What are the common problems why business/company fail?
I like to know and be aware of the common problems why businesses/companies fail. How can we solve or avoid this kind of circumstances?
There are many reasons, including all of the ones already shared. For start-ups in particular, the #1 reason in my mind is money. The amount of capital needed is often underestimated; you need enough cash to keep the business going until it takes off.
Just came across this question.
One of the most common reasons why start-ups fail: lack of a strong USP.
When you start a business, it is important that you decide on a unique selling proposition - what do you offer that the others don't? This question needs to have a solid answer. This feature is going to take your business a long way, let alone let you survive.
This lack of USP is one of the reasons why many businesses fail, they just drift along for a few years and eventually pack up.
Great questions, Dennis.
Demise of many companies are self-inflicted. From my consulting experience, I've seen companies fail because of these reasons:
1- Poor quality control followed up by bad customer service
2- Bad customer service in general, this includes bad products, bad services, and not understanding what the customers want
3- No cash flow
4- Poor management of employees. What goes around comes around. Treat employees poorly and your company will not grow if it doesn't fail.
5- Not adapting to changing economies. Sort of related to #2 above. Circuit City and Blockbuster are two examples.
As you can see, the odds of business success are stacked against you. It's so easy to do things "wrong" and so easy to get into trouble without surrounding yourself with trusted experts to warn you BEFORE you make that fatal mistake.
Ultimately, the defining difference between a business and a hobby is PROFIT. The number one cause of business failure is failing to control and leverage the drivers of cash and profit. How efficiently does money flow through YOUR business?
One of the most important ones is that there is nothing "addictive" about the entire package. For a business to succeed people must keep coming back and using the service/product over and over again- models like starbucks, blackberry, facebook are addictive. I am writing a book on this - check out the website www.startupsugar.com which comes out September 1, 2012!
You need to think of a business as a living organism that is essentially a system of vital (and non-vital) organs.
If any single vital organ fails, the entire organism dies.
The various answers you have received so far all pertain to different vital organs: product, promotion, sales, business model, capital, management, etc.
They're all correct: failure of any one of these will kill a company.
The more important question is: "what can you do to mitigate risk?" For that, you might want to read my article called What Kills Startups: http://www.caycon.com/what-kills-startups.php
Sales. Any company needs cash to survive. You can sell your company to investors, customers, clients... or be a M&A target; but in the end if you can't find a buyer, your company dies. #1 reason why companies fail.
All good answers. However, without a solid business model that addresses a specific market need or problem; passion that drives a maniacal focus on that model, and a near religious zeal for managing cash a business cannot succeed. In, virtually, every failure one or more of these characteristics is missing.
Hi Dennis, I just spotted your question. Honestly the biggest problem facing all the entrepreneurs I coach is...they FAIL to see if there is a need for what they have to offer. They never go out and ask 15-20 people who are their ideal potential customer the questions needed to determine if what they have to offer could be packaged into a "business."
Some great answers here, but I agree with Steve that many of the problems listed are actually symptoms. I would say the top 2 reasons small businesses fail are:
1. The owner / founder tries to do everything and never creates a real team or infrastructure that can operate independently.
2. Simply not enough money (or runway) to truly get off the ground,
Lots of other possible issues - poor business model, not bringing on the right people, not consistently using a strategic planning process, not consistently marketing with an effective message...but I think the 2 listed above would be the biggest issues.
Not enough capital. Too much ego & arrogance. Lack of a well thought through dynamc strategic market plan. Not knowing who 'specifically' their best customer is. Not knowing how their business distinguishes or differentiates itself from others in the same space. Lack of effective management/leadership skill for todays market & employee expectations. BTW I have lots more to say on this topic, for those interested at http://www.alan-adler.com
Leadership, Strategy and a strong connection to your product or service. any shortcoming in any of the three, problems arise. by leadership i don't mean management style leading but leading by inspiring.
This would be a great online survey question targeting people who recently experienced business failure. My initial response: Not clearly defining the offering or market niche; inadequate capital; fixed costs too high; poor vision or leadership; losing a key customer contract; etc. My thought is that these are actually symptoms rather than root causes. I don't think this is a "one reason fits all" scenario.