the risks involved.

Overall, making strategic business decisions is crucial for the success of any business. By choosing the right business model, understanding and navigating competition, and planning for business expansion, a business can increase its chances of success.

Challenges Faced by Small Businesses

Survival rate of small businesses.

Small businesses face a tough battle to survive in today’s competitive market. According to the Small Business Administration, only about half of new businesses survive for five years or more. The survival rate drops to one-third after ten years. This is due to several factors, including insufficient capital, poor management, and lack of experience.

Impact of Covid-19 Pandemic on Businesses

The Covid-19 pandemic has had a significant impact on small businesses. The lockdowns and restrictions have forced many businesses to close their doors permanently. According to a report by Yelp, over 160,000 businesses have closed since the start of the pandemic. The impact has been felt across all sectors, including retail, hospitality, and tourism.

Small businesses have had to adapt to survive during the pandemic. Many have shifted to online sales, delivery services, and curbside pickup. However, these changes require resources that many small businesses do not have. The lack of financial support from the government has also made it difficult for small businesses to stay afloat.

In conclusion, small businesses face several challenges that make it difficult to survive in today’s market. The Covid-19 pandemic has only added to these challenges, forcing many businesses to close their doors permanently. However, with the right resources and support, small businesses can overcome these challenges and thrive.

In conclusion, there are various reasons why businesses fail. It is important to note that having business acumen, entrepreneurship, learning, and flexibility are crucial factors that contribute to the success of a business.

However, even with these factors in place, businesses can still fail due to external factors such as economic downturns, changes in consumer behaviour, and new competitors entering the market.

One of the most common reasons for business failure is a lack of cash flow. Business owners must ensure that they have enough cash reserves to cover unexpected expenses and maintain their operations during difficult times.

Another reason for business failure is poor management. Business owners must have effective management skills to ensure that their business is running efficiently and effectively. This includes managing finances, employees, and resources effectively.

Finally, businesses can fail due to a lack of innovation. In today’s fast-paced and ever-changing business world, it is important for businesses to continuously innovate and adapt to new trends and technologies. Failure to do so can result in being left behind by competitors and ultimately, failure.

Overall, it is important for business owners to be aware of these common reasons for business failure and take steps to mitigate the risks. By having a solid business plan, effective management skills, and a willingness to adapt and innovate, businesses can increase their chances of success.

Share this article

The benefits of taking a coffee break at work: boosting productivity and reducing stress, internal vs external customers: understanding the key differences, riverbed names infinigate as top global distributor of the year, uk businesses urged to donate unused laptops during refugee week 2023 to assist refugees and people experiencing homelessness, apg & lcp announce new jv in prime central london hotels, survey of 2,000 15-18 year olds reveals dangers of ignorance about uk drug laws, according to drugs education charity dsm foundation.

Speak with an Expert

• +44(0)203 637 6137

Get Appointment

7 reasons why some business plans fail.

Salmaan Mian

• August 23, 2021
• Business business plan business plans
• 7 Reasons Why Some Business Pl ...

Often enough, some business plans fail to achieve their objectives. Whether the plan is for securing a loan or investment or hiring new senior staff, there are few reasons why business plans fail.

This blog will examine the 7 main reasons why some business plans fail and what you should avoid doing when writing one.

Introduction

Business plans fail for various reasons. They have to be carefully thought out and well written with minimal mistakes. They should start with a great business idea and contain comprehensive market research and analysis. Sections on the operations, team and financials are also crucial and have to be well presented .

Many common mistakes can make business plans fail to achieve objectives . Business plans fail due to common mistakes range from spelling and grammatical errors to more fundamental issues such as a flawed business idea.

Business plans are different for each company, whether you are looking to create a business plan for a restaurant or a new tech start-up, you should tailor the business plan and avoid these common mistakes.

1)    Bad Business Ideas

One of the primary reasons why business plans fail is due to bad business ideas. Most ideas sound great in theory however sometimes they are simply not viable. Furthermore, some founders do not realise they have invested in a bad idea once it is too late.

To ensure that a business idea is feasible and can be turned into a reality, you should use product validation . Before officially launching the business, founders can do thisby approaching potential target consumers, potentially saving time and money.

2)    Inexperienced Team

Some business plans may present a strong argument for a new business and its need in the market. Instead, some business plans fail to present an appealing team that has the competencies and experience required to execute the business plan and successfully grow a business.

To ensure your business does not fail for this reason, you should create a detailed operations section in which details of the team are included. The section should highlight all the skills, experience, and expertise of the management team so readers also believe in them as well as their vision.

