5 Reasons Small Businesses Fail—And How to Avoid Those Fatal Pitfalls

What’s your biggest fear? Public speaking? Spiders? Failure?

I’d wager failure is pretty high up on the list. Especially if you’re a small business owner.

As you know, it’s great to be able to run your own business. But there are responsibilities that go with the freedom. Screw up badly enough, for long enough, and your business will fail. You’ll fail.

Fortunately, this doesn’t have to be as scary as it sounds. While most small businesses do fail, yours doesn’t have to be among them. Even more fortunately, the things that cause small businesses to fail are oddly consistent. There’s a surprisingly small pack of causes that tend to do them in.

This is good news for you. Because if you know what those causes are and how to deal with them, then you’ve just knocked out most of the things that could bring your business down. This makes the path to success much clearer.

So you probably want to know what these causes are, right? Great. Keep reading.

Ever had a plan look beautiful on paper, only to fall flat in the real world? That’s what I’m talking about here.

Note that I wrote “verify” your market, too. Don’t just confirm it exists. You need to verify that those people are interested in what you want to sell.

In a study of 101 startups that failed, CBInsights found that “No Market Need” was the #1 reason companies failed. So how do you avoid this?

Start small, then scale. Try a food truck or a table at a farmer’s market or a craft fair. Try a pop-up shop. Try a one-time event at an existing business, or a few events around different parts of town. Whatever you do, don’t solely rely on text-based research. Don’t rely on what people say they’ll do. Confirm they will hand over dollars for your product or services.

You’re already risking enough to start this thing—make sure you know there’s demand for what you want to sell or do.

Stop me if you’ve heard this story: A star employee gets tired of his employer. He leaves and sets up his own shop, then nearly drowns in the nuts and bolts of running his business. He barely ever gets time to do the thing he so excelled at in his old job.

This happens a lot, but it is a manageable problem.

To solve the problem, you’ll need to demonstrate the two skills that are critical for small business owners: The ability to learn and the ability to adapt. And here’s why these are so essential. Anyone of reasonable intelligence can learn the basics of running a business. If they don’t like certain parts of running their business, or they’re just not good at them, they can hire someone else to do that work.

Take marketing, for example. Most small business owners aren’t enthusiastic about it, but only 14% of them outsource their marketing, public relations and advertising. That’s a missed opportunity, both as a way to get more business, and a way for the small business owner to save some time.

This one seems particularly hazardous for new restaurant owners. How hard could it be to run a restaurant, right? You’re an awesome cook already—you just need a great location, some staff, and enough money to equip the place and stay open for a few months until you hit operating costs. Right?

Um, no. Remember: You’re not just running the restaurant. You’re the owner. You’re responsible for all the financing, the legal issues, the staffing issues, the certifications (including that coveted liquor license), the food sourcing . . . and all the other problems that will arise from any one of those systems.

One particular area of difficulty that people don’t expect? Employees. Notice how “Not the Right Team” came in third in the CBInsights study of why startups fail? Finding the right team is hard. In the WASP Barcode Technologies’ 2017 “ State of Small Business Report,” we found that hiring employees is one of the biggest challenges in small business.

So how to avoid this? Get some experience. You need experience in the industry your business is in, and experience in what’s it’ll be like to run your business, including managing employees.

Staying afloat when things are going well for your business is not enough. Your business needs to be disaster-proof. So how do you make it disaster-proof?

That’s just a few ways to avert a problem. Realistically, you should also be ready for two bad things to happen at once. If you’re in business long enough, it’s going to happen. It’s not an “if”—it’s a “when.”

Alas, most of us on Main Street do not have access to the coffers of Silicon Valley or to the riches of Wall Street. It can be hard to get a loan . . . especially when your business is in a position when it needs a loan.

I don’t recommend funding via credit cards (or via 401(k)s, or via second mortgages), but they have gotten businesses through tough times. And let’s face it, there’s no complete solution to funding. As mentioned earlier, it can be hardest to get when you need it the most.

However, some advice:

So flex with it. Don’t be like the old handheld calculator company that refused to invest in computers. There are always opportunities, even in full-on depressions. We just need the eyes to see them.

So those are the boogeymen of small businesses. But let’s not be all doom and gloom.

That’s what Bill Gross, the founder of Idealab, thought he knew. Until he looked at the data—his own data. And he learned it wasn’t necessarily having a great idea that made a business work. It wasn’t having enough funding. Or having an awesome team. It was… timing.

So there’s a question to ask yourself, before you take out the loan, hire anyone, or quit your day job. Is the timing right for your business? Is this an idea whose time has come?

We all want to avoid failures, especially when they affect other people; laying off employees is especially hard. But business failures happen. Most successful business people have several failures under their belt. They succeeded because they kept going. They learned from their mistakes, adapted, and went out and tried again. So shouldn’t you?

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