10 more reasons why start-ups fail

By: Mark Williams

Date: 28 March 2012

So what are the other key reasons why many new businesses fail to survive their first two years of trading and why do more established businesses go under? Once again, in no particular order…

1. Poor cashflow management

Inability to manage cashflow is the most common reason businesses fail. Many profitable and seemingly successful businesses have gone 'belly-up' because they haven't had enough cash to pay their bills on demand. Lack of access to working capital is a major business killer.

2. Attitude to risk

Some owners are overly cautious, which can hinder their new business's chances of getting off the ground. In other cases, taking too many risks can quickly lead to disaster (see 6). If in doubt, when it comes to big decisions, it's probably best to err on the side of caution (well, most of the time…).

3. Poor customer service

No matter how great their products are or attractive their prices, successful businesses prioritise customer service. Get it wrong and potential customers will vote with their feet. Offering superb customer service is one way to set yourself apart from competitors large and small.

4. Wrong employees

Small firms can't afford to carry baggage, especially in the early days. Each team member must add value, excel at what they do and their commitment to the cause must be beyond question. Recruiting the wrong people usually proves to be a costly mistake.

5. Poor marketing

Successful businesses know who their customers are and what they want. Their products are tailored perfectly to their customers' tastes. They also know how best to let customers know about their products and services and the channels through which they need to sell.

6. Inability to sell

If you or others you employ don't have the skills to sell, your business will fail. Simple. Selling doesn't come naturally to everyone. If you can't do it, find someone who can and pay them to do it for you.

7. Wrong location

This can affect all business to an extent, but for those that rely on footfall, picking the wrong location leads to disaster. Sometimes poor decisions are made to save money, when paying more for a better location could deliver more sales.

8. Underestimating competitors

If you don't believe you have any competitors – think again. And the bad news is some of them will have been open a lot longer than you, which means they will already have customers. You should know who your main competitors are and what they offer, but – underestimate them at your peril.

9. Poor financial management

Not everyone has a head for figures, but if you don't control your business's finances you're asking for trouble. Common misdemeanors include not getting invoices out promptly or chase them when overdue; failing to separate personal and business expenses; borrowing money out of the business for personal use; not properly keeping track of expenses; failure to keep accurate or up to date books. At all times you should have a good idea how much your business owes and how much it is owed.

10. Other reasons

Poor day-to-day decisions by people who aren't cut out to run a business. Partnerships that don't work. Inability to communicate ideas. Unwillingness to listen. Fear of success or failure. Too much or not enough confidence. Procrastination. Rash decisions. Inability to cope with pressure. Domestic distractions. Failure to learn from mistakes. Poor time- and task-management. Market conditions and wider economy. Bad luck.

In your experience, why do so many new businesses fail and what survival advice can you offer to start-ups?

There's more great advice available on the Donut business survival guide.

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