Investors will occasionally reject proposals from start-ups with inexperienced teams. Some investors want to be certain that your team has the relevant qualifications, capacity, and knowledge to manage the business. It is crucial to present an effective, capable, and complete team in a business plan to convince users this will be successful.

3)    Ineffective Executive Summary

The first section of a business plan will usually always be an executive summary. This section is should grab the reader’s attention and convince them to continue reading. However, having a bad executive summary can discourage users from continuing to read the business plan and cause it to fail.

Some users only read the executive summary which emphasises why it is so important to create a high-quality section. If the executive summary is weak, then it will leave a bad first impression for the users and make it difficult to recover from.

To create an effective executive summary , you should write it once the rest of the business plan is complete. This will allow you to summarise the entire document and create a captivating introduction for your users.

4)    Bad Financials

Financial forecasts are a key section of a business plan as they provide details on profitability, potential growth, and long-term vision for the business. The financials are usually the most interesting section of the entire document for investors and creditors. Pro-forma profit and loss statements, break-even, and return-on-investment calculations are all parts of the financials in an effective business plan .

If you fail to prepare a pitch deck and the financials in a business plan, investors are unlikely to take your pitch seriously so it is essential to focus on these sections if you are looking to raise capital.

Preparing financials will require time and research. They should be realistic, backed with research and accurate. It is important to clearly highlight these details as investors will also want to know what you will be spending their capital on.

5)    Spelling and Grammar Mistakes

Correct spelling, grammar, and punctuation are paramount when creating a business plan. Although users of a business plan do not expect business directors to be wordsmiths, they pick up cues about the underlying business and its owners by scrutinising a business plan. When they read a plan with spelling or grammatical errors, it could directly affect their decision.

Proofreading the document multiple times or hiring professional proofreaders will help avoid spelling, grammar, and punctuation mistakes. This will minimise mistakes and by extension, improve the appeal of the business and its directors. Software like Grammarly can also be used to correct spelling and grammar mistakes.

6)    Lack of Market Research

It is important to back your research with facts and statistics, it’s equally important to ensure your facts are true. Business plans should contain everything about your business your market, customer habits, competitors, size, and market share as well as overall market trends.

Often enough, some business plans fail if they do not contain adequate market research and analysis. You should prepare figures, charts, and statistics to support any assumptions or projections made.

Most investors and creditors will check your figures against the industry data for confirmation, so it is crucial they are correct and up to date. Investors will refuse to invest if their data does not match your market research and analysis.

7)    Poor Presentation

Even if your written content is flawless, the presentation has to match up. Presentation mistakes such as uneven margins, missing page numbers, charts and graphs without labels, or a missing table of contents can all put off potential investors or lenders. Rereading the document thoroughly can help correct these simple mistakes.

If in doubt, you should ask someone else to check your plan before presenting it to an investor or creditor. Remember that while you will spend significant time working on your plan, most readers will quickly read the document before they make an initial decision about it. This highlights the importance of having a neat presentation without obvious omissions.

A state-of-the-art pitch deck software, available on Android and iOS , could be used to improve your pitch deck presentation. The use of this software can significantly enhance your presentation when combining a pitch deck and business plan for investors.

What to avoid when creating a business plan

• Having an uninteresting executive summary
• Spelling and grammar mistakes
• Showing a lack of market knowledge
• Unrealistic financial projections
• Poor presentation

If you are worried that perhaps your business plan fails, you should seek professional help. Professional business plan experts can help guide you through the entire process by providing feedback, and presenting your plan in an attractive, professional, and effective structure.

Ultimately, to maximise your chances of successfully achieving your objectives with a business plan, you have to ensure a few key details. Firstly, you need a solid business idea with extensive market research and financial planning . You will also need to avoid making spelling and grammatical errors as well as present the business plan methodically. Although not a guarantee, following these details will significantly improve your chances of success.

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Please enter valid mobile number

Save my name, email, and website in this browser for the next time I comment.

Request Free Consultation

Please fill out the form below and one of our representatives will be in touch with you in the near future.

• blogs (180)
• Business News (4)
• Business Plan (10)
• Market-Research (4)
• Starting A Business (4)
• Startup News (4)
• Technology (2)
• Writing A Business Plan (6)
• July 2022  (1)
• June 2022  (3)
• May 2022  (2)
• April 2022  (6)
• March 2022  (7)
• February 2022  (4)
• January 2022  (9)
• December 2021  (4)
• November 2021  (7)
• October 2021  (6)
• September 2021  (5)
• August 2021  (7)
• July 2021  (10)
• June 2021  (104)
• May 2021  (8)
• April 2021  (1)

Recent Post

Components of a Business Plan

• July 13, 2022

A Guide to Obtaining a Representative of

• June 24, 2022

UK Tier 1 Endorsing Bodies: How to

Related posts.

