4 Reasons Why Small Businesses Fail, and How to Avoid Them

small business desk

by Jennifer Leslie

Everyone loves a good underdog story. Watching a character fall and get kicked while down, only to rise like a phoenix from the ashes, stronger than ever—it’s storytelling gold!

While it’s entertaining to watch the underdog come back and kick ass, some important aspects of this trope get lost in the mix. I’m talking about the failures and the lessons the underdog learns along the way.

Sure, we (the audience) recognize the hard work and practice they put into reaching their goals. But quickly we get wrapped up in the cheers and shoulder-carries (à la the final scene of Rudy), forgetting about the journey that got them there.

Starting out, a lot of entrepreneurs probably feel like the underdog, far from the stadium full of cheering fans. The harsh reality is that building a business is a long road of rising, falling, learning, rising again, falling again, and so on. And that’s if you’re lucky! According to Fundera, “about 20 percent of small businesses fail in their first year, and 50 percent of small businesses fail by their fifth year.”

So if you want to beat those odds, think like your favorite underdog.

Failure No. 1: Financial management

“Beware of little expenses; a small leak will sink a great ship." — Benjamin Franklin

Money. Scrilla. Green. Bacon. Cheddar. Dough (why am I hungry now?). Whatever you choose to call it, money is a necessity if you’re running a business. You need money to start and build a business, and it’s a desired income from the products or services that business provides. But if there isn’t money coming in, or it’s being mismanaged, it’s practically a guarantee that your business won’t last without outside help.

When you’re running a business on your own, it’s easy to underestimate the capital required for everything from equipment and inventory to staffing and utilities. It’s also easy to overlook small but important things, like payment due dates, expense report deadlines, or reimbursements.

To combat this, it’s important to keep your files and accounts organized, and to integrate the tools you use to keep track of this type of information. When your business apps are integrated, they “talk” to each other and share data, giving you a more comprehensive experience.

Failure No. 2: Lack of marketing strategy

Another reason small businesses fail is because they’re not getting the right kind or right amount of exposure. After all, if potential customers don’t know who you are or what you offer, what good is it owning a business? The first place a successful business will turn is to marketing.

It turns out that many small business owners carry out their digital marketing on their own. Shockingly, though, nearly 50 percent don’t have a clearly-defined strategy. When dealing with limited time and resources, a lack of marketing strategy can become pretty dangerous pretty fast.

Luckily, there are plenty of resources to help businesses build their marketing strategy. Once a strategy is planned out and clearly defined, it becomes easier to understand which audiences to target, which messages to use, and how to measure their success.

Marketing automation tools are extremely helpful for business owners short on time and resources because they streamline common marketing tasks like email, lead capture, social media, and so on. This lets small business owners focus on other parts of their business without having to dedicate hours on end to operate their marketing functions.

Failure No. 3: Time constraints

Entrepreneurs are busy people. There are clients to be met with, phone calls to be made and emails to be sent, proposals to be delivered, social media to be updated, blogs to be written, websites to be designed… The list goes on and on, and with only 24 hours in a day, time is clearly not on the entrepreneur’s side.

On one side of the coin, busy is a good thing: it means business is booming and there’s a demand for what’s being offered. On the other side, however, it can also be one of the harshest reasons for small business failure.

Until time travel is discovered, entrepreneurs can only do so much in so little time, and can only be in so many places at once. And even if business is booming, it doesn’t guarantee that there’s budget for additional assistance to help ease these demands.

Fortunately, there are still ways entrepreneurs can take back time in their day that don’t include a DeLorean: Eliminate or cut back on TV from your week days Track your internet usage time and cut back on anything non-work related (cough Candy Crush cough) Automate menial or repetitive tasks Integrate your important business apps to avoid manual data migration

Failure No. 4: Missed connections

We’re not talking about Craigslist here. We’re talking about those client emails that have gone two weeks-plus unanswered, the potential customer inquiry that hasn’t been addressed yet, the proposal that was meant to be sent on Monday but it’s already Wednesday evening and you still have to put it together, or the possible business partnership that was lost when their business card slipped out of your purse without you realizing it.

Managing contacts and timely follow up is arguably one of the biggest challenges small business owners, entrepreneurs, and solopreneurs face. When juggling all the other parts of business ownership, communication and follow-up can seem like the straw that breaks the camel’s back.

It’s understandable how stressful this part of business ownership can be. In fact, it can be what makes or breaks a business in its early days. Customers who feel attended to in a timely manner are more likely to become a repeat customer and refer their own contacts to your business. Leads who feel ignored or receive impersonal interactions are more likely to seek out a competitor’s business, even if it means paying more.

To counter the latter and encourage the former, consider adopting a follow-up app like Peachee to organize your contacts, add notes for context, and provider greater opportunity for personalization of customer emails and communication.

Starting a small business is scary and hard, especially when the odds are stacked up against you. Failure of some sort is inevitable, but understanding what failure could look like and how to avoid it, you’re already halfway through the journey to success, just like the underdog.

Jennifer Leslie

As a content creator for Peachee, Jennifer enjoys writing educational and actionable content for small business owners blazing their own paths. Prior to writing for Peachee, Jennifer was burning out from tech public relations after hearing too many clients describe their business as “Uber, but for burritos” (that’s not a real thing). She received her B.A. in Journalism from Playboy’s 1987 No. 1 party school, California State University, Chico. When she’s not creating content for Peachee, Jennifer spends her time wrangling the chaos that is two mini humans (aka her kids), cheering on the 8-time World Series Champion San Francisco Giants, and hiking the hills of Northern California.