Common Causes of Business Failure

A survey report shows that half of the newly opened companies ended in the first five years of starting a business, and only one-third of the companies can withstand the test of ten years. According to Forbes, even more drastically, eight out of ten companies went bankrupt within the first 18 months after launch.

What makes a business fail? This is a question that every entrepreneur wants to search before investing in any business. Let’s take a look at the five key factors that lead to business failure:

1. Lack of market knowledge: The market must be studied before entering the market. You need to analyze the market needs of your ideas, existing competitors, the value of your products/services, the suitability of your location, and the future potential of your business. Simply put, it is easy to meet the needs that already exist in the community, rather than creating new needs and persuading people to spend money. Market knowledge plays a key role in business success.

2. Lack of a reliable business plan: “If you don’t plan, you plan to fail.” This sentence sums up the importance of planning well. Compared with general ideas with reliable plans, reliable ideas with weak plans are more likely to fail. Divide your long-term goals into smaller achievable short-term goals. Considering financial forecasts, develop an inclusive and comprehensive business plan to estimate revenue, manage investments, update marketing strategies, proactively upgrade over time, and record the behavior of competitors. Once you plan it, stick to it, but don’t be too rigid. The plan should be updated over time and analyzed at every step.

3. Weak marketing strategy: Before worrying about the marketing plan, the company should fully understand its value proposition. What uniqueness do you bring to this industry? Once you understand this, you can turn to strategies for reaching the right customers. The number of sales directly affects the sustainability of the company. It is also important to get customer feedback and make the process customer-friendly. Incorporate changes required by customers in a timely manner.

4. Lack of cash flow: No matter how good the data on the balance sheet looks, if your management cannot pay employees and creditors on time, the company will sooner or later get into trouble. Competent financial and audit leaders will ensure the balance between assets and business needs. The importance of cash flow in business success is often diminished, but this is the only way your company may handle difficult situations.

5. Excessive expansion: Anxious growth and rapid expansion will lead to a sudden collapse of corporate reputation. Your supply-demand ratio should be balanced. Having more customers without meeting their needs is the worst thing a failed company can do. Before expanding your influence and launching new products, you should analyze the pros and cons as in-depth as you did at the beginning of your business.

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