9 Reasons Small Businesses Fail

Every year, thousands of small businesses open, and thousands of small businesses fail. Building a successful business is much more challenging than most people imagine. Without doing the right research, people have no idea how much work goes into every facet of a business. From marketing to overhead to employees, running a company can consume every bit of your time. 

The challenge is daunting but not impossible. For every business that fails, another thrives. The question is, how can you make sure yours is the latter?

We want to only look at the fun sides of operations. You make your schedule and all the decisions. Every new sale or new customer feels like a cause for champagne. Success means watching the company bank account grow. 

However, we need to have perspective. How are you protecting yourself legally? You need to know exactly how much money you’re making, as well as how much you’re making. Are you innovating? Your competitors are. What is your strategy for customer retention? Launching a company is more than having a good idea. It’s a living being that requires your attention or else it won’t last.

Here are nine reasons why small businesses fail.

1. The Market Is Too Small

Finding a niche is one thing. Being too narrow is destructive. Markets can dry up with any shift in the economy or unforeseen circumstances. Your company can’t be so focused that it shuts down if one segment of the market disappears. No one can see the future, but you can plan for it. 

By making sure you stay agile and versatile, you guarantee that you can weather any storms (as best you can). Businesses need to find identifiable segments of the market to target and be broad enough to appeal to all of them. If one segment shifts, you need to be ready to move to another. Just like we’ll talk about later, market targeting comes down to research.

2. Bad Management

Being a successful manager is challenging under any circumstances. Managing every aspect of your business, including hiring and managing employees, presents an incredibly difficult challenge. Many business owners are not familiar with managing purchasing, bookkeeping, employment, office space, and everything else. We always want to think a good manager is good at delegation, but that’s not always true. 

Delegating tasks to the wrong people can run your business into the ground faster than anything you can do on your own. The most critical problem facing business owners is identifying when their employees are making poor decisions. Unfortunately, sinking everything you have into your business means there’s not much of a learning curve. You either sink or swim. That added pressure means putting proper management at the forefront of your business plan. Will you manage everything yourself? Are there ways to outsource some of your tasks? Where are the opportunities to protect yourself?

Worse than poor delegation is merely a dereliction of duty. Getting spread too thin and overlooking vital operations can also destroy your business, possibly before you even start. Be sure you are up to the challenge, and when it does become time to hire employees to help, be a good leader. Inspire your employees to do their best work, and take advantage of excellent staff.

3. Opening For The Wrong Reasons

Write down the reasons you want to open a new business. Is it just to make your own hours or be your own boss? Do you just think it’s an excellent way to make money? Discover the “why” buried deep within your business plan. If you can’t identify a reason you’re passionate about, the chances your business will succeed sink. You need a passion for what you do, or you can become bored or disinterested, and the company will fail.

Ask yourself some simple questions.

-Why do you want to open a business?

-Where do your passions come from?

-Are you driven enough to put in the hours?

-Can you learn from your mistakes and improve?

-Are you determined to make this company successful?

When you feel confident that your answers point in the right direction, you’ll be ready to start a successful business.

4. Not Enough Money

Not only does starting a business require a lot of time and effort, but it also requires a lot of capital. Many companies can’t make ends meet only a short time after they open. Poor planning is typically to blame, so remember to budget for all of your needs.

Make fundraising a core component of your business plan. Remember, there are options for capital other than your wallet. Investment firms, banks, and Small Business Association (SBA) loans are all alternatives to investing everything you have. 

Start with consultations. Many small business owners don’t fully understand all of the costs involved in opening and maintaining a business. If you’re unsure about what to expect, try the SBA startup calculator. Not planning for all expenses can be devastating. Don’t set yourself up for failure.

5. No Business Plan

Speaking of setting yourself up for failure, make a plan! You need a business plan. Dedication and hard work only go so far. This opportunity is where you flesh out all the details of your launch. If you don’t know where to start, you can find samples and templates all over the internet. You’ll need some guidance, but ultimately, you need to do the research and fill out the details. 

Here are some key elements to include.

-A Mission Statement: What does your business do, and what are your goals?

-Market Analysis: Identify challenges and opportunities within your target market.

-Competitive Analysis: Who are your competitors? What can you offer that they don’t?

-Finances: How much startup capital do you need? List all financial information, including all costs and expected income. 

-Remember to include everything from infrastructure to taxes to marketing.

Budget: After you list your financial details, create a budget accounting for everything, and always try to be conservative with your expectations.

Business plans need to be extensive. You need to address every detail of your business launch and operations, or you may be setting yourself up for failure.

6. Marketing

Obviously, web-based businesses require a detailed, well-designed website, but every business needs an online presence in today’s market. Websites are a necessity, and a poorly designed site can make your business look unprofessional. Marketing starts with creating an attractive website that engages customers. 

Step two is getting customers to visit your website. This step is where social media is essential. You may be able to get by without a social media presence, but you’re already behind your competitors. The great thing about social media is the price tag. You can create accounts on almost any social media platform for free, and millions of people traffic Facebook, Instagram, and Twitter daily. Each one is an opportunity.

Another critical aspect of social media is the paid advertising side. Yes, accounts are free, but directing customers to your social media accounts can be challenging to do organically. Facebook and Twitter offer reasonable prices to help you reach thousands of people. 

Without some marketing modicum, your business can stay invisible and fail before you have a chance to be successful.

7. Too Much Ambition

Typically, ambition is a virtue in the business world, but you can quickly outgrow your budget and over-extend yourself. Slow and steady growth is the key to success. An extremely memorable example is the Borders Bookstore franchise. By wildly expanding in the ’90s and 2000s, Borders failed to plan for a future being shaped by online stores. By the time online retailers like Amazon took over the market’s lion share, Borders was stretched too thin to survive. They declared bankruptcy in 2011.

Their biggest fault was equating growth with success. The ability to expand doesn’t necessarily mean you’re ready to do so. Remember your business plan. Hopefully, you included five and ten-year outlooks to try to foresee potential challenges. This kind of planning helps you be more conservative before deciding to expand too much. You want your small business to grow into a large company. Just don’t get too impatient!

8. Customer Diversification

Having a cornerstone customer is excellent, but relying too much on one customer is risky. We discussed making sure you can reach different segments of the market. You need to diversify your customer base so that you can absorb any large-scale losses. Try to go after a smaller market along with targeting “whales.” The diversity will help you be more agile if you lose one of your more substantial income streams.

9. Stubbornness

Many small business owners are set in their ways. They’re experts in their field and want to build a business on what they know. It makes sense. Stick with what you know. 

But are you ready to change with the times?

Many businesses fail because they’re unable or unwilling to pivot to fit the changing market. Understanding the business world isn’t the same as 30 or 20 or even ten years ago is critical to your success. You need to be flexible. Adopt new software that can help with operations. Get past the notion that you can’t teach a dog new tricks. Learn from your competition, and study the market. Getting complacent because “your way is the best way” is a sure-fire way to put your business in danger. 


Opening a successful small business is much more challenging than most people expect. The level of dedication, commitment, and planning that goes into just the launch is daunting. Before you decide to go down the incredibly difficult road of small business ownership, remember why you want to do it. There are many reasons why companies can fail. Staying vigilant and keeping focused is the best way to increase your odds of success. 

Plan thoroughly, and don’t be afraid to ask for help. There’s a world of resources available to you. Use them. 

Using a sales and marketing platform like Shamrck is invaluable for consolidating your tools and making you more efficient. Small business owners need to save time everywhere possible. Start your free trial with Shamrck to learn how we can help your business succeed. 

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