Small Business Information Service

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7 Reasons why Small Businesses Fail

The Top Reasons why Small Businesses Fail

South Africa seems to suffer unusually high small business failure, despite the fact that small business should form the backbone of our economy as the only real effective antidote to high unemployment rates.

Why do as many as five in seven start-ups fail in year ONE (SA stats for 2013) and very few celebrate their 5th birthday?

  • Business Owner Burn-out - being an entrepreneur managing a startup takes huge commitment, energy and drive. When small business owners don't take care of themselves, it leads to burn-out, illness or even pre-mature death. Small business owners also often resist handing over the reigns to managers or others to lighten the load. The entrepreneurial profile may include a doggedness handy in sticking it out against all odds, but not so handy when it comes to being willing to learn new skills or ask for help.  Sometimes perfectly viable businesses close down as the owner has simply had enough.
  • Money Matters - from lack of funding to lack of budgeting & tax know-how, entrepreneurs often fail at the money management of a small business. Small business owners tend to spend more energy on getting the product or service delivered than managing the money this should bring in. Lack of accounting skills or tools or poor money flow controls can result in poor financial performance or money "leaks". Some entrepreneurs spend their profits too soon, while they should still re-invest in their growing small concern.
  • Soft on Sales - while getting the doodad sold should be a key focus, many entrepreneurs never had sales training and they have only a vague idea of who they are even trying to sell to. Marketing Strategy is mostly an out-of-focus image in the small business owner's mind. Sometimes the entrepreneur's personal strengths & weaknesses, and personality, make closing a sale difficult and this task should be given to an expert employee, or outsourced.
  • Web Wimp - a small business without an effective website is, well, simply not really in the race in today's climate. This is like tying both your hands behind your back when playing tennis.
  • Brand Abuse - entrepreneurs can underestimate the importance of establishing a strong, representative brand. Even if they do invest in having a brand developed, they may apply it inconsistently or weaken it when used in association with a draining idea / brand / project. Reputation management is ignored by many entrepreneurs, while others may over-focus on it to the detriment of getting on with business.
  • Copy Cat - trying to follow the crowd or copy what you think your main competitor is doing, is a form of slow suicide. Sustainable Competitive Advantage is gained when you get clear on what makes your offering unique, and you build your business, systems, interactions, marketing and unseen moments-of-truth around your uniqueness. Still, keep eyes on the back of your head to see if new competitors arrive, copying YOU...
  • Growing Pains - although small business growth is the aim of most entrepreneurs, few are prepared for the pitfalls that accompany fast growth. A certain resilience of the owner as well as the business systems are required to survive small business expansion. Also see Business Owner Burnout!

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