Why Do Small Businesses Fail? The Top 10 Reasons and Ways To Avoid Them

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why do small businesses fail

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If you have the desire to be an entrepreneur, it’s likely you want to succeed.  You want to do it right, but most people don’t.  The state of the small business today is terrible, but avoidable.  If you know what most small businesses do wrong, you can avoid doing what they do, which is why I wrote this article answering the question, “Why do small businesses fail?”

If you’d like to see this content in video, check it out here:

Why do small businesses failThe Jeff Bezos vs. The Struggling Entrepreneur

According to Forbes, Jeff Bezos is the richest man in the world.  He recently passed up Bill Gates by reaching a net worth of $120 billion as the founder and CEO of Amazon, but how did he do it?  He didn’t start out with lots of money. He had a fairly normal childhood. His family wasn’t wealthy, and he didn’t start Amazon until he was 30.  In less than 30 years, he took Amazon from being a business run out of his garage into one of the highest revenue businesses in the world!

In contrast, you have the average entrepreneur that we’re used to seeing.  They start “just getting by” and they seem to stay that way.  Profit is something they don’t want to talk about very much because it’s never exciting.  Most of them work very hard.  Some, even work 7 days a week, and 12 hour days.  They sacrifice their social lives and their family lives to work on the business, but it doesn’t seem like a way out of “daily grinding”.  Then, when it’s all done, and they decide to take even one day off, their revenue dips.

What’s the difference in the Jeff Bezos-level entrepreneur and the “Struggling” entrepreneur?  How did Bezos manage to escape the small business norm?

There’s a System That Self-Made Success Stories Use

why do small businesses failIn my article on The History of E-Commerce, I spoke about how Jeff Bezos entered the world of e-commerce at a time where the market was not saturated, how the internet was fairly new, and other factors that contributed to the Amazon success story from a tactical standpoint.  To be honest though, there were other people who started e-commerce businesses who could have knocked Bezos out of the park!  Some people had money, platforms, and other advantages Bezos did not have.

So, how did he do it?

In his bestselling book trilogy called the E-Myth, Michael Gerber talks about several reasons small businesses fail, and I want to discuss 10 reasons I’ve extracted from that system with you.  He says everyone has the ability to be an entrepreneur, but just like riding a bike, learning to read, or getting potty trained, you have to learn THE SYSTEM to take a business from a one-person empire into an Amazon-style, thousand-person empire, so let’s talk about the main 10 things that stop small businesses:

1. They Only Focus on Work – The “Technician” Mentality

In the illustration of the “struggling entrepreneur”, we talked about how they do, do, do.  They’re working 12 or more hours per day, 7 days per week.  They may be good at working IN the business as a technician–whether as a lawyer, doctor, carpenter, dentist, web designer, or so on–but, they’re not good at working ON the business.

Often times, the technician gets frustrated while working for someone else.  They may be the best at what they do, so they fool themselves into believing that their advanced skill level in the job is sufficient to run a business.

2. They Don’t Invest in Learning

Since, they believe their work is required to run the business, they spend their learning time on advancing their skill level rather than diversifying their entrepreneurial skills.  They may be learning how to paint better, how to suture better, or how to lay carpet better, but those skills will only make them better technicians.

Instead, they need to learn how to sell better, how to generate leads, how to convert leads into buyers, how to manage, how to outsource, how to create systems, and other entrepreneurial skills.  Unfortunately, many technicians are scared to learn entrepreneurial skills.

why do small businesses fail3. They Don’t Surround Themselves with People Who Are Doing What They Want to Do

If they were around other people who are doing what they want to do, they could accelerate their learning curve.  They may be able to see a leader who works ON the business and is effective in the market.  Most “struggling entrepreneurs” don’t make time to be around people who are doing what they want to do.

They make excuse after excuse about why they can’t be around others in their niche, why they can’t professionally develop themselves, and why they shouldn’t do more than technicians do.

4. They Don’t Seek Mentorship

There are free mentorship options like SCORE that help tremendously to give feedback!  I use SCORE myself, and when I need customized mentorship on a specific aspect of my industry, I hire consultants and coaches.

