Why Do Businesses Fail?

Even though you may have been in business for years, there are some little known facts about succeeding and failing in business that you need to know.

Success rate; this fact will amaze you: only 6.1% of small businesses fail to make it through the first year.

Despite all the myths and horror stories to the contrary, this small percentage means that most businesses survive the first year. They actually operate quite well for the most part and go on to last approximately three years.

It is the next three years that begin to separate the true successes from the failures. These next three years, from the third to the sixth, are where businesses run into rough terrain and failure can become a reality. If a business makes it to the ripe old age of ten, it falls into an elite group which is composed of only one in 25 businesses.

What are the basic reasons which cause so many businesses to falter, fail and close their doors? The answer to this question may surprise you… the essential blame for this failure can be placed squarely on the shoulders of the business owner; YOU!

That’s right, over ninety percent of small businesses fail because of the business owner or CEO!

Ninety percent! You might think that such a large percentage must be caused by a complex range of factors that are far beyond your control such as international competition, or industry slumps, and that they combine to unavoidably spell doom and destruction for business owners; but it is not. In all the years I have been in the business of helping businesses to become profitable, I have found this statistic to be true 98% of the time.

The primary reason for this rate of failure is that 90% of small business owner’s, or CEO’s, simply lack the necessary skills and knowledge to succeed.

In fact, a whopping 70% of failures are due to the owner not recognizing or even ignoring weaknesses in the business. This is further exacerbated by not seeking help and not taking action when new information becomes available about how things can be fixed.

The sad truth is that only five percent of business owners will even recognize that they have any issues and ask for help. That’s correct… only five out of every one hundred business owners will:
• Realize they have a problem in their business.
• Seek guidance on how to solve their problem.
• Implement the solution.

Failure to Criticize Means Failure to Thrive

According to one of the greatest students of human nature of all time, Dale Carnegie, “…I personally had to blunder through this old world for a third of a century before it even began to dawn upon me that ninety-nine times out of a hundred, people don’t criticize themselves for anything, no matter how wrong it may be.”

This means that often the minuses that you have previously attributed to your business are, on closer inspection, more likely to be problems arising with you as the owner or CEO. In addition, as the business owner, you remain your business’s biggest potential problem.

Armed with this knowledge, you can begin to look for help but not through books, courses and programs that are aimed only at improving your business. These business improvement systems do not target the 90% statistical root of the problem, the business owner. Again, no one wants to admit that they are the cause of the problem, but until you do, or at least until you admit that you are potentially the source of future problems in your business, nothing will change.

Let me share with you a personal experience.

Recently I was sitting with a client who is a mortgage broker. This client was complaining about the amount of paperwork that they had to process before they could even begin visiting and assisting clients. The banks and aggregators “require” an ever increasing amount of paperwork and compliance documentation. My analysis immediately suggested a solution which focused on outsourcing these low-value tasks. As we worked through the steps required to process the papers – it became apparent to the broker that this was indeed mundane work and could easily be outsourced. Over the next two weeks, my client developed a description of the low-value tasks and offloaded it to an offshore outsourcing company. What used to take my client 3 hours each day is now accomplished, summarised and e-mailed to him. The net result is that my client can now concentrate on real paying clients, and there is a massive reduction in frustration, which has resulted in a much happier broker.

So did the broker know what needed to be done? Maybe – but it wasn’t until I spoke to him about the possibilities that it became apparent.

So, what accounts for this statistic? What happens in a business that is different after the first three years and why is it the owner’s fault? The answer is simple, it lies in the natural progression and growth of a business.

“Murray Priestley has 25 years of commercial and asset management experience having served in board, CEO and senior executive positions with a number of global public and private companies.”