Common Reasons Why Businesses Fail

Gabriel Ama The challenges of the world of business are interesting to those who have and know what it takes to handle them.


Many people on the other hand are filled with fear of the unknown to the extent that they cannot come to terms with the possibility of managing their own business – they prefer the comfort zone called paid employment.


They will readily give you reasons why any business undertaking would fail even before commencement. They can hardly tell you reasons why the business will work. In essence they have what I term ‘business phobia’.


Such people think only of the present and never bother about the future. Their unofficial motto is “tomorrow will take care of itself”.


As true as this may seem to be, people in paid employment have only two options: you leave by resignation or you are asked to leave by termination or retrenchment.


The latter option has a higher probability of occurring. Now when this reality happens, what becomes of the earlier comfort zone?


Do you begin look for another job or do you embrace your fears and think of starting a business?


Another job will solve the immediate financial concerns you have. A well-run business would solve the future financial concerns you have.


The choice to make, ultimately, would be yours. If you choose the option of business, then this article addresses some of the common reasons why a large percentage of businesses fail within their first 5 years and some others within the next 5 years.


Few make it beyond the first 10 years and go ahead to become world class while others experience major challenges that could either cripple and ruin the organization or make it lose the initial success for a long, long time.


So the question to ask is, why do businesses fail? Some of the more common reasons are:


Ø Lack of vision: unfortunately, very many people are in business just to make money. As a result, they fail to create in their mind’s eye a vision of what their organization should be in say, 5 to 10 years from the present period.


When they begin to make money, they therefore tend to relax since they are not driven by any vision. The result will be an organization that has a chart with an upward move, a peak point and a downward move and eventually to failure.


Ø Business knowledge gap: this is one vital area that affects most folks too. Because they have erroneously believed that money is the major factor in starting a business, they tend to sink very huge amounts into a business venture that they know very little about.


Let me be more specific: the fellow goes to rent a large office space in an expensive commercial area, buys equipment/products for his business and commences – all because he has seen others running the same business profitably.


He has not even a single knowledge about the business and the challenges involved, neither does he look for and hire experienced and knowledgeable hands to assist in running the business.


For example, he hardly keeps inventory of his stock of products neither does he track sales or even expenses.


As a result of inexperience in handling whether minor or major challenges involved in the particular business type, the business ends up losing very large sums of money.


If this is not checked, it eventually results in failure.


Ø Lack of leadership: this factor is closely related to the one on a lack of vision. Many folks confuse management with leadership.


Simply put, it is easy to manage what is currently running but to provide direction to get to where others cannot see presently requires leadership.


This is why I say this point is closely related to a lack of vision in that once leadership is lacking in an organization, there is little or nothing that can be achieved there.


A business will fail when the leader lacks what it takes to move the organization in the desired direction.


Ø Inadequate Staff Training: there is a popular saying that “what you do not have you cannot give”. Many organizations erroneously ignore the issue of continuous staff training to their detriment.


This problem is common with organizations that appear to have made success initially.


They want the best from their staff but forget that the best is gotten from those who have adequate knowledge of the processes obtainable in their industry.


As business processes change with evolving technology, your competitors would want to have knowledge of new ideas required to improve their business and where application of the gained ideas begin to impact positively on their business, those who neglect to train their staff would lose out eventually.


This seems obvious, but many business owners are skeptical to embrace the practice of continuous staff quality improvement because they feel that once they spend money training their staff, those same staff will run away to other organizations and the money spent on training will thus be wasted.


This ignorance now results in a culture of ignoring staff training, which eventually leads to staff that are behind time as far as practices of that business type is concerned.


Once market share is lost to competition, you can guess where the business is headed – eventual failure.


Ø Low staff morale: there is another popular saying that “when you pay peanuts, you get monkeys for employees”.


The issue of staff morale is very critical because so many organizations somehow forget that the most important factor in their business is the human resource.


What is considered adequate as staff remuneration is relative and depends on individuals.


If your business is making money and staff feel they are not adequately remunerated, they will become unhappy and it begins to show in their productivity, particularly where they have bills to pay that far exceed their wage.


When a business keeps sacking their staff as a way out of financial crisis or to save costs, the effect is the same as staff not being paid.


Rather than concentrate and give their best, they start to look elsewhere for jobs because they believe there is no more security at their present workplace.


An organization whose management ignores useful advice from junior staff because they feel junior staff cannot give useful advice suffers from what I term “lost talents syndrome”.


Where staff are harshly criticized for mistakes, useful advice on how to move forward ignored and no encouragement is given to staff for good work done, an organization is moving in the direction of failure because staff morale will be so low that they feel they are not a part of the business but outsiders.


Where staff are distracted by their personal problems and openly show it but the management and business owners ignore such issues, that organization will end in failure because of low staff morale.


Ø Lack of team spirit: when you get to some organizations and see the way the different departments operate, you would think there are different organizations working in the same building or environment – staff of the same department openly try to frustrate staff of other departments as though they were in competition and not working towards the same goal.


Once team spirit is lacking in an organization, it has the tendency of killing the spirit of those who would want to give their best and the business cannot last long because people would begin to work for different interests and ignore the organization’s objectives.


Ø Lack of merit: a business that rewards mediocrity and not merit will not last very long.


This is simply because people will get to know that eye service and nepotism are the business’ culture, and knowledgeable staff who believe in merit driven organizations will make their exit leaving behind mediocres that will eventually ruin the organization.


They ruin the organization because they simply do not have what it takes to move the business to the desired level.


And such an organization cannot attract the best hands in their industry because the best hands are attracted to organizations that recognize them and accord them the necessary rewards through excellent welfare packages.


Ø Lack of capital: I know most people would say I’m stating the obvious with this last factor. I decided to leave it till the end so that people would not get carried away and say there’s nothing new here.


I also left it because money is not the most important factor in running a business successfully.


Money is important in running a business and the lack of it creates many, many problems. But getting out of the problem of lack of capital requires a lot of ingenious work on the part of the business owners. And if the owners cannot come up with ways to get out of the problem, the business comes to an end.


Though some of these factors may not single-handedly lead to an organization’s collapse, they could do a lot of damage to the organization that would take a long time to fix.


If you therefore want your business to grow and be profitable, you should do well to avoid these pitfalls of business success.

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