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Why Do 8 Out of 10 Businesses Fail?

Ben Fewtrell
Ben Fewtrell

The business world these days is competitive and crowded. It’s not easy to establish a new venture, market it, attract customers and ensure it survives the fierce competition that is out there. Statistics show that 8 out of 10 businesses fail despite the business owners efforts to stay afloat and this is only getting worse as competition increases.

No one goes into a business with the intention to fail and every entrepreneur is enthusiastic about their chances of success. This, however could come in the way of productivity. They start with the best of intentions but are often ill-equipped to become a successful business owner.

Why Do People Start Their Own Business?
Budding entrepreneurs start up their own businesses for many reasons. Most of the time, the reason they go into business is the cause of their failure. It is important to assess motivation and go into business with an open mind and a willingness to learn – and most importantly, get help where needed. New Business Owners often believe they have what it takes to make a business successful, ultimately giving them the time, freedom and money to enjoy life.

It’s possible to achieve these things after the business is established and thriving, but it takes time for a venture to reach that level of success. It’s easy to underestimate just how much work, time and effort goes into establishing a business and it’s the biggest contributing factor towards failure.

New entrepreneurs and start-ups have to deal with crazy work hours, poor cash flow, a substantial amount of stress, lack of freedom, little to no time to socialise or take a break and the ever-looming threat of failure. These realities often cause entrepreneurs to give up or lose control of their venture early in the game, which is why most businesses fail within the first few months of being established.

Being "Good" Isn't Enough
Entrepreneurs enter a business because they’re good at “something”. For example, a web designer might establish their own business because they’re good at creating awesome websites and their services are in demand. But being a good web designer doesn’t mean they will be good web design company owners. You need a different skill set to be a successful business owner.

That’s the key difference between being self-employed and being a business owner. A business has a set infrastructure, overhead costs, employees, office premises, etc. and, as a business owner, all these responsibilities fall on you. Being good at something provides you with a great foundation to start your business, but it doesn’t mean your business will succeed.  

A Great Product Doesn't Guarantee Success
Many companies have great products, yet fail to make money, grow their business and succeed. For example, an excellent fast food cafe with reasonably-priced food and great ingredients will still not be as successful as McDonald’s or Taco Bell. It’s not the quality of the product that hampers their success, but their marketing and reach.

If your prospective customers and your target market don’t know about the product, they won’t walk through the door. If there are no customers, there’s no cash flow and, of course, no profit. Having a good Marketing Strategy and Plan, and using that to enhance your brand is what will separate you from your competition and ensure success for your business.

Passion And Enthusiasm
New entrepreneurs are very passionate and enthusiastic about their products or services. They believe in their product or service and believe their target market and potential customers will also love their work or service. While this passion may stop a business owner from giving up it, cannot guarantee business success.

Passion and enthusiasm are the motivating forces that keep business owners going when the business isn’t successful but that’s not enough. There are a number of other factors that contribute to success such as marketing, cash flow and profits. If these factors aren’t in place, passion and enthusiasm won’t help the business survive.

The Formula
Cash flow and Profit are the bare bones of a business venture, the most essential and fundamental aspects that help a business survive.

Entrepreneurs need to keep a close eye on these two very important factors to make sure their business stays afloat. A successful business should have good balance between their cash flow and their profits.

This formula (below) helps businesses determine their levels of success based on the correlation between profits and cash flow.

Cash flow multiplied by profits equals a healthy and thriving business.

For example, if you rate your cash flow at 10 and your profits at 1, the result is still 10 and not 100. This means your business isn’t succeeding like you hoped and it needs a boost. If you rate your cash flow at 1 and your profits at 10, the result is the same.

A good balance between profits and cash flow helps a business survive successfully for a long time and provides the foundation for business growth.

Published on by BiziNet

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