Why Small Businesses Fail

One of the biggest fears that people who start their own business have is the risk of failure. And it’s not an unrealistic fear. As a matter of fact, more than 50 percent of small enterprises fail in the very first year, and more than 95 percent of small startups fail within the first five years (Convergehub, 2019). 

What Is the Primary Reason That New Businesses Fail?

The primary reason that new businesses fail is because of a lack of market demand. In fact, 42 percent of small businesses fail because of this reason (CB Insights, 2019). So if there’s one thing you should be sure about before you start your business is the need for what you’re offering to customers. 

The next most likely reason that new businesses fail is because they run out of cash. Statistics show that 29 percent of new businesses reportedly failed because of lack of finance. Other causes for the failure of startups include not being able to find the right team to work with, to get outcompeted by competitors in the industry, cost-related issues, and an unfriendly product. 

To reflect on the reasons why new businesses fail, it’s safe to say that it’s a combination between customer-centric reasons as well as lack of resources, which are the building blocks of having a successful business.

What Is the Biggest Challenge for Small Businesses?

In the first few years of starting a new business, small companies have to face a number of challenges that can restrict their potential. One of the top challenges that small businesses face is the poor quality of labor. In fact, 52 percent of the respondents stated that the most important problem for small businesses was labor quality (CNBC, 2019). Small business owners say that it’s hard to find qualified individuals to hire. For businesses that have more than 50 employees, percent of owners believe it’s harder to find qualified hires. 

Other than this, small business owners are also faced by financial challenges. As smaller corporations don’t have the advantage of being backed by a lot of funds, they usually struggle to figure out how they can manage their finances.


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