Why Businesses Fail? 5 Major Root Causes of Business Failure- Startup Tips for Beginners

If we look carefully into the records, the statistics, we will find that most of the businesses have failed within a few years of their establishment.

Is it the lack of leadership qualities, poor management, planning or a wrong strategies?

More and more startups and small businesses that face this loss of not being able to survive in the market. Unless and until we know the causes, the sources that lead to the failure of businesses, we can’t work upon finding solutions.

This article will highlight five common, very basic reasons due to which businesses lose its existence. Let us take a look at these:

Why Businesses Fail?

1. Ego & Pride

Along with dedication, commitment & focus, it is humbleness with which great things can be achieved. Although it applied to all but now that we are talking in context of business & entrepreneurs, therefore entrepreneurs must learn to stay humble towards others.

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Ego and Pride

They must learn to listen to the opinions, views & advice of others too. They must learn to take seek help from others in times of need. They should understand that it won’t make you small. Giving & extending help is a way of life.

We see that because of too much ego & pride often we ignore great suggestions, ideas, solutions, advices of people which we later realize & regret.

Grow your Business Multifolds with Word of Mouth Marketing Therefore we must understand the importance of taking guidance & help of the experts, the ones who we know are better & experienced in certain area and not just trying hit & miss method out of not willing to take help.

You never know what opportunity or idea you may miss out on. Remember, ego takes you nowhere be it business or personal life.

2. Market Doesn’t Need Your Product & Service

Another root cause of business failure is that the product or service your business wants to offer has no demand in the market or say it is not needed by the people. Before finally diving into any product idea, do proper research as to whether there is potential demand in the market for the product or are you just going to force your offering in the market (which won’t even work anyway).

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No Need

Your business cannot survive unless you offer something that satisfies or fulfills any need of the customers, unless the customers see your product as a solution to some kind of their problem.

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Useless product or the product which is not required by the people will not let you stay in the market. Eventually you will end up by closing down your business.

3. Poor Cash Flow

The reason we see many entrepreneurs passionate about starting a business because they believe they have idea of the problem that exist in a particular market. There may be some with finance & accounting background (not compulsorily though).

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Poor Cash Flow

But maximum entrepreneur are not from the finance background or possess finance & accounts knowledge. Which is a major disadvantage for the business.

”A business tends to go slow & shuts down at the end because they can’t pay their bills (in the words of Bill Carmody). ”

Vendors and creditors think only for their own benefit.

How to Negotiate Better Deals with the Vendors?

A company is able to generate profit or not initially or say at any stage/phase of business, they are least bothered. They take interest and care till they are getting paid timely.

It is not because a of the fact that a business not able to make good amount of profit that it shuts but instead it is due to fact that a business is not able to manage its cash flow.

4. Careless Hiring/Wrong Hiring

No matter how successful a business or a brand is, a few bad hires is all it takes to ruin it completely. When a business hires wrong employees, the productivity gets affected which in turn affects the financial condition of the business & simultaneously its reputation.

The chain is connected to each other. On wrong step and the whole organization gets affected. A lot of cost is involved with hiring a new one like their training, development and more.

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Wrong Hiring

A bad employee is like a liability, it will only take from you and won’t give you. Your efforts right from hunting for him to its training & other things are a waste if he’s of no good to the business.

A business can come under a huge cost burden with the wrong hires putting the whole organization in a risky situation.

Hiring the right Freelancer or a Remote Worker

5. Inefficiency Of Operations

Everything being sound and apt yet a business fails. Why? No, nothing to be shocked about. It can happen. It has happened to many. The reason is operational inefficiencies. It is this thing which can trap a business in between & not let it grow.

The cost incurred in the form of rent, labour, machinery, machinery, shipping, delivery etc eats up your profit margin leaving no base for a business to survive on.

Figure out How Automation Can Save your Drowning Business

So, in order to not face such a thing, as an owner/entrepreneur you must reevaluate, negotiate & revive the rates, the rates & terms of contracts with the parties involved therein.

Let not yourself suffer the burden. Make sure you don’t get to earn less than what you set as your profit margin as standard after covering all the the operational & other costs.

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