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How to Avoid the Dismal Small Business Failure Rates

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Read Time: 14 min

Small business failure is never pretty, but it’s a stark reality in the business world. In fact, more small businesses have a statistical chance of failing than they do succeeding.

Small business failureSmall business failureSmall business failure
Avoid small business failure. Image source: GraphicRiver.

Just look at the following dismal stats about small business failure rates. According to the Small Business Administration (SBA), which pulls its data from the US Bureau of Labor Statistics:

  • About 33% of business fail during their first two years.
  • Close to 50% fail within five years.
  • And roughly 66% will have failed within ten years. 

What makes these stats particularly worrisome is that there’s no letup even as time goes on. You’re actually more in danger of becoming a small business failure the longer you run your business—at least for the first 10 years—than you are when your business is just one or two years old.

Do you want to be in the one third that succeeds or the two thirds majority of businesses that fail? It’s easy to become demoralized with these numbers, but don’t give up hope so easily. 

When you figure out what the factors are that contribute to businesses failing, then you are empowered and in control. Knowing these factors lets you not make these mistakes, so you can start and run a thriving small business that successfully defies these grim stats!

In this tutorial, discover the seven critical issues that plague early stage ventures, as well as how to sidestep them, so you can avoid becoming another small business failure statistic. 

1. Avoid Not Having a Clear Direction for Your Business

Not understanding what your business is about and where it’s going to go is one of the most crippling reasons for why the small business failure rate is so high. 

Many people think they have a good idea and then launch their business quickly, but soon find out how difficult it is to take that initial concept and make it successful. Further, not having a clear idea of your business plan means you can’t effectively market your brand either by communicating to the marketplace what you’re about.

To avoid this difficulty, do the following:

  • Identify a specific problem that your business’s product or service will solve for your customers.
  • Conduct market research to see if there’s a market need for your idea.
  • Write a dedicated business plan to serve as the roadmap for your business direction.
  • Continually re-evaluate your business plan so that it’s a living document that can adapt to real-life situations. 

See our tutorial on how to conduct market research:

Also discover how to write a business plan and keep it updated on a regular basis: 

With a well-researched business plan that you keep updating monthly, you're positioned well to adapt to changes that effect your business. Keep in mind a business plan isn't a fixed document, but rather something you work on improving and refining as your business evolves. 

2. Avoid Mismanagement Problems

You can have the best business idea in the world, but if the way you administer your business isn't managed properly then it can lead to critical problems. 

It’s all too easy for new entrepreneurs to bungle the basics of running a business well, such as budgeting and bookkeeping, timely and sensible expansion, and really understanding your customers’ needs. 

Sadly, some new small business owners don’t think beyond the creative stage of coming up with a sound business idea—all the way to the actual execution of managing their enterprise.

To keep your small business success rate high and avoid bad management decisions, do the following:

  • Learn how to administer a basic spreadsheet that keeps tabs on all of your expenses and profits for the month.
  • Use reliable accounting software or hire a professional accountant to understand the details of your cashflow.
  • Ensure your current business operations are stable and sustainable before expanding.
  • Do market research and review the numbers closely to determine if you can expand without going over-budget.
  • Always ask for feedback from your customers on a regular basis, whether that’s a survey or just talking to them.

Learn more about how to work with speadsheets in our intro course and dive into Excel power user techniques: 

Also, have a look at how to make a survey, as well as the basics on managing your books and cashflow: 

With a few basic systems in place, you'll keep track of the money coming in, your expenses, and how well you're serving your customers. The better you understand how your numbers are hitting your goals, the stronger you can position your small business.

3. Avoid Running Out of Money

This one may seem straightforward because you’d think that small business owners are always conscious of having enough money to keep their doors open. Think again. Both a lack of profitability and failing to find sufficient financing are top contributing factors to small business failures. 

