Why Small Businesses Fail—And How Yours Can Succeed

Why Small Businesses Fail—And How Yours Can Succeed image failureWhy Small Businesses Fail—And How Yours Can SucceedNobody ever starts a small business without being told, time and time again, that it’s a risky proposition; indeed, statistics reveal to us that some 50 percent of all small businesses fail within the first year, while a staggering 95 percent fail within the first five years. The chances of a business making it a full 10 years, meanwhile, are dauntingly slim—just about nine percent!

These statistics can seem both bleak and sobering, but we do not share them out of a desire to discourage small and mid-sized business owners. On the contrary, it is important for small and mid-sized business owners to understand, first and foremost, that different companies fail for different reasons—and depending on the vertical you are in, there are some specific problems and hardships to avoid. Moreover, there are lessons to be learned from other failed businesses; by seeing what they did wrong, you can make every effort to get it right.

The Trouble with Independent Restaurants

Restaurants are notoriously prone to early failure—during the global financial crisis, the number of independent restaurants in America fell by more than 7,000—and as such, they represent a good place to begin this discussion. The failure rate for independent restaurants is 60 percent—but why?

  • One of the most common reasons for eating establishments to fail is that the business owner is someone who is very skilled in one thing—and it’s not business ownership. Many restaurants are owned by individuals who are well-versed in the culinary arts, but not great at monitoring cash flow, managing a team, or marketing their business.
  • This last point is especially noteworthy. Statistics tell us that the single biggest reason why restaurants do not succeed is that they fail to market themselves. With more and more consumers selecting restaurants on the basis of Yelp reviews, a Foursquare or Google Local listing, or a sleek mobile website, restaurateurs cannot afford to neglect digital marketing.
  • Finally, market research is essential for anyone thinking about starting a restaurant; statistically, restaurant failure rates are highest in markets already overcrowded with places to eat.

Retail Fails

Among retail stores, the failure rate is similarly bleak; 80 percent of all retail clothing stores fail within the first five years, as just one example among many. Here again, there are several things that contribute to the failure of a retail store.

  • Marketing, once more, is crucial—and in particular, it is important for retailers to engage their consumers via digital avenues. Look to Target, whose heavy Facebook presence (complete with electronic deals and coupons) has proven to boost in-store traffic exponentially. Retailers that do not take advantage of digital marketing, meanwhile, are likely to lose consumer interest.
  • Another reason why many retailers fail is poor location selection. Retailers thrive in high-traffic locales, yet in many cases, business owners do not have enough capital to invest in these prime pieces of real estate.
  • Tough competition is seen as the single biggest reason why retail stores fail, which shows, once more, the importance of market research.

Direct Sales in Decline

A final category to consider is direct sales—and whether you’re interested in selling cosmetics or medical supplies, the scenario here is the grimmest of them all, with about 99 percent of direct sales reps suffering serious financial losses.

Simply put, not everyone is cut out to sell Pampered Chef or Mary Kay products. Exceptional sales ability is a must, as are stamina and a relentless drive to succeed. Perhaps the toughest challenge that direct sales representatives face is the need to compete with the marketing campaigns launched by more traditional retailers, as well as e-commerce stores. Social media sites and Google AdWords are resources that direct sales reps can use to level the playing field, but far too many are experienced in sales but not necessarily skilled in marketing.

Small Businesses Can Thrive

Between the years 2008 and 2010 alone, some 170,000 American small and mid-sized businesses bit the dust—something widely attributable to the recession, but perhaps also stemming from a simple lack of basic business and marketing competencies. Fortunately, while there are many reasons why companies fail, the rest of us can learn much from their example.

Are you going to fail? Schedule a call so we could help you to stay alive and thrive!

Why Small Businesses Fail—And How Yours Can Succeed image 6ccf9c06 7ac4 47e3 a9d4 1bf042efe49e1Why Small Businesses Fail—And How Yours Can Succeed

Photo by Gage Skidmore

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