20 Tips for Small-Business Success

Need Help Writing a Business Plan: B&F Is Here for You!

Business Plans: 8 tips you need to know

B&F Services offers marketing, financial and business services to corporate customers, small businesses and individuals. Contact our team to arrange a free consultation with the business expert.

Other B&F Businesses

• B&F Services
• B&F Pitch Deck Creator
• B&F Company Formation
• Accounting Department
• Business Plan Department
• Immigration Department
• Smarty Software
• Smarty Studio
• Privacy Policy

Latest Tweets

• 3 More London Riverside, London, SE1 2RE, United Kingdom
• [email protected]

Pitch Deck App

Company formation app.

Copyright © 2022  B&F Services Ltd. All rights reserved.

Business Partner Magazine

Tips and advice for entrepreneurs, start-ups and SMEs

10 Common Causes of Business Failure

January 17, 2023 by BPM Team

Click here to get this post in PDF

Too long to read? Enter your email to download this post as a PDF. We will also send you our best business tips every 2 weeks in our newsletter. You can unsubscribe anytime.

Running a business is not easy. In fact, it’s one of the most challenging things you will ever do in your life. According to statistics, about 50% of businesses fail within the first five years. So what are the common causes of business failure? This blog post will discuss the most common reasons why businesses fail. If you are aware of these factors and take steps to avoid them, you greatly increase your chances of success!

1) Poor Planning:

Not having a solid business plan and failing to do proper market research before starting your business are common mistakes that can lead to failure. Even if you have a great idea, it is important to make sure there is an actual market for your product or service.

2) Inadequate Capital:

It takes capital – cash or financing–to start and run a successful business. Many businesses fail due to a lack of adequate funding. You can overcome this issue by making sure you have sufficient capital to cover all the expenses of your business.

3) Poor Location:

Your choice of location is critical for success. A bad location can be disastrous and make customers less likely to visit your business, even if you offer great products or services. Before opening a new venture, thoroughly research the area to ensure you choose the best spot for it!

4) Bad Management:

Without proper management , even the most promising businesses can fail. It is important to find experienced and competent managers who are capable of running the business efficiently and effectively. In addition, having an effective team in place that works together well will help ensure success.

5) Office politics:

Office politics can be a major problem in many businesses, especially larger ones. If office politics are left unchecked and unresolved, they can lead to destructive behaviour that will eventually hurt the business. Get HR advice to help address these issues and create a healthy working environment.

6) Lack of Differentiation: 

Standing out from the competition is essential for any business. Having a unique product or offering something different from what your competitors do will help you attract more customers and keep them coming back.

7) Failure to Adapt: 

Businesses must be able to adapt to changing trends and technology in order to stay competitive. Failing to do so can result in failure as newer, more innovative companies take market share away from you.

8) Ignoring Finances: 

Keeping track of all financial details related to your business is essential for identifying areas where you may need additional funding or areas where you can cut costs. Many businesses fail because they do not pay enough attention to their finances.

9) Poor Marketing: 

Without proper marketing , your business will never reach its full potential. You must be able to identify the best channels for reaching your customer base and make sure that you are targeting them effectively.

10) Ignoring Growth Opportunities: 

It is important to take advantage of growth opportunities as they arise. Whether this means expanding into new markets or introducing new products/services, failing to take advantage of growth opportunities when they present themselves can lead to stagnation and, eventually, failure.

There are many common causes of business failure, but it is possible to overcome them with proper planning and preparation. Knowing these factors ahead of time can help you take the necessary steps to ensure success for your business!

You may also like: Here are Some of the Biggest Mistakes that New Business Owners Tend to Make

Image source: Depositphotos.com

We earn commissions if you shop through the links on this page.

Digital Marketing Agency

Business Partner Magazine provides business tips for small business owners (SME). We are your business partner helping you on your road to business success.

Have a look around the site to discover a wealth of business-focused content.

Here’s to your business success!

Superdry warns of administration if rescue plans fail

The company's plans include delisting from the London Stock Exchange as it battles to secure its future after a torrid few years that has seen its market value collapse.

