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How NOT to be a Small Business Failure Statistic

How NOT to be a Small Business Failure Statistic


We know how many small businesses survive and for how long, but it’s far more important to know why some survive and others do not.  There are a lot of studies on small business failure.  Searching “reasons for small business failure” with quotations on Google will give you almost 700 results (about 38 million without!).  “Why small businesses fail” will give you almost a thousand.

There is a wealth of information on this subject, but what are the common factors?  There are four basic areas:

External factors

External factors include new competition, your major client moving out of town, poor weather if you’re a seasonal business, or economic downturns.  They’re often largely out of our control, and may be unique to your particular company, but there are often ways to mitigate them. For example, if you have a seasonal business, such as a landscaping company (at least up here in the cold north it’s seasonal) you could buy a bobcat to provide income during your off-season with snow removal.  The bottom line is, have a contingency plan for external factors that could have a negative impact on your small business success.

Lack of management

Big companies have the luxury of being able to hire several people to get all the jobs done that need to be done, but chances are you’re going to have to do it all yourself, at least for awhile.  That means you’re not only going to have to develop your product or service, you’re also going to have to make financial, accounting, legal, marketing, human resources, and purchasing decisions.

You may do some of these tasks very well, but it’s unlikely that you do all these tasks well, and even if you do, you might want to contact a lawyer and an accountant at the very least.  And, research, research, and research some more, and when you’re done researching, find an expert or two bounce ideas off and give you solid advice.

Lack of planning

Small businesses often fail because of lack of planning.  Let me make a bold statement: the single-most vital part of your business success is your business plan.  Why?  Simply put, your business plan specifically and concretely lists your goals for the next few years. It spells out, step by step, how you’re going to meet those goals, and gives you something to measure your performance against at the end of your business year.  Finally, a complete business plan helps you get financing and includes a marketing plan.

I have one more thing to say about business plans.  It does very little good to write a business plan, put it in a drawer and never look at it again.  That same 1997 Statistics Canada study we talked about earlier found that successful small business owners refer to and revise their business plans often.

Lack of marketing

Most small businesses seem to think it takes a lot of money to market their product or service effectively.  That’s simply not true.  There are many ways to market inexpensively.  You could use direct mail marketing which is as cheap as a stamp, or email marketing, which costs nothing.  The point is, you need to get your product or service “out there” somehow.  You may have the best product or service out there, something completely unique from anything else, but what good does that do if nobody knows about it?

So there you have it—my thoughts on the main reasons why small businesses fail, and how you can avoid becoming a small business failure statistic by developing a contingency plan, consulting with experts, and developing and using a business and marketing plan.

If you are thinking of starting a small business, trust me, I’m not trying to discourage you.  I sincerely believe being in business for yourself may possibly be the most rewarding career there is, but a little knowledge can go a long way towards arming you against small business failure.


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