Top 5 Reasons Why Businesses Fail & How to Avoid Them

Why Businesses Fail

Twenty years ago, Netflix tried to sell their company to Blockbuster. But it was declined. In 2010, Blockbuster filed for bankruptcy. In the same year, Toys R Us, the largest toy store chain in Amazon, closed all its online stores. General Motors is a leader of car manufacturing for more than 100 years. GM bail it out in 2009.

There are lots of reasons why these businesses fail.

Some people succeed while others don’t. According to SmallBiz Trends, about 44% of new businesses failed within 5 years. Failure is a topic most entrepreneurs would rather avoid. But knowing the warning signs of business troubles can help all. By learning the reasons for business failures, one can try to avoid them and succeed.

Top 5 Reasons Why Businesses Fail & What To Do

When we look at why businesses fail, we can see common issues over and over again. When getting ready to start a business, one must watch out these top 5 reasons for business failures.

Lack of Vision

Every leader needs a vision to lead the organization. Without it, the team may not agree on how to run the business. Such unresolved issues make a business continues to slip toward failure. Kodak dominated the photo film market for 20 years. One of its engineers invented the first digital camera in 1975. But the management didn’t launch it because they don’t have a vision on the digital revolution. In 2012, the company’s failure surprised many.

What to do: The simplest way is to set SMART goals.
  • Think of what one wants to happen in the business five years from now. Create measurable steps with target dates to achieve the goals. Walt Disney’s vision is to create the happiest place on earth. From that vision, he maps out a timeline in adding digital attractions. Such vision guides the theme park to its success.

Need for a Niche

A niche is a company’s area of specialization to attract a target market. A company wanting to attract everyone tends to end up attracting no one. This is one big reason why businesses fail. Most of the time, they slowly kill the business. Commodore Corp was a computer company for the masses in the 1980s. They didn’t care to advance their PC’s special features. This error led to the company closure in 1994.

What to do: Look for a unique selling point (USP).
  • List the features and benefits of your brand. Identify what the competitors can’t imitate. Create a short phrase to communicate the value. In 1997, Apple reinforced its brand through the “Think Different” niche. The company narrowed its market the well-off willing to pay extra for technology. Until now, they dominate the niche for premium users.

Strategy Plan

A business idea may be good. But one doesn’t have a plan to follow, the chances of success decrease. Segway brought the motorized scooter to the market in 2001. Even though the concept was revolutionary, Segway didn’t create a plan on how to market it. Clients don’t know where to ride the two-wheeler. There were questions if it’s safe for street handling. The product ended up in a failed inventions list.

What to do: Every business should plan its strategy.
  • Outline steps one intends to do in marketing a brand. Create a chart of specific tasks, objectives, and deadlines. Tesla aims to mass-produce electric cars. They knew that batteries will be the biggest problem in their goal. They invested in factories that make batteries. Today, they have complete control of the batteries supply chain in the market. It’s one of the most brilliant plans they made.

Poor Financial Management

People started a business to make money. But poor cash flow management leads to a failure path. There’s no point in increasing sales if there are no extra funds to fulfill the orders. A company risks losing a supplier because of late payments. Without extra cash for a new machine, a company missed the opportunity to innovate. Radio Shack was best known for supplying the latest electronics in 1999. When the company entered e-commerce, its poor cash flow resulted in a lack of inventory. And customers sourced out to other suppliers. The company has thinned out since 2015.

What to do: One must know where money in the business is coming from and going to.
  • Create a budget and stick to it as much as possible. Set aside a reserve fund in case of a financial crisis or new investment. Slash unnecessary expenses. Microsoft’s greatest strength is maintaining free cash flow. They lower their accounts receivable balance and stretch accounts payable. No wonder, Bill Gates is one of the richest men in the world.

Low Commitment

A business will fail if it didn’t commit to understanding customers. They should always look for ways to improve. In every relationship, one has to invest time to make it work. Dell Hell is the best example of failure due to a lack of commitment. In 2005, journalist Jeff Jarvis started the blog to share his negative experience from Dell’s customer service team. The negative publicity did a huge amount of damage to the company. Luckily, Dell was quick enough to rethink their approach to better customer service.

What to do: A company must listen to its customers.
  • Engage with them to know what they want. Look for new ways to serve clients and keep them. Keep an eye on the trending value of your target market. Zappos has a brand reputation for excellent customer service. They focus on doing the right thing for customers, however long it takes. This gives them an edge in the online retail industry.  


Starting a business is an exciting venture. Entrepreneurs must understand that success depends on a clearly defined brand, careful planning, and sound financial management. Take little steps to increase your chance of success.

  • Set SMART goals.
  • Discover your unique selling point.
  • Outline a marketing strategy.
  • Slash unnecessary expenses.
  • Look for ways to serve your client better.

Today, digital marketing can help a company thrive in the competitive landscape. They help brands grow their reach at a lower cost. And they will provide your audience with the needed answers and encourage them to share it.

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