Causes of a Business Failure

Whether you’re an aspiring entrepreneur or you run a startup business, you’ll agree with me that somewhere below the surface of all the buzzing passions and overflowing ideas lies a subtle fear; the fear of failure. And even though you try to ignore the fear, you know as much as we do that there are some merits to those fears. This is because many businesses fail annually. 

The records show that 20% of all small businesses shut down in their first year, and 96% of them fizzle away within ten years. That’s something to be concerned about. It makes you wonder why some businesses fail and others succeed, particularly because many businesses failed during the COVID pandemic. The failure of CrowdScores in 2020 is just one among many examples of failed businesses.Why business fails. Photo of a team dicsussing something Businesses fail for several reasons. And although there are variations in the specific causes of failure, business failure statistics show that the underlying reasons businesses fail are the same for most businesses. Therefore, you will need to understand why most businesses fail so that you can preserve your business from failure.

In this article, we’ve highlighted some of the major reasons businesses fail. Whether you’re in business full time or you’re just running a small business as a means of earning extra cash, you’ll find the information helpful. You’ll find out some top reasons why businesses fail as you keep reading.

Top 6 Reasons Why Most Businesses Fail

Why do some businesses fail and others succeed? This question has been top on the mind of both business owners and business analysts. We found out that the basic causes of failure for most business are largely the same irrespective of business type and industry.  Below are the top 6 reasons why most businesses fail.

Lack of an Effective Business Plan

Entrepreneurs can attest that a ton of “glossy” business ideas run through their minds daily. While these ideas might seem feasible and profitable in their minds and even on paper, it is often not the case. In reality, some of these ideas are just not feasible. Some will require major revisions to be feasible, and some are not just worth the stress. The only reason this is not realized early enough is that most businesses fail to plan effectively.

An effective business plan gives a precise definition of the unique value proposition of a business. It identifies its strengths, weakness, and potential strengths/weaknesses and makes adequate provision for all facets and phases of the business. It also helps you effectively communicate the business vision to your team.Why most businesses fail. A photo of a smiling woman on a business meeting

Not Prioritizing Customer Acquisition and Retention

Customers are the lifeblood of every business. A non-customer-centric business is bound for failure no matter how great the business’ products or services are. Many businesses fail because they pay more attention to creating a good product than meeting customers’ needs. Although important, a good product does not always translate to an excellent customer experience.

To ensure your business is against failure, you have to fall in love with your customers and not just your products. Focus on meeting customers’ needs, take customer reviews seriously, and work on modifying your products to meet their needs. A satisfied customer will ultimately become a fan and will most likely recommend your business to loved ones and neighbours.

Poor Marketing Strategies

Another reason most small businesses fail is that they do not take marketing very seriously. While some believe a good product will market itself, others wait to launch the business before commencing market. It’s true that a good product markets itself, but no one will know the product is good if they don’t use it in the first place.

To give your business a competitive edge, marketing should commence long before your product is launched. You should also tailor marketing strategies to reach the target audience effectively. This will create a space for you in the market even before your business officially flags off. 

Lack of Innovation

Innovation and marketing are two key factors that determine the success and failure of a business. Business innovation involves finding better ways to add value to your clients instead of simply maintaining the status quo. Your current methods will bring sales for a while, but customers will soon become disinterested without innovation.

To build a brand that will stay relevant in the market, you have to regularly find innovative ways to bring more value to your customers than your competitors. Businesses that fail to innovate will gradually lose relevance and close up. If online slots are innovating, then you have no reason not to be doing so.

Lack of Flexibility

The market is constantly changing. Technology is rapidly advancing, and customer needs are evolving with it. For your business to succeed for years and decades, you have to be willing to adapt to changes in the market quickly. Failure to do so can lead to the demise of your business. This is not limited to small businesses; many giant industries have crashed in the past due to a lack of flexibility.

An entrepreneur who loves his product too much to let go when the market moves on will be left behind.

Trying To Do It All

A large percentage of small business owners are guilty of this. They often view the business as their personal affair, so they try to do everything even when they have a team. Fueled by passion and sometimes limited funds, it’s easy to forget that you’re not superhuman. Like every other person, you have your strengths and weaknesses plus limited working hours. You also need to understand that there’s a limit to what one person can achieve compared to a collaborative effort.

You must learn to delegate tasks to free up time to focus on the most important things. It also helps you horn your leadership skills and even raise leaders amongst your team.


It’s no longer news that many businesses fail annually. 50% of new businesses fail in their first year. To prevent your business from being numbered among them, you need to do lots of research and ask the right questions. One of the questions you must ask is: why do businesses fail? The answer to this question will enable you to plan and run your business in a way that eliminates the chances of failure. 

We will love to hear from you. Please leave a comment if this article helped you in any way.

Author’s Bio

Jeremy Ambrose, a business analyst. Over the last 20 years, he has worked as a business analyst for several business brands. He currently runs his consulting firm, where his team focuses on providing solutions to tough problems for small businesses. Jeremy is constantly researching the business world and shares his findings in many top business journals.