Business reporter @SkyNewsBiz

Tuesday 16 April 2024 16:47, UK

Struggling Superdry has revealed plans for a fundraising and restructuring, warning that failure will mean it faces administration.

The fashion retailer, which has 94 shops and is run by co-founder Julian Dunkerton, confirmed a story by Sky News on Monday when it said that the three-year restructuring deal would result in cash savings from rent reductions at 39 underperforming UK sites.

It would also allow the extension of the maturity date of loans made under its debt facilities with Bantry Bay and Hilco.

Money latest: The easy ways you can improve your credit score

The planned restructuring was dependent, however, on the fundraising being completed.

Superdry said there were two options on the table for the equity raise - the sale of new shares - to be fully underwritten by Mr Dunkerton.

They were by an open offer to raise the sterling-equivalent of €8m (£6.83m), or a placing to raise gross proceeds of £10m.

More from Business

Ministers kick off search for new football referee

Boeing whistleblower claims 787 Dreamliner planes 'defective'

A whiff of wishful thinking about Hunt's declaration of economic 'soft landing'

The fundraising required current shareholder approval, the company added.

Mr Dunkerton, who owns just under 30% of the shares, had been exploring the possibility of making an offer for all the shares he does not already own and taking the company private, but he abandoned the idea last month.

Superdry said the fundraising would still allow the company to delist from the London Stock Exchange this summer.

Its market value has collapsed, hitting record lows since late last year when it warned of tough trading ahead of Christmas amid a continuing cash crunch. Superdry admitted on Tuesday that sales remained strained.

Shares were down by more than 28% at one stage on Tuesday in the wake of its announcements and closed the day at minus 23.75%.

It gave the company a market capitalisation of just under £8m.

Be the first to get Breaking News

Install the Sky News app for free

Superdry's statement said: "The Plan Company believes that, unless the Restructuring Plan comes into effect, it will need to enter administration and other companies in the Group will need to enter into administration or an equivalent insolvency process.

"This outcome would leave creditors, including the creditors whose claims would otherwise be compromised by the Restructuring Plan, materially worse off than they would be under the Restructuring Plan."

AJ Bell's head of financial analysis Danni Hewson: "Once something of a market darling as it rode a wave of consumer demand for its faux-Japanese stylings, Superdry has been firmly out of fashion with investors and is set to delist as part of a rescue plan which will see landlords take some of the pain.

"Under the proposals, with CEO and founder Julian Dunkerton leading a fundraising effort, the company will cease trading on the London stock market from July.

"Currently changing hands for little more than 5p, at its 2018 heights the shares traded around £20.

"The hope will be the company can restore its ailing brand to health out of the glare of the public markets."

Watch CBS News

Biden is canceling $7.4 billion in student debt for 277,000 borrowers. Here's who is eligible.

By Aimee Picchi

Edited By Alain Sherter

Updated on: April 12, 2024 / 3:29 PM EDT / CBS News

The Biden administration on Friday said it's canceling $7.4 billion in student debt for 277,000 borrowers, with the recipients scheduled to receive emails today to alert them to their loan discharges. 

The latest effort extends the debt relief provider under President Joe Biden after the Supreme Court last year blocked  his administration's plan for broad-based student loan forgiveness. With the latest batch of loan cancellations, the White House said it has forgiven about $153 billion in debt for 4.3 million student borrowers. 

Biden, who had made student loan relief a major campaign pledge, is tackling an issue that affects about 43 million Americans with a combined  $1.7 trillion in student debt. It's a burden that some borrowers and their advocates say has harmed their ability to save for a home or achieve financial milestones, an issue that was echoed by Education Secretary Miguel Cardona in a conference call with reporters. 

"I talked to a teacher in New York this week who took out a loan for $30,000," Cardona said Friday, "and after over a decade of paying and being a teacher the debt was $60,000, and she was saying that the interest was so high that the payments that she was making wasn't even touching her principal."

He added, "We are fixing a broken system. We're relentless and taking steps to transform a broken system into one that works people across the country."

Here's what to know about who is eligible for the latest round of forgiveness.

Who qualifies for the student loan forgiveness?

Three groups of people qualify under the latest round of debt relief, the White House said. 

• $3.6 billion for 206,800 borrowers enrolled in the SAVE plan.

About $3.6 billion will be forgiven for nearly 207,000 borrowers enrolled in the Saving on a Valuable Education (SAVE) plan, an income-driven repayment program, or IDR, that the Biden administration created last year. 

