5 Reasons Why Businesses Fail

by Jeremy Robinson
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reasons why businesses fail

My first business failed. It was not a failure to launch and find customers. In fact, the business existed for over 13 years and we worked with plenty of clients, including well-known brands. At our peak, we had 12 employees and generated revenues of over $1,000,000 a year.  But despite all that, we failed due to a number of avoidable mistakes.  Hopefully, you can learn from my experience and avoid these common reasons why businesses fail. 

You fail to leverage technological change

My first business was a digital marketing and web design agency, so you would think we would know something about disruption (We did – in theory).  However, we failed to build a strategy around any one of the technologies that we saw gaining traction in the marketplace. Had we done so, we could have ridden the wave created by growing user adoption, built credibility around specialized knowledge and designed repeatable processes.

Instead, we stayed “agnostic” and experienced price pressure from cheap new web and marketing automation platforms. Eventually, we tried to make the leap to enterprise level services, where we failed miserably due to a lack of credibility and experience.

You pick the wrong partner

My partner was a smart guy, and on paper the relationship looked great.  He was a former CTO who appreciated the value of branding and I was a branding guy who loved exploring the possibilities that technology offered. However, he came from an enterprise background where the job of working with technology was primarily abstract rather than hands on. We wasted a ton of time in meetings defining, discussing and over analyzing problems. Someone with less of an “executive” approach might have just rolled up their sleeves and gotten it fixed.

In addition, we had very very different personal styles that never really gelled in terms of the way we dealt with employees and clients. He is probably the right partner for somebody – just not for me.

You fail to find a clearly defined niche

We knew we needed to focus more on a niche audience, but we were terrified of turning away paying clients who would find us through a web search or referral. After all, we needed to keep the lights on and new work gave us time to sort out our long-term strategy.

Eventually, however, this became a downward spiral. In taking the work we “needed” to survive, we diluted our focus, which in turn made us feel like more of a commodity service desperate for every project we could get.

You put more emphasis on revenue than profits

My tendency was to look at our monthly overhead (mostly payroll) and figure out how much business we would need to cover it. This lead me to get caught up in the vanity of chasing ever larger engagements.  

In theory, these should be more profitable because there is efficiency in dealing with one client rather than several. However, larger projects also tend to be exponentially more complex and therefore difficult to accurately quote. Getting 4 times as much in fees for a project is a losing proposition if you are doing 8x as much work – which was too often the case.

You lose passion for the business

There was a time when I loved what I did and saw great potential for the business. However as the business strategy got reduced to “stay alive for another month”, it was hard to focus on any type of long-term vision. This quickly trickled down to the staff, who also lost their edge. As passion faded, problems increased and the willingness to solve them diminished. Clients began voicing their frustrations and I was starting to wonder why I bothered anymore. By the time I shut things down I felt more relief than sadness.

 

Conclusion

I hope that by better understanding some of the common reasons why businesses fail, you can take the appropriate actions in advance and avoid some of my mistakes.  On the other hand,  despite your best efforts, all business involves risk and failure is not the end of the road. In my case, it opened up new possibilities and has helped me learn invaluable lessons.

 

 

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6 comments

The Dream and the Reality of Entrepreneurship - Indie Brand Builder February 12, 2016 - 11:52 am

[…] My first company went bankrupt after over 13 years in business and achieving over $1,000,000 in annual revenue. It was an extremely stressful time in which I narrowly avoided personal bankruptcy.  It’s easy to say “I learned more from my failures than my successes” – and there is some truth to that – but it still sucks to feel like a failure and watch something you’ve invested so much in die. […]

Paola April 20, 2016 - 12:00 pm

That is great advice Jeremy. Honest and very insightful. Thank you for sharing. I was particularly reminded about the importance of revisiting strategy and always remaining clear on the vision – – which is so easy to depart from such as those large opportunities be that can masqueraded a profitable. Thanks again!

Jeremy April 20, 2016 - 5:55 pm

You’re welcome Paola, thanks for the feedback!

Jessica April 21, 2016 - 5:01 pm

Thanks for sharing your previous business experience and learnings. A great reminder of how important it is for any small business to stay focused on a clearly defined and profitable niche!

Jeremy April 21, 2016 - 5:09 pm

Your welcome Jessica and agreed! I would rank our failure to find a niche as the #1 reason we failed. We talked about it a lot – but never committed.

Isvar December 27, 2017 - 11:21 pm

Thanks for being ‘Real’. It takes something to put yourself and all yours on the line in running a business. Theoretical entrepreneurship in today’s world is worthless. You have earned your right to be a doyen of Brand Building . I will listen to you ( as always) because you earned your stripes.

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