Top Reasons for Business Failure

Posted on July 21, 2019 by Janet Lim, One of Thousands of Executive Coaches on Noomii.

There is no lack of reports, articles and blogs that would tell you 90% of new businesses fail within 1 year.

Of the many, I zoomed into two articles – one written based on practitioner experience, the other based on research on failed founders.

Eric T. Wagner (“ET”), a serial entrepreneur and writing contributor to Forbes and Entrepreneur told us about 80% fail within 18 months in his article, “Five Reasons 8 Out Of 10 Businesses Fail”. And these Top 5 reasons are:

1) Not really in touch with customers through deep dialogue
2) No real differentiation in the market (read: lack of unique value propositions) 
3) Failure to communicate value propositions in clear, concise and compelling fashion 
4) Leadership breakdown at the top (yes — founder dysfunction) 
5) Inability to nail a profitable business model with proven revenue streams

Alice Truong (“AT”), a Hong Kong based editor who previously served as Quartz’s senior Silicon Valley correspondent and deputy growth editor, poured through 200 founders’ postmortems and came up with 200 reasons why founders think their startups failed.

According to AT’s compilation, founders believe these are the Top 5 Reasons why their startups fail:
1) Business model not viable
2) Run out of cash
3) Not enough traction 
4) Lack financing/investors
5) Technical / Product issues

While the two list seems different, if we closer behind AT’s full list, they pretty much aligned:

Reason #1:
ET: Not really in touch with customers
AT No market need; Ignore customers; Pivot gone wrong

Reason #2:
ET: No real differentiation in the market (read: lack of unique value propositions)
AT: Failure to pivot; Out competed

Reason #3:
ET: Failure to communicate value propositions in clear, concise and compelling fashion
AT: Poor marketing

Reason #4:
ET: Leadership breakdown at the top (yes — founder dysfunction)
AT: Disharmony in team/investors

Reason #5:
ET: Inability to nail a profitable business model with proven revenue streams
AT: Business model not viable; Pivot gone wrong; Pricing/Cost Issues

It is clear to me that these reasons are underpinned by the fundamentals around
- Business Model
- Customer Centricity
- Sales and Marketing

When these factors are not well attended to, financing issues listed in AT’s follows and business starts to turn south.

Of course, I’m not saying these are the only reasons. There are also other contributing factors around operational issues, experiences and burnout, as you will also find in AT’s list.

Whether you are a new or seasoned entrepreneur, these are fundamentals which we must hold close to head, heart and actions.

It is easy to get lost in the myriads of daily activities. How are you putting in place a system that will help you review current practice and check your blindspot?