The White House said borrowers who are getting their debt discharged under SAVE had taken out smaller loans for their college studies. The plan allows people to receive forgiveness after they made at least 10 years of payments if they originally took out $12,000 or less in loans to pay for college; borrowers with larger loans are eligible after 20 or 25 years of repayment, depending on what types of loans they have. 

 "You sacrifice and you've saved for a decade or more to make your student loan payments, and you originally borrowed $12,000 or less, you're going to see relief," Cardona told reporters. "An overwhelming number of those who qualify for SAVE were eligible for Pell grants and come from low- and middle-income communities."

• $3.5 billion for 65,700 borrowers in income-repayment plans.

These borrowers will receive forgiveness through "administrative adjustments" to repayment plans where loan servicers had made it tougher for some borrowers to qualify for relief.  

"These are people who paid for a long time but were being deprived of relief because of administrative and servicing failures," Cardona said. "These people met the contract of their loan" and will receive forgiveness.

• $300 million for 4,600 borrowers through Public Service Loan Forgiveness (PSLF).  

The PSLF program is designed to help public servants like teachers and government employees achieve debt forgiveness after 10 years of repayment. It's a program that started in 2007 but had been plagued with complex rules that effectively hampered people from getting their debt discharged, with only 7,000 receiving loan forgiveness prior to the Biden administration. 

With the latest round of discharges, the Biden administration has forgiven $62.8 billion in loans for 876,000 borrowers through PSLF. 

Are there legal challenges to Biden's debt forgiveness plans?

In two separate lawsuits, Republican attorneys general in 18 states are pushing to have the SAVE plan tossed and to halt any further student debt cancellation. They say the SAVE plan oversteps Biden's authority and makes it harder for states to recruit employees. They also contend the plan undermines a separate cancellation program that encourages careers in public service.

It's unclear what the suits could mean for loans that have already been canceled. A court document filed by Kansas' attorney general says it's "unrealistic to think that any loan forgiveness that occurs during this litigation will ever be clawed back."

—With reporting by the Associated Press.

• Biden Administration
• Student Loan

Aimee Picchi is the associate managing editor for CBS MoneyWatch, where she covers business and personal finance. She previously worked at Bloomberg News and has written for national news outlets including USA Today and Consumer Reports.

More from CBS News

When does a home equity loan make sense? What experts say

How much would a $15,000 home equity loan cost per month?

Should you get a home equity loan before the Fed's April meeting?

When does a home equity loan make sense?

• SUGGESTED TOPICS
• The Magazine
• Newsletters
• Managing Yourself
• Managing Teams
• Work-life Balance
• The Big Idea
• Data & Visuals
• Reading Lists
• Case Selections
• HBR Learning
• Topic Feeds
• Account Settings
• Email Preferences

4 Reasons Why Managers Fail

• Swagatam Basu,
• Atrijit Das,
• Vitorio Bretas,
• Jonah Shepp

Nearly half of all managers report buckling under the stress of their role and struggling to deliver.

Gartner research has found that managers today are accountable for 51% more responsibilities than they can effectively manage — and they’re starting to buckle under the pressure: 54% are suffering from work-induced stress and fatigue, and 44% are struggling to provide personalized support to their direct reports. Ultimately, one in five managers said they would prefer not being people managers given a choice. Further analysis found that 48% of managers are at risk of failure based on two criteria: 1) inconsistency in current performance and 2) lack of confidence in the manager’s ability to lead the team to future success. This article offers four predictors of manager failure and offers suggestions for organizations on how to address them.

The job of the manager has become unmanageable. Organizations are becoming flatter every year. The average manager’s number of direct reports has increased by 2.8 times over the last six years, according to Gartner research. In the past few years alone, many managers have had to make a series of pivots — from moving to remote work to overseeing hybrid teams to implementing return-to-office mandates.

• Swagatam Basu is senior director of research in the Gartner HR practice and has spent nearly a decade researching leader and manager effectiveness. His work spans additional HR topics including learning and development, employee experience and recruiting. Swagatam specializes in research involving extensive quantitative analysis, structured and unstructured data mining and predictive modeling.
• Atrijit Das is a senior specialist, quantitative analytics and data science, in the Gartner HR practice. He drives data-based research that produces actionable insights on core HR topics including performance management, learning and development, and change management.
• Vitorio Bretas is a director in the Gartner HR practice, supporting HR executives in the execution of their most critical business strategies. He focuses primarily on leader and manager effectiveness and recruiting. Vitorio helps organizations get the most from their talent acquisition and leader effectiveness initiatives.
• Jonah Shepp is a senior principal, research in the Gartner HR practice. He edits the Gartner  HR Leaders Monthly  journal, covering HR best practices on topics ranging from talent acquisition and leadership to total rewards and the future of work. An accomplished writer and editor, his work has appeared in numerous publications, including  New York   Magazine ,  Politico   Magazine ,  GQ , and  Slate .

