Why Some Businesses Fail


Business Studies - 7115

Why Some Businesses Fail

Why Some Businesses Fail

Causes of Business Failure 

There is much more chance of failures of business than its success and this trend is not limited to any specific region. This trend is observed in almost every country. There are different causes of the failures of the business. Some of them are discussed below: 

Poor Management 

Poor management is the most common cause of the failure of any business. Most of the time, the lack of experience leads to failure. If a person decides to open a convenience store in an area where there are already 3 or 4 stores serving the local community, there is always less chance for this store to be successful as the location is an important factor in this business and the owner of that business has taken the wrong decision due to lack of experience. 

Sometimes when new members enter a family-owned business, they can’t take the decision in the right way. Sometimes they hesitate to hire managers as well that leads the business towards failure.   

Less Focus on Change Management

Change is a continuous process and nobody can stop it. It is also very commonly observed that if the business is ready to accept change, it leads towards the failure of that business. In this era of technology, it is impossible to run business with old methods. If you are trying to communicate through normal postal service instead of using the latest communication technology, you may lose your chance to succeed in the business. If we talk about communication purposes only, the use of Skype and WhatsApp is very common for business communication in the current scenario.    

Issues in Financial Management

Financial management plays a significant role in the success of a business. On the other hand, bad financial management can also lead to the failure of a business. If there is a bad cash flow forecast or lack in the planning of financial aspects, there is a high risk of failure of that business. 

Expansion Overcapacity

Sometimes business owners try to expand the business rapidly. This leads to failure as they take decisions that are beyond the capacity of the business. Sometimes an industrial unit takes a loan from the bank to expand the business but due to some technical reasons fails to start in the given time and interest increases on the bank loan. That may disturb the financial position and cash flow that leads to the failure of the business.   

Risk in New Start-Ups

There is always a risk in the new startup. Nobody can assure the success of any new business. Sometimes startup chooses the wrong target market to serve, sometimes lack somewhere in financial resources. Sometimes ignore the factors that can impact the business negatively and sometimes no research is conducted before starting any business. Lack of managerial skills is also an important factor that leads the business towards failure.

Why New Businesses Have Greater Risk Of Failing

It is observed that most of the new businesses fail after a few years of establishing. There are various reasons for the failure of these businesses. Some of them are discussed below:

Leadership Failure 

Whenever a business is started, leadership is a key problem that is faced by it. If you are setting new business and especially in the case if you personally have less experience of that field and rely on supervisors, there is much more chance of leadership failure. You may take wrong decisions regarding location, finances, marketing or operations. You may also fail to lead your team in the right direction.

You can avoid this issue by arranging a training session for staff or by attending the same training for yourself to gain some new managerial skills. You may have an experienced person as a mentor. Learning new skills is very important for leaders to keep learning and continue leading.    

Lack of Uniqueness or Value Proposition

Many people do mistake that they follow the market trends and open a new business which is already offering in the market. Sometimes they offer a product that has strong demand but being offered by many producers. For example, if there is a tough competition in bakery shops and in small areas, there are already 4 -5 bakery shops serving the community, there is less chance for the success of the next bakery shop.  It doesn’t mean that bakery products are not in demand but there are already many suppliers in the market to serve the needs of customers so that the entry of a new player is difficult and its success is even more difficult.

This issue can be resolved if the location for the bakery is selected after proper research and some uniqueness is brought in the products offered by the owner. It is better if the uniqueness is regarding the taste in the case of bakery products. The owner may add value in it by good packaging as well.

Customer Needs Are Not Addressed

You may de track your business if you ignore the needs of the customers. Sometimes business owners don’t address the customers' needs. As a result of that, customers avoid using the products or services of that business.  It is because that customer care is an important aspect of business nowadays that engage the customers and address their needs.  

Unprofitable Business Model

Sometimes a new business comes with an innovative idea but can’t execute a proper marketing plan or there is a lack of revenue stream in the business model. This type of issue in the business model may lead to the failure of the business in a short span of time. It is important to focus on business model especially on revenue streams to avoid business failure.

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