5 Reasons Why Many Businesses Fail – And Ways to Beat the Odds

Is your business struggling? Statistics from the U.S. Department of Labor shows that on average, of 400,000 new businesses started each year in the United States, 50 percent will fail within 5 years, and only about a third make it past the 10-year mark.

With statistics like these, growing your business can be a risky and bleak task, even when you’re well past the initial startup phase.

But for the determined, it’s worth the gamble. Perhaps you are following your passion, like calling your own shots, or are learning a new skill. Whatever the reason, it’s likely you’re also looking to grow your business to gain more financial independence.

So how can you ensure your business beats the odds and sticks around for the long haul?

The key is to understand why so many businesses fail within their first five to 10 years. Then, you can develop a strategy to avoid potential pitfalls as you grow your operation.

#1 Inadequate Cash Flow

Problem: Without adequate profit, any business will eventually fail. In fact, 82 percent of businesses that fail do so because of cash flow problems.

While a lack of cash flow is usually a result of a variety of risk factors, your business may have been doomed from the start simply due to unrealistic expectations. Are you underestimating the cost of funding operations? Are you overestimating the speed at which your product or service will catch on? Inaccurate estimations when planning your startup can lead to its quick demise.

Solution: Set realistic budget expectations for your business, to create achievable goals and budgeting accordingly. These goals will help to clarify your focus and provide a solid foundation for effective, scalable infrastructure within your organization.

Additionally, incorporating goals and budget expectations into a comprehensive business plan will not only help you stay on track but a better pitch to investors for funding.

#2 Failure to Connect with Target Audience

Problem: How can your business succeed without catching the notice of your target audience? It can’t. If you are unable to connect with your target demographic – or worse, if you don’t know who you’re demographic is to begin with – your business will most likely remain invisible.

To capture new business, you need to understand who your target audience is, what they want and need, and how you can deliver it.

Solution: The first step is to define your target audience. Leverage focus groups, phone calls, email campaigns or market surveys to determine:

  • Who are they? Think about both personal and professional demographics
  • What are their goals and challenges – and how will you approach them?

Once you know your target audience inside out, think about how your products and/or services can help them reach their goals or overcome challenges. What do they want to hear about, and how will they want to hear about it? These answers should drive your sales and marketing strategies.

#3 Lack of Leadership

Problem: Coming up with a business idea may have been easy – but launching and running a business gets complicated. As such, many businesses suffer if they’re not helmed with experienced leadership.

When problems arise, as they ultimately will, many business leaders get overwhelmed – and are not equipped to deal with challenges effectively and strategically.

Solution: If you lack experience in business, invest in a team of seasoned advisors to support you. Incorporate seasoned professionals to give advice and help guide you through business development and any unexpected obstacles to ensure its longevity.

It’s also crucial to avoid burnout. Proper business systems and operations streamline day-to-day operations, as does getting comfortable with the need to delegate, delegate, delegate. Don’t get so consumed with your business that you don’t pass on the time-consuming tasks to someone else, so you can focus on the big picture.

#4 Forgetting Your Team

Problem: Although delegation is important, you have to have a strong team to delegate to for it to be effective – whether they are employees or subcontractors. A dependable team is an essential piece to the success of your business.

If you have a revolving door of team members, it’s time to assess why they are leaving and how this neglect could impact the sustainability of your operation.

Solution: As your business evolves, your team must evolve with it. It’s important to invest time and resources into your team members so they feel welcome, capable and heard.


Utilize human resource management to properly assess each team member’s individual skills and career goals. Then determine, does there current role fit these skills and goals? If not, how can they be shifted to better position them for mutual growth and success? Or can you provide any training to expand their skillset?

Whichever route you go, keep communication open. A team member who feels heard and that their needs are being met is far more likely to contribute to a collaborative work environment than a disgruntled employee.

#5 Not Standing Out Against the Competition

Problem: Many growing businesses have their work cut out for them when competing against larger, more-established companies.

How can the locally-owned coffee shop compete against a new Starbucks built right across the street? How does a new healthcare vendor win over customers quickly enough to make a profit with so many larger, well-known competitors vying for the same target audience?

Solution: One way to stay in the competition goes back to knowing your target market and incorporating this knowledge in your marketing strategy.

One way is to zero in on your demographic sweet spot and find out what keywords they are using to search online. Then, you can use these keywords to inform your SEO efforts and ensure you’re found in Google searches and other organic sources online – rather than letting your efforts get lost in all the noise.

Other tools like social media can also help extend your reach. Use content to tell your story effectively, share testimonials of success, and demonstrate the quality of your product or service.

The Bottom Line

Growing a business may feel like a gamble – but beating the odds and finding success isn’t about luck. As the saying goes, “proper planning prevents poor performance.”

Take the time to identify and understand the challenges your business will likely face at some point in time – including inadequate cash flow, failure to connect with your target audience, lack of leadership, forgetting your team, and not standing out against the competition. Then, you can formulate a plan to mitigate these common challenges.

Through proper planning, your business will be better positioned for ongoing growth and long-lasting success!

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