Partner Center

Arab states unexpectedly helped Israel fend off Iran's attack

• Israel found help from unlikely sources against an Iranian missile attack.
• Jordan shot down an Iranian missile and other Arab states may have provided intel. 
• Arab countries have complicated motives for aiding Israel.

The skies over Israel lit up on Saturday night as its Iron Dome shot down hundreds of missiles and drones launched by Iran.

The assault was retaliation for Israel's deadly strike on Iran's consulate in the Syrian capital Damascus. It marked the first time that Iran had carried out attacks on Israel from Iranian territory.

Israel said it shot down 99% of the drones, cruise, and ballistic missiles that headed its way. In doing so, it received help from unlikely sources: its Arab neighbors.

Jordan, which has been a fierce critic of Israel's campaign in Gaza, said it intercepted projectiles fired by Iran that entered its airspace. It also appeared to open up its airspace to Israeli and US fighter jets.

Samih al-Maaytah, Jordan's former information minister, defended the move on Sunday. "Jordan's duty is to protect its lands and citizens," he said. "What Jordan did yesterday was to simply protect its airspace."

Jordan may have complicated motivations for backing Israel. As Deutsche Welle wrote on Sunday, the country shares a border with Israel and often works with Israeli authorities.

Saudi Arabia and the United Arab Emirates have publicly called for peace in the region. But The Wall Street Journal, citing US officials, said Iran tipped off several Gulf states about the timing and nature of the attack it was planning. They then passed the information to the US, Israel's key international ally.

"Arab countries quietly passed along intelligence about Tehran's attack plans, opened their airspace to warplanes, shared radar tracking information or, in some cases, supplied their own forces to help," the Journal reported, citing the sources.

This may jeopardize Saudi attempts to improve relations with Iran. In March, Saudi Arabia and Iran restored ties with help from China, agreeing to reopen embassies in their respective capitals.

In March 2023, China helped Saudi Arabia and Iran restore some diplomatic ties, brokering an agreement to reopen embassies in their respective capitals.

Related stories

The response reveals that opposition to Iranian aggression remains a key factor shaping the region's shifting alliances, despite growing rage about Israel's attacks on Gaza.

Saudi Arabia is still interested in possibly normalizing diplomatic relations with Israel. One reason, The New York Times reported , is that it's hoping for a US security guarantee in case it's ever attacked by Iran.

Yasmine Farouk, a nonresident scholar at the Carnegie Endowment for International Peace, told the Times that many Arab states envied the success of Israel's Iron Dome defense system, which was constructed with US support.

"What the Western countries under US leadership have done to protect Israel yesterday is exactly what Saudi Arabia wants for itself," said Farouk.

Arab countries' fears about Iranian aggression was a key factor underpinning the Abraham Accords — the agreement to normalize diplomatic relations between Israel and some Arab states brokered by the Trump administration.

The deal, which the UAE and Bahrain in the Gulf region agreed to, put aside the issue of Palestinian statehood that has long divided Israel and its neighbors and promised increased US support for Arab countries against potential Iranian attacks.

The October 7 terrorist attacks, which killed around 1,200 Israeli, abruptly halted that process. Jordan and Saudi Arabia have been among the leading voices condemning Israel's subsequent campaign in Gaza, where more than 33,000 people have been killed.

However, per various reports, Saudi Arabia and other Arab states are willing to continue discussions with Israel once fighting in Gaza has abated.

Giorgio Cafiero, the CEO of Gulf State Analytics, told Business Insider it could be risky for Arab states to be seen as coming to Israel's aid.

"There is now much anger toward Jordan on the part of many in the wider Arab-Islamic world who see Amman serving Israel and the US's interests more than six months into Israel's annihilatory campaign in Gaza which Arab governments like Jordan's have only stood against in rhetoric, not concrete action," he said.

As the conflict between Israel and Iran intensifies, Arab states face a tough choice between their security priorities and addressing public anger over Gaza.

Saudi Arabia has said that normalization with Israel must include a realistic path to Palestinian statehood. That request is unlikely to be met by Israel's current government.

Watch: Israel now waging war on three battle fronts — Palestinian territories, Lebanon, and Syria

• Main content