10 Major Reasons Why Your Small Business Flopped


If you’re starting a small business or you’re running one, you might be aware of how difficult it is to keep it going. Chances are that you already experienced a small business failure and you’re digging your brain asking what went wrong. Don’t be too surprised because only 50% of new businesses are able to survive for the first five years, according to a research by the Small Business Administration. So what might have went wrong exactly? Take a look at some of the top reasons why small businesses fail, so you can make a difference and get a better chance of success:

Top 10 Reasons of Small Business Failure

1. Lack of funds

One of the biggest reasons why small businesses had to close their doors is because they underestimated the amount of money they will need to keep things running. So eventually they run out of money and may even have to discontinue operations without a fair chance to succeed. Before starting your own business, keep in mind that it might take a year or two before things push off. So you’ll need to be prepared with enough funds to cover your operating costs during that period.

2. Inefficient/improper leadership

Bad leadership can have a negative impact on every aspect of your business and its operations. It can be harmful for employee morale and productivity. New businesses are especially susceptible to this due to lack of relevant management expertise. So leadership trainings and personal development courses could certainly help improve the leadership within your business.

Small Business Failure
Source – Pixabay

3. Lack of planning

A lot of businesses dive head-on without having a proper plan in place, which will result in small business failure in the long run. While you may have a brilliant idea, you need a realistic business model to execute that idea. You will need to conduct a research on how other businesses in your industry operate, so you can develop a comprehensive plan to put your idea into action.

4. Poor management of funds

You may have started your business expecting to make plenty of money. But without proper skill or interest in managing cash flow, expenses, taxes, and other financial matters; your business is at a risk of failure. In addition to maintaining a proper record of all financial transactions, you will also need to have a contingency funding plan in place. Maybe you could draw up a budget with an intention to set aside some cash for emergencies.

small business failure
Source – Pixabay

5. Underestimating the competition

Some businesses get into the market without any thought of their competition. They assume that their ideas and products are brilliant enough to sell so they don’t take the time to study their competition. This means they could easily end up getting beaten by their competitors. Competitive research helps you prepare for any threats, helping you gain exclusive information about the strengths and weaknesses of your competition.

6. Failure to satisfy customer needs

Without understanding what your customers need, you might end up producing a product or service that isn’t even in trend anymore. Maybe your customers appreciate your product except for one small feature. But if you fail to satisfy those needs and expectations, you’re going to end up with another small business failure. Listen to your customers, keep up with the latest market trends, and focus on delivering better products and services to satisfy customer needs.

7. Failure to join in on the digital revolution

Some business owners prefer to stick to traditional advertising and are happy with their brick-and-mortar stores. But the fact of the matter is that if you have own a business in today’s world, you need a website. Billions of people use the internet and you’re going to need to keep up with the times in order to reach out to your target audience.

small business failure due to digital revolution
Source – Pexels

8. Lack of ability to handle rapid growth

While many businesses struggle to grow, a few others experience rapid growth. Sometimes, these businesses may even grow too fast that they fail to keep up with it. For instance, you start selling a product that is trending immensely but you’re unable to fill the orders as expected because you’re already low on stock. Even for this issue, strategic planning can help you foresee market trends and adapt accordingly.

9. Overexpansion

Oftentimes, businesses associate success with expansion. So they produce more goods and work towards expansion without any regard for the changing trends. In the end, they end up with too much inventory and not enough customers. Just like with rapid growth, overexpansion can be prevented by proper planning and research. Working slowly and steadily towards growth should be the ideal goal.

10. Value proposition failure

One of the reasons why many startups fail is because they lack a strong value proposition. You might be lacking the right marketing message to show potential customers why they should choose you. You need to find out what sets your business apart and how you can deliver that message to your target audience.

What causes a small business to fail may depend on a number of factors, but these ten reasons are common across different industries. Having a thorough understanding of your product and the market, equipped with proper customer and competitor research can make a huge difference for you.

Author Bio: Neeraj Kumawat is a marketing consultant and a passionate writer. He loves to shares his ideas on retirement, finance, money management etc. He loves travelling and reading travel books in the free time. You can find him on Twitter & Facebook.