Many business owners simply underestimate how much money they need to continue operations or fail to raise enough money until they’re profitable. Additionally, they’re plagued by cashflow dilemmas because they don’t get paid right after they deliver their product or service to market.

Cashflow is king for a business and can be a critical problem if mismanaged. It's best to catch it early, whether you're a small business run by a sole proprietor or a growing startup. 

Even larger scale growing startups can hit the wall with this problem and have to make hard decisions. Recently the popular social media company Buffer laid off 11% of their staff and made cutbacks on expenditures to maintain cashflow positive goals.

To avoid this crunch, do the following:

  • Cut costs and calculate your break even point and profit goals to make sure you exceed them.
  • Get a small business loan or a loan from friends or family.
  • Manage your cashflow tightly and always know how much money you have left until your next cash infusion.

Learn the basics of making a financial model. Also, learn about business funding options in our series on the subject, and jump into these tutorials to get started: 

Ideally, keep a close eye on your cashflow, but if you get into trouble, be prepared to secure a source of funding and make the quick changes needed to stay cash positive.

4. Avoid Having a Website That’s Not Well-Designed and High-Quality

These days, you can’t be viable in business without having a well-designed site to act as your lead-generation tool, customer-retention system and conversion magnet. In short, having a high-quality site is the difference between just a few sales and a booming business. 

Unfortunately, too many small business owners have sites that aren’t easy to navigate, aren't optimized for mobile, don’t have good information architecture, and look and feel outdated.

To avoid this small business failure, do the following:

  • Get a responsive and high-quality site theme.
  • Learn basic design and marketing principles for the web.
  • Keep A/B testing your site to make sure it converts the way you want it to.

To find excellent, high-quality themes for your site, see our stellar selection of our most popular WordPress themes, such as the best seller Avada shown below:

Avada WordPress ThemeAvada WordPress ThemeAvada WordPress Theme
Avada WordPress Theme on Envato Market.

Learn how to start a business online and begin your digital marketing: 

Our web design section on Envato Tuts+ has web design inspiration and tutorials covering design principles that guide professional site design. Here are a few examples of sites that are well-designed and high-quality to model:

  • Upturn – Consulting company’s site that features a clean and minimalistic design, making it excellent for explaining its benefits to leads.
  • Big Drop Inc. – Web design firm’s site that features a unique selling proposition that hooks visitors and leads in.
  • Jill Konrath – Sales consultant’s site that features a slew of big names for social proof to increase her professional trustworthiness immediately.

With a quality designed website launched, you'll have a professional platform to begin building your marketing channels around, which you can drive fresh leads to, and focus on converting into new customers.

5. Avoid Burnout

Burnout is when you simply feel taxed emotionally, mentally and physically with your small business. This can result from constantly being overwhelmed with what you’re doing and experiencing prolonged and excessive stress from it. Finally, you’re left without the drive and ambition that led you to start your small business in the first place! 

Running a small business—with all the adversities associated with keeping the doors open, as evidenced in the bleak statistics I mentioned above—is a prime opportunity for developing burnout. It’s something that's unfortunately all too common among business owners, especially as things get harder.

To avoid burnout, do the following:

  • Learn how to manage your stress and develop healthy, coping strategies.
  • Adopt some relaxation techniques such as meditation on a regular basis.
  • Disconnect from technology every so often.
  • Establish boundaries between your personal life and your small business life, for instance taking holidays instead of working non-stop. 
  • Learn to be more productive to get more done with less stress.
  • Adopt healthy habits related to eating the right foods, getting enough sleep per night, and exercising more (even if it’s just light walking each day to get started).

Learn how to develop your own productivity system, keep your approach simple, and develop a productive routine: 

If you obsess about your business and work too many long hours, you're risking burnout. Long term success in your business is driven by consistent, balanced input and putting your time into the right activities.

Measure your results on tangible gains and not on the hours you put in. Work to develop a manageable system and routine to run your business with and remember that your mental, emotional, and physical health is important.

