The Top 3, 5, 7 or 10 Reasons Why Businesses Fail

by Eric Britten

OK.  So, I Googled "why small businesses fail".  My screen filled with links to sites across America and around the world explaining the top 3 or the top 5 or the top 7 or the top 10 reasons why small businesses fail.  Well, management professionals are like everyone else - they all have their opinion.  In general, all the lists were variations on most of the same reasons. 

One post said that Dun & Bradstreet said 88.7% of businesses fail due to management mistakes.   Now there's a truly erudite explanation.  Actually, it's probably a true statement, but the lack of detail renders it fairly useless when trying to understand anything that might help a small businessperson.   So, I dug deeper and found there were three groups of causes that made it to most everyone's list:

• There was the largest bucket of all, poor management.  Within that category were specifics such as lack of experience and knowledge about procurement, finances, hiring and firing, managing employees, internal controls, etc.
• Next was the bucket we could call marketing and customer expertise.  Those reasons had to do with issues such as not knowing how to market their product or service, not being able to define their market segment, not understanding their customer's needs, and being out of touch with their customers.
• Finally, there was the bucket we'll call lack of planning.  That covers lack of a basic business plan, creating strategic and annual operating plans, and, in general, setting aside time to think about the business, how to manage it, and where it's headed.

List completed, I sat back and thought about the three buckets.  It didn't take me long to realize that lack of expertise in these three areas didn't just lead to the demise of small businesses.  These are also some of the top contributing factors to why business of any size either fail or just muddle along.

Thinking about the list some more, I also realized it was the answer to a question that I've been wrestling with for a while.  Alaska Business Monthly recently asked me if I would write a column for them next year.  They have named it "Business Basics".   They left it up to me to decide what to write about.  Now I know what I will write about.  I'll write about  management, marketing and customer management, and business planning.  I'll work hard to develop some unique and interesting approaches to these subjects.  If you want to see if I can do that, check out the column.  It will run in the January, March, May, July, September and November issues of ABM next year.

Meanwhile, you can check out two articles in the management library on my website: (1) The Seven Pitfalls of Business Failure, and (2) Top 5 Reasons Why Small Businesses Fail.  Click here to go there.