Business Planning Articles Business Growth Articles Business Management Articles Business Finance Articles Business Financials Articles
Small Business Marketing Strategies Article Business Success Strategies Article Managing Business Growth Article Business Recession Tactics Article Business Innovation Article Search Engine Optimization Strategies Article
Internet Marketing Strategy Article Basic Internet Strategy Article

Business Success Strategies Article

Why Some Businesses Succeed and Other’s Fail

Having been a small business owner and consultant for twenty-plus years, I had the opportunity to learn from my own mistakes, as well as, seeing the business failings of others. I have learned over this period that there are definitely reasons why a small business fails; why some are successful; and why certain types of people are more successful business owners and entrepreneurs. The good news is most successful small business owners had many failings before achieving a level of success, and the object of this article is to learn from their mistakes, as well as, take stock in what characteristics entrepreneurs have in common which enhance their chance at success.

Why Do Small Businesses Fail?

1) Lack of Capital

When starting a business, an entrepreneur needs to first bring sufficient cash to the venture. I recommend a minimum 10% of the total funding amount to come from Owner’s Equity, with 20% being optimum. Having a strong equity stake in the beginning of a Company’s life makes acquiring the additional capital much easier and less expensive.

Strong Owner’s Equity shouldn’t stop after a Company’s start up stage. A Company’s strength in Retained Earnings is key to growing the Company, seizing on market opportunities and obtaining future finance. If you lack owner’s equity capital, there is additional undue pressure on a Company’s cash flows, making it increasingly hard to obtain the appropriate funding. For more information go to Successful Business Funding and Finance Strategies.

2) Lack of Business Knowledge

Successful entrepreneurs are typically well read. They are always striving for more knowledge and take advantage of the wealth of resources offered through business schools and, as importantly, read other successful entrepreneur’s books. A Business Degree or MBA is a helpful foundation but gaining knowledge from those who have found success is critically important to understanding why businesses fail, as well as, spawning new ideas and markets.

3) Inexperience

In experience ties in with #2, Lack of Business Knowledge. Business Knowledge can be acquired in school, through books and magazines, and via experienced business owners. Business Experience is the critical and common link between successful entrepreneurs. Inexperience costs money due to mistakes. Make too many mistakes, and you are out of business. Mistakes are a natural part of the business learning curve; however, minimizing them is important to stay in business. I highly recommend going into a business which you have experience and passion in while seeking out those who have been in the same business for a time and reached a significant level of success. Experience comes with time, but you can also learn from the mistakes others have made before you. Cultivate business relationships, mentoring opportunities and networking events and forums. I can’t tell you how many times spending time with an experienced entrepreneur has paid off in spades, in my business life in so much as, what not to do, as what to do.

4) Poor Management:

This is a biggie. If you can’t effectively manage people, learn how to and/ or hire someone who can. Some entrepreneurs are great at this vital skill and others don’t have the patience for it. However, the bottom line is you can have a great idea, product and market, but poor management will cause business failure 9 times out of 10. Poor management often evolves into poor employee morale and high employee turn-over, which significantly hampers a company’s ability to compete in the market. Management doesn’t just entail employee management but also the ability to manage the Company. Having a Good Business Plan, Excellent Profit Management Strategies, and Effective Cash Flow Management are just some of the important management tools necessary to run a successful business. Businesses often fail because they haven’t owned up to and analyzed their weaknesses, which often stems from poor management practices.

5) Inadequate Planning

The lack of a business plan or the poor implementation of a plan is typically the number one reason for business failure. So why do small businesses neglect to plan? Because it can be a very difficult process to dowel; day to day business activities leave them little time to plan; they fear the weaknesses and problems’ planning reveals; they lack the knowledge on how to effectively plan; or they feel the future can’t be planned for.

However, to be successful in a small business by relying solely on luck is a huge gamble and often meets failure. You must know where you are going and how to get there. A good Business Plan guides the entrepreneur on how to operate a business; interest investors and bankers on financing the business; provide direction and motivation to employees; and establish an environment which will attract and retain customers and talented employees.

I have seen many instances where a business has a business plan, but it lacks the operational and control features to successfully implement it and the strategic know-how to successfully link the marketing plan with effective financial modeling and forecasting. Good planning is both strategic, which is high-level, long range goal setting and meeting of objectives, and Operational, which implements the Strategic Plan, operates the business and sets the policies, methods and procedures to do so.

Planning actually means good management. Inadequate planning often translates into poor management functions. It is a process which relates and inter-relates closely to Managerial Functions. The following Flow Chart expresses this process and its relationships.

You can see from the Flow Chart that Planning is an inter-related, back and forth process. Many business Owners don’t understand the extent of these vital relationships, thereby producing inadequate plans, which ultimately lead to business failure.

Understanding the components of the Planning Flow Chart makes it much easier to develop and implement a good Plan:

  • Planning:
  • Organizational Objectives
  • Establishing Programs, Policies & Strategies to achieve the Objectives
  • Organizing:
  • What Resources and Actions are needed to meet Organizational Objectives
  • Setting up Working Groups
  • Assigning authority and responsibility
  • Staffing:
  • Select, train, develop, place and orient employees
  • Foster employee productivity
  • Leading:
  • Effective Communication & Motivation
  • Performance
  • Goal Achievement
  • Work Assignments & Direction
  • Controlling:
  • Setting Standards
  • Measuring Performance
  • Corrective Action

This article is an excerpt of a Chapter from our Business Success Guide. For the rest of the Chapter, please visit:  The Business Success Guide

The remaining major sections of the book’s Chapter have been left below as an outline so you can get an idea of what else is contained in this Chapter of the Business Success Guide.


The underlying reason why a small business fails often stems from poor Operational Planning…

Three types of Planning, or Phases of planning, significantly improve a small business’s chance to achieve success:

  • Pre-Start Operational Business Planning
  • Ancillary Business Plans customized for …
  • Post-Start Continuous Planning & Control

The point I am trying to drive home here, and the reason why this section is much more detailed (and consequently more important) than the preceding ones, is Inadequate Planning stems from …

Characteristics of Successful Business Owners

There are certain qualities successful entrepreneurs’ shares in common….

The Entrepreneur Test: Below are 20 personality traits to gauge your potential as an entrepreneur…

As an entrepreneur myself, I tend to be on the strong side of these traits. But not every successful business owner is strong in every one of these areas…

We have discussed reasons why businesses fail and what are the common traits of successful small business owners. Wouldn’t it be nice to know some of the reasons why certain small businesses are successful? It is important to know what not to do as it minimizes mistakes, but by …

What Leads to a Successful Small Business?

1) A Good Business Plan

2) An Adequate, Well Defined Market

3) Understand Industry & Market Trends

4) Obtaining & Using Accurate Information

5) A Good Capital Acquisition Strategy

6) Effective Recruiting & Strong Human Resources

7) Expertise & Experience

8 ) Effectively Understanding the Implications of Government Regulation

9) Effective Time Management

10) Hard Working & Long Hours

Concluding Advice

If you are contemplating starting a new business, do something you really love to do and have a passion for. The work is hard so you might as well …