6. Avoid Traditional Marketing as Your Only Marketing Strategy

Traditional marketing is usually made up of TV, radio, and print advertising. While you shouldn’t abandon those approaches, know that digital marketing is growing more than traditional marketing every year and will eventually eclipse traditional marketing. 

Digital marketing involves everything from mobile marketing and landing pages to blogs and email. Since an incredible number of people are on their smartphones and tablets these days, not to mention still on their desktops, you’re missing a huge opportunity to connect with your leads and customers if you ignore digital marketing channels.

To avoid relying mainly on traditional marketing, do the following:

  • Use social media more as a way of connecting to your leads and customers. 
  • Use email marketing as a cheap and cost-effective way to tell your audience about promos, giveaways and any exciting news about your brand. 
  • Start a businsss blog to have a lead-generation tool right on your site.
  • Optimize everything you do in marketing for mobile, as the number of mobile users now exceeds desktop users. 

Look through our beginner guides to email marketing, business blogging, and content marketing for tips on getting started with digital marketing:

Add one digital marketing channel at a time, and measure your costs versus results. You can then continue to add more channels, and generate incremental gains, as you grow your reach.

7. Avoid Trying to Do Everything Yourself

One of the big temptations for small business owners is the desire to do everything themselves, which unfortunately, can lead to small business failure. 

Doing everything yourself means that you’ll inevitably spread yourself out too thin, leading to mismanagement because you can’t be everywhere at once. It’s understandable why some small business owners would feel the need to do this, as the pressure to cut costs and desire to prove yourself can be big motivators.

To avoid this problem, do the following:

  • Ask mentors and those with more business experience for advice and suggestions. 
  • Don’t be too shy or proud to ask your friends and family for help, especially in the beginning.
  • Do delegate key parts of business operations to employees or professionals.
  • Create systems that allow you to get more done with less time.

Read our tutorial walkthroughs, for solid suggestions to find the right mentor, as well as how to delegate your work, and create your business systems:

There's only one of you, and you can only do so much in your business. 

Work with a mentor or advisers to device plans to scale your business as you grow. That may mean hiring help, whether that's a virtual assistant or employees. Also, as you develop processes that work well, document them, so that you can hand those tasks off to your team. 

You need to make sure your time is spent where it's most effective for the long term health of your business, to help it continually grow.

Succeeding With Your Small Business

The small business failure rate is shockingly high for a good reason: too many new entrepreneurs simply aren’t employing the active steps to avoid small business failure. That doesn’t need to be the case, though!

By understanding the factors that contribute to business failure, you’re now in a great position to defy the odds and make your small business venture a resounding success. 

To avoid small business failure, always remember the following:

  1. Avoid Not Having a Clear Direction for Your Business – Make sure you have a solid business plan in place. 
  2. Avoid Bad Management or Mismanagement – Learn how to properly keep your books and don’t expand your business too soon. 
  3. Avoid Running Out of Money – Know from where to get your funding to keep your doors open.
  4. Avoid Having a Website That’s Not Well-Designed and High-Quality – Get an excellent website theme from our collection of quality WordPress themes.
  5. Avoid Burnout – Learn to keep things in perspective and your stress levels well-managed. 
  6. Avoid Traditional Marketing as Your Only Marketing Strategy – Use digital marketing strategies to connect with your audience.
  7. Avoid Trying to Do Everything Yourself – Understand that you have limits as a small business owner and ask for advice from others with more experience than you.

Keep in mind that you can't solve all these potential pitfalls in one afternoon. Set goals and incrementally work to position your business just a bit better by the end of this month, compared to last—over time you'll defy the odds and be positioned for success.

Also, if you're at an early stage and just beginning to think about starting a business, then asking yourself a few poignant and relevant questions from our guide about when is the right time to start your business is a helpful first step.

Editorial Note: This content was originally published in 2016. We're sharing it again because our editors have determined that this information is still accurate and relevant.

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