Five Main Reasons New Businesses Fail
Updated: Mar 9, 2022
50% of new business ventures fail within five years. Companies offering consumer goods and consumer services account for almost 50% of these failures. The main reasons new businesses fail are:
Lack of working capital / cash flow. Over estimating sales revenues and under estimating costs. Anxious to make a success of their businesses, many startup's assume that sales will come quickly and in big volume and don't want to face the reality that it often takes six months to see revenue for a product after it leaves the factory. During this period of no revenue coming in, costs tend to escalate and multiply resulting in cash-flow problems which, in turn, very quickly lead to business failure.
In many startup's, the owner is initially the person responsible for everything. As the business grows, the owner finds it difficult to let go, is reluctant to hire new management or does hire new people but cannot give them the freedom to succeed.
The discipline of writing a comprehensive business plan with all the projections properly researched and evaluated does not always come easily to people with entrepreneurial spirits. This can sometimes lead to problems getting finance, investment or even contracts with larger companies.
Most startup's are starved of cash in the early days and tend to spend whatever money they have on product development, manufacture and distribution as these are tangible, visible and necessary activities to get the product to market. What they often undervalue is brand marketing and end up with a product in the warehouse that has no brand identity or advertising strategy to help sell it.
Many startup's happen because the Entrepreneur has either lost their job or has just become fed up working for another company. They start a new business with energy, drive, commitment and enthusiasm but lack the business skills, expertise and experience to grow the business. Gaining these skills along the way can be expensive and often catastrophic. Finding the right advisers, partners and coaches to bridge the skills gap can make the difference between failure and success of the business.