HOW to Avoid the Top 6 Reasons for Small Business Failure

Over the years we have worked closely with many small, medium and large businesses.  Many invite us in because they like to do a regular “gut check” with an outside firm to make sure they are on the right path. Still others have brought us in when things start to go wrong and they need an objective assessment of their business practices.  In both situations many of the threats to business are the same and require intervention. Here are six that we counsel our clients to avoid.

Failure to guard against low profit products or services.  It’s important to analyze your product and service line and emphasize those that are most profitable. It may be necessary to expand the product line to increase profitability.  Many small businesses evolve without direction and find themselves focusing on the least profitable product. They work hard to generate increasing revenue but profits are not enough to sustain an on-going company.  Growth without profitability is Not Sustainable.

Failure to set correct pricing.  A business needs to set a clearly defined  pricing strategy and stick to it. You can choose to be the lowest price or choose to be the best in class , but you can’t do both. Many businesses fail by trying to deliver a “premium product” and competing on low pricing.  It doesn’t work.

Failure to clearly define and understand your market on an on-going basis.  Whether you are a B2B or B2C business, you need reliable research to help you understand exactly who your customers are and what are their buying habits. Consumers and buying habits can change and evolve, sometimes very quickly.  Many businesses fail because they don’t keep up with customer trends and product advancements.

Failure to quickly anticipate or react to changes in the marketplace.   The ever increasing speed of business makes staying current with advancing technology and changing competition an ongoing requirement.  Getting behind on important technology or losing a competitive edge has often resulted in a downward spiral for established businesses. The digital transformation is a perfect example of technology that caused many businesses to fall behind.  Stay current, be open to new ideas and always keep a close eye on the competition.

Tolerating inadequate management.  This could be the top reason small and medium sized businesses fail. It is very common for a business to grow beyond the skills and capability of the management team.  A lack of self-criticism and objectivity often results in inadequate planning and decision-making which then becomes a barrier to future growth.  In time this is followed by stagnation and then failure. Don’t delay making necessary management changes to secure upgraded management skills and frequently  bring in outside experts to provide objective advice.

Failure to manage growth.  Rapid, uncontrolled growth can destroy a business. Textbooks are full of case studies that show slow and steady growth is far superior to quick jumps and spurts. Big bursts of business can require risky up-front financing for large inventories and stress on operations. Well planned growth allows you to be selective with  financing, choice of customers and products which can lead to higher profitability. This is all part of having a management team with the proper skills to plan and anticipate business.