5 Common Reasons That Small Businesses Fail, and How to Avoid Them

From getting your first business loan to opening a second location, running a successful company can be a daunting task. On the one hand, this is obvious when one considers that half of all new businesses fail within four years. On the other this trend is neither random nor spontaneous.  The most common reasons for failure are the same among most businesses, but fortunately, they're avoidable.

1. Lack of Value Proposition

What does every successful company have in common? They're special in some way. Burger King lets you "Have it your way," and Uber allows commuters to get where they're going by a driver in comfortable and clean cars. Not having a value proposition can be fatal.

Whether you open a restaurant, clothing store or mechanic shop, the product or service needs to stand out. If not, you might survive months or even a few years, but it very likely could be nothing more than trudging along to an inevitable end. Make something unique and market it.

2. Failure at Marketing

Speaking of marketing, a failure to do this can be detrimental. Regardless of the uniqueness of your concept, an impeccable location or amazing prices, they mean nothing without a strong marketing strategy. If you're not getting the word out and making people excited, they're not going to show up.

Fortunately, we have marketing down to a science. Even if you need a business loan to pull it off, you need to create a strong online presence. This includes social media as well as a strategy for offline marketing tactics, geared toward your specific industry.

If you choose to hire a third party agency to run your marketing, make sure to run monthly, or even weekly, analytics on how much it costs to acquire a single customer.

3. Terrible Location Choice

The most vital aspect of real estate is location, location, location. This couldn't be any truer than in the case of running a small business. While opening up a high-end boutique in a seedy neighborhood isn't the brightest of ideas, it's also not the only mistake in location you could make.

The greatest building in the world won't amount to much if consumers have to make a U-turn on a busy highway to get there. A boat dealership 300 miles from the nearest lake? Also not a good idea. Opening a coffee shop across the street from Starbucks? Simply having a plan is not enough. It’s also important to make sure the plan is logical and practical.

Don't jump on the first seemingly great deal you find on a location. Do research on what was there before and try to find out why it failed. Common sense goes a long way in this situation.

4. Not Enough Demand

In 2011, the New York Times listed "lack of demand" as No. 1 on their list of top reasons that small businesses fail. There’s a reason for this. It seems like common sense, but entrepreneurs sometimes get so enamored with their own ideas that they fail to realize there's little to no demand.

As previously mentioned with boat dealerships away from water, this is sometimes nothing more than a location issue. But in other instances, an idea may be too far ahead of its time or focused on a problem that most people don't need solving. Perform focus groups with your friends and family, and test demand are all methods that can go a long way toward solidifying a business.

5. Too Little Capital

When asking failed entrepreneurs why their businesses tanked, you'll most often hear that they didn't have enough money. Remember that running a business isn't just about purchasing a building, stocking up on supplies and paying the bills every month. You must prepare for potential emergencies or even a months-long slump in business.

It's recommended that businesses have at least three months of operating costs in reserve in case something affects revenue. Zion Finance - Lend Up can provide small business loans to ensure your company stays afloat. The application process is quick and easy, and funds can be received in as little as 24 hours.

Being a successful entrepreneur can be difficult, but by avoiding the aforementioned downfalls and having enough capital on hand with help from Zion Finance, your business stands a better chance at success.


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