In every industry, most small business startups fail, and no matter what we tell ourselves, it’s not simply because of bad luck.

Startups fail for a variety of reasons, but they are always attributed to specific miscalculations. When a small business fails, either right after take-off or farther along the company’s life-cycle, it’s likely because of one of these five reasons:


  1. Bad business model

Often, entrepreneurs are overly optimistic, and unfortunately, the “If we build it, they will come” mentality is not a sound business model. Acquiring customers takes time and strategic marketing. You may have a great product, site, or service, but without a great business model, it will not hold your small business afloat.

If you think acquiring a few new customers will equate to success, think again. It’s the first rule to starting a business, but one that entrepreneurs often forget. Acquiring new customers actually costs your business more money than retaining the customers you already have. To avoid business model failure, focus on the lifetime value of a customer more than customer acquisition.


  1. Mismanaging finances

Another common reason small businesses fail is financial mismanagement. If you pay little attention to your bottom line, you’re almost immediately doomed to fail. When you’re running a small business, it’s easy to miscalculate operating costs, initial startup costs, product pricing, and founder’s salaries.

To avoid this mistake, be sure to consult a talented accountant, create and maintain a very detailed outline of expenses, and secure a long-term plan to raise cash.

  1. Market issues

It is possible that you can do everything right, but your startup could still fail. The reason may be problems with the market. In many cases, it’s possible that the market timing is bad. Your product or service might be ahead of the market by several years and depend on the emergence of other products in order for it to gain traction.

Additionally, the market should be recognized as dynamic and ever-changing. Even if your product fits the market when you started, it’s possible for the winds to change. Prepare to continually adapt your strategy to stay relevant by thoroughly conducting market research before you begin, and again at least once a year afterwards.

  1. Product/market fit

It’s also possible that the problem lies with your product or service itself, either due to market need or a deeper strategic issue.

Product problems may be also be apparent if there is not enough value proposition. At that moment in time, buyers may not have a compelling enough reason to purchase your product. However, if you properly demonstrate your product’s value to meet a relevant want or need, you have the potential to succeed.

  1. Hiring the wrong people

Even when all other startup elements appear to be in line, many businesses fail because they didn’t hire the right people. Startup managers, in particular, have the tendency to take on too many tasks and responsibilities, preventing both themselves and their team from achieving long term growth.

Free up more of your time and help out your team by learning how to effectively delegate tasks. Even simpler administrative tasks that take up the bulk of a business owner’s day can be outsourced to live virtual receptionists. With virtual receptionist services, hours of your day spent performing duties like customer service, processing orders, or scheduling appointments can be freed up to focus on achieving business goals and providing direction and leadership for your team.

As you take these reasons into consideration, it is critical that you create a living business plan to outline specific steps you will take to achieve success 3-5 years ahead, including your market analysis, financial projections, and plans to raise additional funds. This will help you foresee any possible roadblocks and prevent your small business startup from going under.

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