Why do businesses fail?

(All statistics in this blog are from fundsquire.co.uk/startup-statistics/)

With 1843 new companies founded every day, there’s always new competition entering the business world. It’s no wonder so many businesses fail within the first five years. So many people have some great ideas, based on something they may love, or something they’re really good at. Maybe they’ve seen a gap in the market and think, ‘I could be the one to fill that, why don’t I start my own business?’

Realistically, anyone can start their own business. To begin with, all you need is a good, unique idea, and a strong, stable business plan and strategy. However, many new business owners don’t consider what can actually make their business sustainable – and whilst it might be a great idea, thinking logically, how likely is it to survive past the first three to five years?

Let’s look at some statistics…

On average, 1 in 5 businesses fail every year – with 60% of businesses failing within the first three years. There are a number of reasons why businesses fail, varying from business to business.

Looking further into it, according to ‘fundquires’ 2021 statistics on business start-up, there are…

• 5.82 million small businesses, with 0-49 employees
• 35,600 medium-sized businesses, with 50-249 employees
• 7,700 large businesses, with 250 or more employees

With these staggering statistics and millions of businesses all over the UK, it’s no wonder so many of them fail within the first five years – 42% of start-ups fail as there’s no market need for them. This is evident in how many businesses there actually are in the UK. There’s a ton of competition and potentially very few gaps in the market. The markets just need the right people, with sustainable-long term business ideas to fill said gaps.

What are the main reasons why businesses fail?

1. There’s no gap in the market for their business idea

As I explained earlier, 42% of businesses fail as there’s no market demand for them. It can be quite tricky if what you’re passionate about has a large market, as you’ll have to find some kind of USP to set your business aside from others. Let’s take hair salons as an example – a huge market, they’re everywhere.

As you may know, I’m a multi-business owner, and one of my businesses is a hair salon, Serenity Loves, based in Peterborough. What sets mine aside from others is that it has an onsite crèche. I came up with this idea when I was heavily pregnant with my second daughter, and thought it would be a great idea because as a mum, I’d find it extremely useful to be able to go to a place where I can spend a couple hours getting my hair done, knowing my children are safe in the onsite crèche – so I just knew other mothers would feel the same, as it’s so hard for us to have time for ourselves.

So if the industry you want to go into is incredibly competitive, you need to consider aspects that are going to make you and your business unique – lowering the chances of your business failing. 

2. Lack of funding and poor cash flow

As you probably know, when starting a business, you are going to need some sort of cash and funding behind you, to cover start-up costs, equipment, rent, insurance, and all the other outgoings that will need to be paid for. And without this – it’s not very likely your business will survive, or get off the ground in the first place.

Sure, you’ll need less cash under your belt if you’ve got a unique idea, and are going into an industry with high demand. However, is your idea sustainable? Is it something that can survive if demand for your products/services drop? Especially within a large market. With a high cost of outgoings, and potential low demand, it’s going to be difficult for your business to survive. So it’s important that you’ve got a substantial amount of cash set aside to get your business off the ground, and to cover costs when demand may be lower. 

3. Not enough support/not the right team

Another huge reason for businesses failing is simply not having enough support around you, or even not having the right kind of team. Being a business owner can be difficult, and whilst it’s very rewarding, at times it’s not unusual to wonder whether it’s worth the relentless hours that have to be put into the business. But having support and guidance along the way is incredibly beneficial – especially since business can feel very isolating, and get you into a rut at times, so you need to be able to ask for help when you need it, and seek support from the people you trust.

As well as this, 23% of businesses fail due to having the wrong kind of team, so evidently not having the right team around you can also have a detrimental impact on your business. You know who you are, so you need that to be reflected in the people you surround yourself with. I’m not just talking about professionally, although that is important, but you need to know that the people you work with on the daily are your people. You need to be able to create workplace bonds in order to keep up morale, and build trustworthy workplace relationships. Having a close-knit team who all work well together massively speeds up productivity, and reduces stress, since you have trust in your employees to get the job done right.

Surrounding yourself with the wrong kind of people, who you don’t bond with can cause a great deal of stress, and slow down work processes, which will ultimately have a negative impact on your business and the way it runs. 

4. They’ve been out competed

This one links back to number one on the list. Simply, a business may fail as it’s been outcompeted by other businesses within the same market. There are a number of reasons why another business might be more popular. Such as location, pricing, customer experience, or even just having something that little bit more unique than your business.

If you find yourself being outcompeted, like 19% of businesses do, it’s a good idea to do research into your competitors. Try to identify exactly what their business does that’s bringing in more customers, and allowing their business to develop. Maybe it’s time to relocate? Maybe it’s something like your marketing or promotion not being engaging enough, or relevant to your target audience. It’s definitely worth doing the research to try and figure out exactly what you can do to ensure your business is up to standards and can compete with the other businesses in your industry. 

5. Poor business plan

For some businesses, failure may be written before the business has even been launched. Not having a solid business plan will likely set your business up for failure, since you have to have a strong and secure idea, strategy, and plan for your business before you do anything. But some people may rush this part, or not even think to include certain things, some of which may be absolutely essential to include in a business plan.

