Why small businesses fail big
and how to succeed against the odds
Malko Ebers, June 11th 2014
A high school student had sent me an email asking me why so many small businesses fail? A very good question. Entrepreneurs start the venture of being in business with passion, energy and ideas so how come that the average lifespan of a business is just a couple of years and that after 18 months according to Forbes 8 out of 10 entrepreneurs have given up? The Coca Cola, Ford and Walt Disney type of companies are the exception to the rule, companies that have adapted, mastered crises and have established cultures and values that have endured individuals and their corporate functions.
Based on my experience as a business consultant and dealing with entrepreneurs from all industries and walks of life I see three main reasons why small businesses fail so often.
1. Failure is normal in business and small businesses are no exception. Like in evolution adaption to changing circumstances is crucial. A now much bigger global marketplace requires constant adaption and innovation and a very high attention and commitment level. The learning curve is steep in many industries and small business owners often don't have the time, attention and resource commitment necessary to survive the toughest initial growth phase. As a small business owner you typically can't compete based on price, so your product/service has to focus on a niche, it has to be remarkable and add value. Even then small businesses often lack the capital to bring a good business model to scale so they don't get taken over or priced out by the competition.
2. Know thyself was written over the oracle of Delfi in Greece - applied to business this means know your resources, core competences and who your customers are. It takes time to build a network and reputation and a lot of small business owners don't have the necessary support structures and patience to build a referral network of loyal customers. It sounds simple but the longer you stay in the game the higher the likelihood of success, you will gain experience and grow your referral network.
3. A small business owner can't sufficiently diversify and spread the risk, especially financial risk and therefore even good business models can easily run out of cash. The business owner is basically the business in the initial startup phase, the face of the company representing the brand so any healthcare issues for example, financial burden unrelated to the business to 'life happening to us' directly affects the business without having a team and governance structure to buffer external shocks.
Other issues that are common are late payments of your clients, as a small business you typically depend disproportionately on timely payment by a few important customers. Also as a small business owner you work often too much in your business (wearing all hats yourself) instead of on the business (strategy, client relationships).
Being in business and bringing something new to the world, giving birth to an idea and adding value to other people's lives, solving problems is something beautiful. Despite all challenges entrepreneurship is part of the university of life, it teaches us something new every day. You will make mistakes but each mistake is an opportunity to learn to 'know thyself' and what you bring to the world. My advise would be to answer the why question, to surround yourself with a team and people you enjoy working with and to focus on solving problems you can be passionate about. That way no minute will be wasted and you will plant the seed for further growth.
1. Failure is normal in business and small businesses are no exception. Like in evolution adaption to changing circumstances is crucial. A now much bigger global marketplace requires constant adaption and innovation and a very high attention and commitment level. The learning curve is steep in many industries and small business owners often don't have the time, attention and resource commitment necessary to survive the toughest initial growth phase. As a small business owner you typically can't compete based on price, so your product/service has to focus on a niche, it has to be remarkable and add value. Even then small businesses often lack the capital to bring a good business model to scale so they don't get taken over or priced out by the competition.
2. Know thyself was written over the oracle of Delfi in Greece - applied to business this means know your resources, core competences and who your customers are. It takes time to build a network and reputation and a lot of small business owners don't have the necessary support structures and patience to build a referral network of loyal customers. It sounds simple but the longer you stay in the game the higher the likelihood of success, you will gain experience and grow your referral network.
3. A small business owner can't sufficiently diversify and spread the risk, especially financial risk and therefore even good business models can easily run out of cash. The business owner is basically the business in the initial startup phase, the face of the company representing the brand so any healthcare issues for example, financial burden unrelated to the business to 'life happening to us' directly affects the business without having a team and governance structure to buffer external shocks.
Other issues that are common are late payments of your clients, as a small business you typically depend disproportionately on timely payment by a few important customers. Also as a small business owner you work often too much in your business (wearing all hats yourself) instead of on the business (strategy, client relationships).
Being in business and bringing something new to the world, giving birth to an idea and adding value to other people's lives, solving problems is something beautiful. Despite all challenges entrepreneurship is part of the university of life, it teaches us something new every day. You will make mistakes but each mistake is an opportunity to learn to 'know thyself' and what you bring to the world. My advise would be to answer the why question, to surround yourself with a team and people you enjoy working with and to focus on solving problems you can be passionate about. That way no minute will be wasted and you will plant the seed for further growth.
Nice information, many thanks to the author. It is incomprehensible to me now, but in general, the usefulness and significance is overwhelming. Thanks again and good luck!!
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This blog post was absolutely fantastic. When I used to work in electroplating they sometimes encouraged us to write, but I could never come up with something as well written as that.
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