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We’ve all heard the dismal statistics.  I’m sure you’ve heard something along the lines of nine out of ten businesses failing.  Another statistic is that 96% of businesses fail after 10 years.  Some of these often-quoted numbers have been debunked.  The rate at which businesses fail isn’t entirely clear.

But, no matter the exact numbers, I think we can all agree that many businesses close their doors against their better wishes.  Why?

I’ve had the opportunity to work with a lot of businesses over the years.  In the process, I’ve observed problems that all underperforming businesses seem to have in common.  If not properly addressed, these problems can lead to failure.

The list below does not include all of the problems that cause businesses to fail.  I simply narrowed the list down to the five most common ones I encounter:

1.  Failing to plan

Let’s say you construct buildings for a living.  Even if you don’t, you can appreciate this metaphor.

If you construct buildings, you understand the importance of following plans or blueprints.  You wouldn’t just start constructing a building based on thoughts floating around in your head.  You don’t guess when it comes to measurements, the materials to be used, and other important details.

But, when it comes to your own business, are you following a plan? A lot of businesses don’t.  Even if they have some sort of written plan, it’s usually collecting dust in a file cabinet somewhere.

If you don’t have a well-thought out plan for your business, it’s like you’re putting up a wall over here, installing part of a roof over there, and circling back to add some foundation when it seems necessary.  It’s a recipe for failure.  Don’t build your business haphazardly and leaving things to guesswork.

For your business to thrive, you need a clearly articulated vision and mission. Take the time and energy to consider what you want your business to look like in three years, five years, and ten years.  And then try to reverse engineer how you got there by drafting a set of written plans.

Devise a strategy for executing these plans over the next 1-3 years.  You can review and revise your strategy periodically to make the necessary adjustments.  No matter how long you’ve been in business, you’ll find a lot of value in drafting written plans—and sticking to them.

Check out the Small Business Administration’s resources on creating a business plan here.

2.  No financial control

When it comes to your business’s numbers, there are “land mines” almost everywhere you step.  Don’t guess when it comes to your fixed and variable costs.  Know them with precision so that you can price accordingly.

Test and measure everything you do.  Are your strategies working? Are you making money? If so, is that reflected in your bank account? It’s possible that the strategies you think are making money simply aren’t.  Numbers don’t lie.

Get more disciplined about overseeing your finances, and in the process, you’ll also uncover new strategies for making more money.

Here are two resources that cover business finances you might find helpful:

NFIB’s Money Checklist

SBA’s Managing Business Finances & Accounting

3.  Not understanding your value proposition

Many businesses fail because they don’t understand how to match what their potential customers are looking for with what they do best.  What sets your business apart from others? And don’t answer by saying “quality.” Everyone says that.

Come up with a clearly defined value proposition.  You can think of a value proposition as a promise of value that highlights the benefits of using your product or service.  It should convince consumers that this product or service is better than others on the market.

To help you think about your value proposition, write down three things you do better than the competition.  Would your customers also identify these three things as your most important attributes?

Find the intersection where the things you do best meet the demands of customers.  You’ll then know what your core offerings should be, and you can become the best at those.  You’ll also know how to position your business to customers.

4.  Not having the right people (or not having the right people do the right things)

Your employees are the lifeblood of your business.  It’s no surprise, then, that experiencing problems with your employees can grind your business to a halt.

First, you must learn how to hire the right candidate.  Start by identifying your ideal employee, where you would find this person, and what your hiring process will be.

Second, you must learn how to maximize the results your employees provide.  Invest in incentive-plans, team-building, and leadership development.  This will help you build a high-performance culture amongst your employees.

ActionCoach has put together these tips for recruiting a winning team, which you can read about here.

5.  No entrepreneurial mindset

A lot of business owners are great at creating or delivering their end product or service.  They might even be good at managing their business affairs.  A business owner in control of those two areas is ahead of most.  However, there is also a third aspect that a lot of business owners rarely have: an entrepreneurial mindset.

Without an entrepreneurial mindset, you can’t see the big picture behind what you’re doing. You’ll just feel as though you have a job at your business.

With an entrepreneurial mindset, your objective will be to create a commercial enterprise that works for you, not the other way around.

To develop this mindset, focus on creating a business that is profitable, that does not require your constant attention, and that you could sell one day.  Once you learn the art of entrepreneurship, you can buy, sell, or start other businesses.

Michael Gerber’s book E-Myth Revisited does an excellent job covering this topic.


Again, there are a lot of reasons why businesses fail.  The five reasons discussed above are the ones I encounter the most when helping clients.  By knowing some of the major reasons why businesses fail, you can keep these things in mind as you try to work on you own business.


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