Unfortunately, many unsuccessful entrepreneurs don’t seek mentorship.  They fool themselves into believing that if they keep doing what they’re doing, they will get different results than they’re getting.

5. If They Don’t Know How To Take Care of A Part of Their Business, They Ignore it

Whether accounting, hiring, taxes, or management–unsuccessful entrepreneurs tend to ignore aspects of the business that they don’t understand.  For example, if they don’t understand how to do their taxes, rather than seeking help, they will keep working and working, miss the deadlines, and go thru the negative domino effect because they didn’t do what they were supposed to do.

6. They Spend All Their Money Chasing Opportunities Instead of Being Strategic

why do small businesses failThere are flashing lights all over.  People telling you this piece of technology will make your business work or that one.  No technology will make your business work!

The person behind the technology has to have some things in order, however, many unsuccessful entrepreneurs, go from opportunity to opportunity to find a quick fix that will shorten their hours and make them more money.  While some things may spike revenue for the short term, long term business is not like flipping light switches.  Long-term business is more like farming where you plant a seed, you water, and you get a crop.

7. They Don’t Take Action on the Education They Receive

Even worse than wasting lots of money on opportunities, they don’t apply the knowledge they’ve purchased.  This is where I disagree with the quote “Knowledge is power”!  These people buy courses, seminars, books, or coaching, then ignore the recommendations.

Applied knowledge is power!

8. They Don’t Make Time For Quadrant Two Activities

In my article about the Time Management Chart, I talked about prioritization and the difference between a successful person’s schedule and the average unsuccessful person’s schedule.  In that article, I explained what Quadrant Two Activities are, and how they contribute to overall success.  If you don’t know what I’m talking about when I mention “quadrant two activities”, go check that article out!

The technician-minded person is focused on working in the business, therefore, planning, strategizing, and important coordination functions are activities they feel that they can’t do.  They simply need to work and work and work.

9. They Don’t Have a Plan or Don’t Follow it

why do small businesses failBusiness plans are important, but if you think the work is the most important part of the business, you don’t make time to plan.  If you don’t make time to plan, you don’t make tangible goals, and you stay in the same ole working cycle.

Rather than creating freedom, the struggling entrepreneur has created a trap.  They can’t do anything but work because they are the business (or so they say).  When it’s time to exit, they cannot have an exit strategy or a succession plan because they are the business.

10. They Act Like Victims and Blame Everyone and Everything Around Them

When things go wrong, they blame the customer, their spouse, their dog, the government, their economic class, their ethnicity, and whoever else can take blame.  They are never the reason why they’re struggling.

Once they realize how big their circle of influence truly is, they can make positive changes that can create a domino effect–causing them to analyze the other 9 things I’ve mentioned before.

A Playlist answering, “Why do Small Businesses Fail?”

I’m not the only one whose noticed the attrocious trends of the failing small businesses.  Take a look at these authors and speakers who have helped people break out of the “struggling entrepreneur” mentality to create very successful businesses.

Final Words answering, “Why Do Small Businesses Fail?”

The goal of this article was to answer “Why do small businesses fail?”.  Hopefully, this list has opened your eyes.  It’s quite easy to fail because it’s so common and the majority knowledge is badly infiltrated with failing advice. If you have questions or concerns about this, don’t hesitate to leave them in the comments section.  I’d love to help you out!

My Other Recommended Resources:

If you want to start or grow a business, check out my free e-course! It’s a framework to grow your business: from idea to full-time income, and from full-time income to enterprise (if that’s how far you want to go). Check out the free e-course here.

Now, it’s Your Turn…

Do you have any other reasons that you’ve seen lead to business failure?  Do you agree with my observations?  Why or why not?  Leave your comments, questions, and feedback below.


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12 thoughts on “Why Do Small Businesses Fail? The Top 10 Reasons and Ways To Avoid Them”

  1. Tiffany Denise

    Hello Tiffany!
    I think most entrepreneurs can nod to recognizing most of the points you’ve scratched.
    To me, there has always been a delicate balance between learning and getting the job done. I know how important it is to acquire skills.
    But the most important thing is to get what it takes. My problem is that when I feel that things move in the right direction, I stop thinking about it.
    Do you have good advice on how I can keep working hard towards new goals?

