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The Top 5 Reasons Why Businesses Fail (And How to Avoid These Mistakes)

Some of the most successful people in business advise that you should take your time when hiring. It’s a serious process that requires a clear mind and your whole attention. Getting the wrong person on board might be the reason why your business fails. There could be other reasons too. Read ON!
Reasons Why Businesses Fail Did you know that 8 out of 10 businesses usually fail? There are plenty of reasons for this phenomena. Luckily, it’s all in the hands of the entrepreneur to make sure their business (small or big) doesn’t fail. In this article, we’ll go through the main factors related to this failure rate and how to avoid such an outcome.

If you’re already in business, consider each of the items below a warning sign. Take a closer look at this area of your business and see how it can be improved. It’s easy to overlook an important aspect of our work because we’re distracted with other things. In the long-run, however, it can cost us a lot.

Here’s why businesses fail and what to do about it:

1. Your business doesn’t solve a problem.

Every product or service that’s ever profitable has one main goal - to solve a problem enough people are struggling with. If you haven’t defined what that is and haven’t created your offer as the solution for this problem, you can’t make it.

This is closely related to the fact that anything you produce should provide value. You’re doing it with the end customer in mind rather than for the money. That shows you care. This is also the natural way for self-made entrepreneurs to contribute to the economy and leave a mark.

However, you can’t create a product with no purpose. You can’t start a brand with no message. And you can’t build a company that solves no problems.

So before you set out on a mission to grow a business, identify the problem you’re solving first. If you can’t, start looking for one now. Change your whole strategy if you have to, just make sure you are indeed going to help your potential customers and make their lives easier or better in some way with your business.

2. You haven’t validated your idea.

One of the worst things in the entrepreneurial world is to invest a ton of time and resources working on an idea, just to realize that there’s no actual demand for it. Luckily, there’s the idea validation process that can help you avoid this issue.

To validate an idea, simply describe it, know who you’re targeting and use their language, then find a few of these people and let them know about the product or service. Allow them to be beta testers and ask for their feedback in return. See if they would be willing to pay for something like that.

Also, research your competition. See if there are similar companies making money in this niche and find ways to offer something better than them so you can deserve your share of the market.

All this testing, brainstorming, connecting with people and making changes to the original idea happens long before you even build the product. Then, you save time and can be sure you’re working on the right thing once you get to that point. With the information you gathered from potential users, you now know enough about what they want and can create a product with their desires in mind.

Don’t ask just people you know, though. Use forums, social media or blogs on the topics closest to your idea and connect with these people. They are the real audience, the ones who might subscribe to your service or pay for your goods. You should first see if they are interested in what you have to offer before you develop your minimum viable product.

3. Failing to understand your customer.

To this day, most small business owners don’t invest enough time in getting to know their audience. But even with enough capital, a great team, the most profitable idea, years of experience, and connections, you still can’t take a business off the ground if you fail to do a proper research and understand exactly how your ideal client thinks.

If you target everyone, you’ll reach no one. To avoid that, you can do some of the following:

  • Combine demographics and psychographics.

That means to find out not just where your customers come from, how old they are or what their gender and occupation are. But also investing the time to learn about their personality, desires, challenges and problems, values, passions, etc. Combining these two will lead you to business success.

  • Get feedback from your customers in more than one way.

That means using surveys, offering great customer support, being available via email, phone, and chat, reaching out personally on social media for no reason but to see how they are doing and if there’s anything they are currently struggling with.

Use Google Hangouts as a focus group platform. Have a Facebook group and encourage anyone to share what they think of the product. Offer discounts to those who leave a review.

  • Create a customer persona.

The point of all this is to connect with your ideal customers and form a relationship, then build trust and turn visitors into buyers. You want them to understand you and your business. But first, you’ll need to get to know them pretty well.

A marketing technique many businesses are seeing results from is an exercise where you create one or more fictional characters, give them names and gather different facts about their lives. Then you start treating them like real people, the ones interested in your offer, and take decisions based on their way of thinking. Here’s a great resource on how to make such a profile more detailed.

4. No Unique Value Proposition.

The only way to differentiate yourself in a competitive market is to do something unique, to be different in some way.

Some brands stand out thanks to their unusual marketing approach. While some entrepreneurs use their face and personality to drive the business towards success and inspire a movement. You can see examples of value propositions related to great customer experience, giving a ton of free stuff before making a sale, solving a common problem in a faster and easier way, or else.

It’s time to ask yourself some serious questions.

  • What can you do better than your competitors?
  • How can you focus on your strengths and use them to your advantage?
  • What is slowing you down and how can you remove it?
  • How can you connect with your customers on a more personal level?
  • What is something no one else before you have done in this field?
  • How can you use your passions and talents to get the best product out there?

Answer these honestly. Think out of the box. Brainstorm ideas on how to make your clients happy.

5. Not hiring a great team.

After you’ve set up a company, dealt with the legal stuff, put systems in place, defined your target audience, done market research, described your products/services and have a sales funnel, it’s time for every entrepreneur to get some help.

Delegation is the art of allowing other people to do what they are good at so you can stop completing repetitive and unimportant tasks, and instead focus on what you do best - networking, growing the business, finding leads, taking big decisions, and more.

It all begins by learning how to let other people do some of the work. Hire one person first. It could be for a one-time project. Another skill you’ll need to build is the ability to monitor and train them so that you can let them do their job and not worry about potential mistakes.

Some of the most successful people in business advise that you should take your time when hiring. It’s a serious process that requires a clear mind and your whole attention. Getting the wrong person on board might be the reason why your business fails.

The next step is to form a whole team and manage them effectively. That takes some leadership qualities, honest communication, and good work ethic.

It’s also a challenge to keep these people in your company once you find them. If they share your vision, you’ll see the business grow much faster. So nurture these relationships, reward your employees, talk to them often, invite them to be part of every meeting and hear what they have to say, invest in team-building activities.

23% of businesses fail because of the wrong team. Don’t be one of them.


Thanks to the digital era, low barriers to entry most niches, and the chance to connect with customers from all over the world for free, we live in the best possible times to start a business and allow it to grow, provide value and make an impact. Just make sure you watch out for these 5 factors so you don’t become one of those companies that fail solely because the founder overlooked one of the key aspects of building a business. 
Which of the 5 top reasons why businesses fail scares you the most and why? What can you do today to make sure that doesn’t happen to your company?

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Any facts, figures or references stated here are made by the author & don't reflect the endorsement of iU at all times unless otherwise drafted by official staff at iU. This article was first published here on 24th April 2018.

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