There’s a lot of things you need to include within your business plan, including things like marketing strategies, analysis of competitors, finances, operation planning, and a ton more. Check out my ‘Step by Step Guide to Starting or Growing a Successful Business’ course! It’s all online, and you can work through at your own pace. In the course, I identify and discuss basic business fundamentals that need to be planned out and considered when starting your own business. It’s definitely worth a look! 

6. Weak management and leadership

I’ve heard this one quite a lot – poor management and leadership can impact the business very negatively. I’ve had a ton of experience as an employee before I became a business owner, and I can say first hand that management definitely affects a business – and i know a lot of people who would agree with me.

Poor management can lead to employees feeling unvalued, or underappreciated. Through this there’s going to likely be a decline in the quality of work being produced. For example, say the quality of promotional material and advertisements decreases, it’s going to bring in less potential customers, which obviously will impact the amount of money the business brings in, and may damage the reputation of a company.

Additionally, poor management could also increase staff turnover. I know people who have simply found work elsewhere because they don’t feel valued at their job. Consistency is key – and with new employees coming in and out of the business too regularly, there will be no consistency. This can be easily avoided with high standards of management. Which includes managers and leaders who listen to their employees, who listen to their concerns and are open to new ideas and new opinions. If you’re a manager, make sure your employees know they’re valued, and the quality of work will stay at a consistent, high standard – positively impacting the business. 

7. Poor marketing strategies

Marketing is definitely a big one. It can be the make or break of your business. With 14% of businesses failing due to poor marketing strategies, it’s evident that you need to be promoting your business in the right way.

So consider, are your advertisements and social media posts hitting the right audience? Does the style of writing or style of infographics produced match your brands message? Is your content appropriate for your target audience? These things need to be highly considered, and adapted if you answered no to any of those questions. You may have a top notch, unique range of products or services – but what use is that if you’re not promoting it to the right people? Why waste money on paid advertisements if your marketing doesn’t appeal to your target audience?

If you notice that you’re not attracting clients, or attracting the right kind of clients, you definitely need to reconsider your marketing strategies and the kind of things you include within your promotional material – it will make a huge difference to your business. 

8. The business ignored their customers

14% of businesses failed because the business ignored their customers. Why would you do this? Think about it, what is your business without customers and clients there to buy your products and invest in your business? You need those customers to ensure your business survives. The key thing here is to listen to your customers. Ask for feedback regularly!  Include feedback forms on your website or simply make social media posts asking for people’s opinion. If you’ve worked with them recently, get in contact and ask how the experience was for them.

Not getting much business? You may be ignoring your customers. Yes, your business idea is your idea. You own your business and technically you can do whatever you like with it. However, part of being a business owner is having the ability to adapt. You need to be able to adapt and change parts of your business to better suit your customers needs, because at the end of the day, your business will fail without customers and clients bringing money and publicity to your business.

Word spreads. If your customers feel you aren’t listening to them, and they can’t see you making changes to accommodate needs, they will tell people – negatively impacting your brands reputation. Think about it, how many good reviews do you see online? Probably not many. But people are quick to share bad feedback and negative opinions online, which obviously is not good for business. 

9. Not attracting the right audience/clients

This one links back to point seven, poor marketing strategies. If you’re not attracting the right kind of audience to your business, then you’re potentially wasting money. Some may even say that attracting the wrong audience is worse than attracting no customers at all.

You need the people you work with to be your people. So adapt. Listen to your customers needs and find ways to adapt strategies, and even your products and services to suit your client avatar better. Consider, who’s your ideal client? What kind of person are they? What are their beliefs and values? Identify these and find ways you can adapt in your business to draw in people more suited to your business and that you’d want to work with.

So many businesses fail because the wrong kind of people are coming into their business. But though having a clear vision of your client avatar, you can tailor your content, marketing, and all the other aspects of your business the right way, and towards the right kind of people. 

10. The business owner did too much by themselves

Finally, another reason businesses fail is due to the business owner doing far too much on their own. So many business owners WANT business to be hard. But why would you make it harder on yourself, when there’s so many ways you can reduce stress, and have more time to do the things that make you happy?

Learn to delegate. If you haven’t got a team – start expanding! Rather than taking on absolutely everything by yourself, build a team that has a range of unique skill sets that you can delegate tasks to. Doing everything by yourself is going to cause you a great deal of stress. Not just because of the workload, but also because you’re not going to be able to have any time for yourself. Ultimately you will burn out, which will cause your mental health to decline – trust me, I’ve been through it myself.

As a business owner suffers from burn out, the quality of the business will not stay consistent. Stress, low-mood, and anger will be on the rise which is going to slow down work processes. You can’t keep a rational head, which may lead to spontaneous, non-thought-through business decisions that may not be right for the business. Don’t take everything on – delegate tasks and take time for yourself!

How can I help you?

As a business mentor my biggest passion in life helping other like-minded powerful business owners scale their business and work towards the life they deserve. I offer a number of services as a business mentor that could be right for you! I offer…

• One to One’s – including a Power Hour, Half Day, and Full Day.
• She Leads; Membership Hub – a powerful, supportive online community.
• Mastermind – a monthly session, either online or in person, to give and receive bespoke advice based on you and your business.
• Event Days – I regularly hold event days to help people boost their business, and network with other business owners.

Have a browse through my website – I hope you find something that’s right for you, I’d love to work together.