    1. Tiffany Denise

      I can understand how easy it can be to lose focus when things seem to be going right.  As I’ve been studying, one thing that I’ve seen with some of the most successful entrepreneurs is that they use their businesses as a vehicle for achieving their maximum potential.  

      When listening to an interview by Larry Page and Sergey Brin of Google, an audience member asked why they continue working after they’ve acquired all the wealthy they could possibly need.  In response, Brin answered saying, “It’s not all about the money, it’s about the growth”.  If you watch closely, you’ll notice all of the people on the Top 20 richest people in the world list are working, and from our vantage point, things seem to be going right.  They all have mega companies!  From their vantage point, they still have areas to stretch themselves, to grow, to offer better services, and to empower their teams.

      It sounds like you may need to raise your expectations beyond where they are and increase the challenge level.  The business is a vehicle that can be used to impact yourself and the world.  Unless you have already reached everyone in your target audience and delivered perfect product and services to them, there’s still room for growth. 

      Maybe, you should sit down and analyze your dream, vision, and purpose statements.  That may help you to increase your personal challenge. The dream should be the driving force that allows you to transcend your present circumstances and think on a larger scale.  Increasing your challenge will positively serve others better, allow growth for you and your team, which in turn effects your business.

  2. Tiffany Denise

    This is an eye-opening post. I can see some of the mistakes I have made in the past with trying to run my own business, being in technician mode. It’s surprisingly easy to get caught up in the work and tasks without strategizing and setting goals.
    I have to remind myself to sometimes take a break from the blog posting and revisit my goals and make adjustments. Great post, and great reminders for all of us entrepreneurs.

    1. Tiffany Denise

      Hello Josh! You’re right that it’s extremely easy for any of us to get drowned into “technician mode”. It’s almost natural.  It has to be a continual practice we make to focus on strategy, and transcend to transform.  Glad you enjoyed. Thanks for stopping by!

  3. Tiffany Denise

    I started a blog about 5 years ago, I gave up very quickly. I can see the mistakes I made, at that time they were not clear. It was more of pity party I had for myself all the time.

    But reading your article has really opened my eyes to what I should have been focusing on. Now that I have started again, it’s totally with a different mind set. 

    You have many nuggets of gold contained within your site. Keep these articles coming. 

    1. Tiffany Denise

      It’s hard when you feel like you’re running into a wall. I understand and empathize for failing businesses. It doesn’t feel good. Glad you got back up, brushed off, and tried it again. That’s a great attitude to have. Best wishes for your success in your endeavors.

  4. Tiffany Denise

    This article very clearly spells out to people what might be their problem, and this may be really big help for people that are looking for answers about the failing of their business ideas. 

    I have learned lessons here that a person by themselves wouldn’t really consider to be a big cause of failure. This article may indeed be the foundation of understanding business success!

    1. Tiffany Denise

      Hi Rihards! So glad you stopped by. I did quite a bit of research because small business failure was something I was curious about. Glad this resonated with you.

  5. Tiffany Denise

    Hi Tiffany. I read your article and as a businessman i can really relate your article with current business situations that small businessmen face. Some of the points that you have raised like diversifying skills and applying that knowledge in business is true. But sometimes i personally feel that things are not in our hand like in our country people had to face demonetization which led to downfall of several businesses. Similarly in some countries recession led to business slow down. But overall i think you have written great article and provided solutions that can survive any business.

    1. Tiffany Denise

      I agree that sometimes things happen that are out of your control, however, sometimes, we trick ourselves into believing things that are in our control are not. It’s difficult to really open an issue and see which is truy the case. For example, in recessions, not all businesses will go out of business, but why?  Sometimes, the reasons Ive listed will be why. Sometimes, it might be that obstacles piled faster than a response. Sometimes, you did the best you could with what you had, but either way, most times,  I believe the solution could be in our hands if we’re actively looking for it.

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