7 Reasons Why 90% Of New Businesses Fail

Stats shows that 90% of new businesses fail within the first year of operation – whilst a larger % of the surviving ones might as well cease in less than 5 years.

You might be wondering;

‘What's the major reasons why most of these businesses fail in such a short period time?’

That's what will be discussed in this article.

I will share with you some of the major reasons why most new businesses fail – so that you can avoid these traps when you're considering starting your own business.

Some of the reasons includes;

Without wasting much time, let me explain each of these reasons.

1. Lack Of Market Research

‘I want to get into this industry because it's more lucrative'

Most ‘wannabe entrepreneurs’ makes the mistake of looking for ‘money making businesses' – instead of focusing on solving people's problems.

Yes – the industry might look more lucrative, but do people really need those products/services?

Let’s say that you decide to open a gym in an area where the people doesn't value working out, you might set yourself up for failure.

Although a gym is a great business, it might be a complete failure if you open it in an area where fitness is not a major priority.

Thus, it's important to do some market research i.e. ask people about the problems which they’re facing – then provide a product or service that solves those problems.

2. Wrong Location

As we all know, location plays a major role in the performance of a business.

There's no doubt that, shops located at the city centre tends to perform better compared to those located at the peripheries/marginal areas of the CBD.

The reason being that, the city centre receives a lot of traffic compared to the outskirts – because people hates to walk towards the outskirts just to buy something – when they can easily access that item in the city centre.

Thus, location plays a major role in how a business performs.

Still on location, it's also important to consider the economic status of the surrounding residents i.e. ‘Can they afford my products/services?’

For example, if you open a Lambo dealership in the hood/ghetto, you'll likely struggle to get customers.

Yes – the people might be interested in buying those Lambos – however, they don't have the financial capacity to afford them.

Thus, it's also important to keep that in mind when choosing a location for your business.

3. Lack Of Financial Resources

Another reason why most new businesses fail is due to lack of financial resources.

When starting a business, most people relies on their past saving i.e. job earnings, side hustle earnings, etc.

They get into business with a certain amount that’ll be used to run the business – hoping that the business will pay off by a certain date.

However, most businesses takes longer than expected before they become profitable.

On the other hand, your savings might get depleted before the expected date of returns.

And when that scenario happens, most people are forced to shut down & get out of business – because they wont have any money to continue funding the business.

In order to avoid this situation, you should invest some money or time into something that brings passive income on a regular basis.

Even if your business takes 5 years to blow up, you'll still have a source of income to fund it.

4. Poor Products/Services

Another reason is that, most new businesses produces poor products/services – which are less competitive on the market.

This is so because most new entrepreneurs venture into business with very limited resources – thus, they produce low quality products/services that matches their budget.

Also, lack of experience also plays a major role – because if you have little to no experience about a certain industry, you’ll struggle to produce great quality products/services.

However, customers values their hard earned money i.e. they only spend it on products/services that brings the maximum satisfaction.

For this reason, they'll choose to buy competitors' products/services over yours.

5. Poor Marketing Strategies

In some instances, some entrepreneurs might have awesome products – but still fails to get them in front of the customers.

Why?

It all comes down to how you market your products/services.

You can have the best product/service in your industry – but if you don’t know how to market them, you'll struggle to get sales.

I always see it on a daily basis – where the ‘top brands’ in most industries aren't usually the best in terms of quality – but they dominate the market due to great marketing tactics.

Thus, it's important to come up with efficient and effective marketing strategies – otherwise, you'll struggle to get customers.

6. Poor Planning

‘Failing to plan is planning to fail'.

Most people are too quick to get into business without a proper plan of action – which leads to complete disaster.

A plan provides a blueprint/direction on how you're going to run your business – thus, it's important to create a clear plan before getting started.

I’m not saying that you should create a 15 page business plan – NO!

But all lm saying is that, you must have a simple plan of action that guides you in your daily operations – otherwise, you might get astray!

Most people only looks at the surface of most successful businesses – instead of digging deep into the foundation of those businesses.

The nice products & great business infrastructures are just the face or front end of those businesses.

But what you don't see is the backend or foundation of those businesses i.e. the foundation where the building blocks sits.

Thus, it's important to come up with a clear plan of action – so that you'll have a clear direction of where your business is heading.

Of course, you can always twerk the plan where necessary – so that it fits to what's actually happening on the ground.

7. Poor Management

‘My cousin is going to be the manager, my lil sister is going to be the supervisor'

When starting a business, most people makes the mistake of giving crucial roles to their loved ones i.e. friends and family – instead of allocating roles based on competency.

If you give a crucial role to someone who doesn't have a real interest in your business, the person wont fulfil his/her duties effectively – thus, affecting the performance of your business.

Another thing to mention is that, if you give financial duties to someone who's untrustworthy, you might lose a lot of funds since the person might end up stealing funds from your business.

Thus, when allocating crucial roles, you should allocate them based on competency i.e. allocate roles to people who're capable of holding them.

Wrapping Up

So these are the 7 major reasons why 90% of new businesses fail.

If you avoid them, you can set your business up for success.

And just to add something important;

Persistence also plays a major role in business i.e. it takes time before you start seeing some positive returns.

Unlike a 9 to 5 where you get paid from the first month, entrepreneurship is much different i.e. you'll have a flat growth during the first few months/years – but over time, you'll experience some exponential growth.

Thus, you shouldn't give up during this phase – because success lies on the other side of failure.

Also, failure only occurs when you give up/quit.

But as long as you continue showing up, you're not a failure!

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