Understanding The Reason Why Businesses Fail

According to statistics, nearly fifty percent of all new startups fail within their first year while another 50 percent tend to fail during their third year. Hardly 20 percent of all new businesses are able to survive in this realm of cut-throat competition and survive to maturity or emerge as major players in the industry. Given the high failure rates, it gives one furiously to think about the reasons for failure of businesses worldwide. The most simple and widely accepted explanation for this is that businesses tend to run out of money. Lack of financial resources accounts as the major cause why businesses fail but managerial shortcomings too play a significant role in sending a number of businesses towards their doom. Some of the most successful entrepreneurs and businessmen believe that a successful business is in fact built on five pillars that are:

  • Finances
  • Personal Management
  • Marketing
  • Product/Service
  • Administration

For a business to grow successfully and to thrive, it is imperative that all five pillars grow evenly. A number of entrepreneurs fail to realize that while visionary leadership is essential for a startup, adequate management and administration also form a backbone of the business that must be taken into account in order to ensure success. Each business startup therefore needs to consider a detailed business plan that focuses on these five basic elements and contains revenue projections that can provide a thorough understanding of the targeted industry that one wishes to enter.

When we speak of knowledge, we imply that the applicant must be fully aware of the ins and outs of the industry and whether the same is expanding or shrinking. Also, deeper insight that allows the applicant to know whether the offered product or service will be purchased by specific age groups or demographics or not, is also required. Understand your audience and your customers, whether the product or service will be demanded more for its price or for its quality or for both and then proceed accordingly. Be on the lookout for “blue skies”- business plans that tend to fail in the market but seem highly lucrative on paper. Follow your gut feelings and plan for long term.


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