Why Do so Many Small Businesses Fail?

We’ve all heard the statistics. Somewhere between 60-90% of new businesses fail, and just about everyone agrees, starting a new business has a low success rate.

But the real question is not how many fail, but WHY so many fail. 

While there are hundreds of reasons out there. I believe there is one primary reason that these new ventures fail at such an alarming rate: 

They run out of cash before they can find a profitable and sustainable market for their products and services.

Let’s look at a few examples. I once had an office located in a small shopping center on a busy road in a mostly residential area. The shopping center seemed like it would be ideal for a small restaurant to get its start. However, in the short time my office was there, three different restaurants came and went. Three!

Working next door, I had a front-row view of their enthusiastic starts and their seemingly inevitable demises. 

Failed Restaurant #1

The first restaurant just had lousy food and lousy service. There will never be a profitable and sustainable market for a restaurant with bad food and bad service. You don’t need to be great at everything, but you do have to be at least good enough at something. 

Failed Restaurant #2

However, be careful about trying to be too great at something. Yes, I can hear Seth Godin screaming somewhere right now (and probably half of the motivational speakers out there). Still, the second restaurant is an example of how too much focus on your product can become a distraction or lead to a hubris that will kill your young business.

Our second hopeful restauranteur considered his fast-casual food an art form. The coffee could only be grown on southern facing slopes in the mountains of Guatemala, roasted in the finest facility, and served in just the right ceramic cup. It was the same story for the food. This may sound like a recipe for success, a way to stand out, but it wasn’t. In fact, I only know about how much he cared about his coffee because I caught him once during a rare moment when he would emerge from his kitchen and actually be seen.

You see, he was so focused on his product and its perfection that he didn’t take the time and energy he needed to focus on using that product to better the lives of his guests. 

This is a real tragedy. You can create something so special to you that you believe the whole world should love it automatically. However, building a business isn’t about how special you are or even about how special your product or service is. It is about how special your customer, client, or guest feels when they buy it. 

Don’t over-invest in your product or your service, but invest in your client. This often means spending way more time than you think marketing, connecting, and selling.

Don't over-invest in your product or your service, but invest in your client. This often means spending way more time than you think marketing, connecting, and selling. Share on X

Failed Restaurant #3

The third time is the charm, right? Not this time. The third restaurant, to their credit, had a decent product striking the balance that had been the end of restaurants 1 and 2. 

However, they too failed to develop a profitable and sustainable market. I genuinely believe it was for one and only one reason. The owner had a great dream, but not much help. He hired a handful of teenagers and early-20s to help him out. Instead of growing his business, he spent all his time doing their jobs and just keeping it moving. The sight was ominous. Unable to spend enough time getting new people in the store, the owner was left looking at empty chairs more and more frequently until he finally threw in the towel.

To break free of gravity in these early days, you have to execute ruthlessly. You don’t need to be mean (and just for clarity, it doesn’t mean you have to kill people either). No, it means you have to recognize starting a business is an uphill, hands tied behind your back, bottom of the 9th fight for survival. You need to show up every day ready to fight to find your profitable, sustainable market. 

The best way to do this is to have a strong Visionary/Operator combination. As a Visionary, you need to make sure your product or service is good enough to make its mark; then, you need to hire someone as soon as you can to get the job done. Some skilled help frees up your time so that you can set about telling everyone you know and everyone they know about the business.

Wrapping it up

Here’s what we can learn from these heartbreaking ventures. To find a profitable and sustainable market, you must:

1. Have a good enough product
2. Settle for a good enough product and focus on maximizing its impact in your customer’s lives
3. Get the right help so you can tirelessly market and sell, sell, sell you’re way into a successful business.

To the bravest among us, those Visionaries with a passion for seeing the world become a better place, I commend you in your search for a profitable and sustainable market.