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Written by
Katy Ratican
7 Feb 2022
3 minutes

12 reasons why small business plans fail (that no one wants to talk about)

Here are some of the most common reasons why small business plans fail –some of which entrepreneurs will be too embarrassed to tell you
Reasons small business plans fail

Even with the best of intentions, a significant proportion of small business plans fail. This shouldn’t be discouraging news if you’re planning to start a business. What this means is that there is a lot you can learn from startups that fail.

But some entrepreneurs won’t tell you honestly why their small business plans failed. Maybe they’re embarrassed about it, or maybe they simply don’t know. So, here’s a list of twelve reasons that explain why startups usually fail.

12 reasons why small business plans fail

1. No concrete plan

Why should you learn to write a sound small business plan? Well, without one, things will never be sustainable. You won’t know how much it will cost to start a business, its expected expenses, revenue, price etc. This means you won’t be able to properly plan your operations.

2. Bad business idea

No one wants to be told that their ideas are bad or more precisely, unviable. This is one of the most common reasons why small business plans fail to take off. The solution is to do your research, find viability for your product or service, talk to your prospective customers, and get as much feedback as possible.

3. Lack of differentiation

“I really believe in it” isn’t a convincing strategy. Your product or service needs to be different from the available options. Even the best marketing tactics can’t save a product or service that doesn’t stand apart from its competitors.

4. Not enough capital

Most small businesses underestimate how much money they will need for their operations. This leads to a severe capital crunch early on, which will discourage employees and dissuade investors from considering you. Not enough capital means not enough innovation and not enough talent. That’s when growth becomes impossible.

5. Poor leadership

Some startups are so dependent on their founders that there is no room for different views or ideas. This egotistical management style stifles innovation and prevents employees from doing their jobs. Eventually, it will lead to an exodus of people and business associates.

6. No focus

Another reason why small business plans fail is that they focus on too many things. The founders get excited about several products or services, audience groups or marketing tactics. Spreading yourself too thin is a sure-fire way to fail. This leads to capital shortage and wasted efforts.

7. Low profitability

Finding paying consumers isn’t enough to make a business succeed. You should have consumers that pay you enough to cover your costs and make sustainable profits. But in their bid to acquire customers, some businesses ignore profitability. This can create a curious situation where the business has customers but can’t meet its overheads.

8. Not enough talent

One sad aspect of the startup world is the glamorisation of the ‘genius solopreneur’. But in reality, even the smartest of founders needs a talented team. Not just that, they need an initial team to stay with the firm for a long time. This calls for attractive compensation that usually includes considerable equity.

9. Unviable location

Location is a crucial factor for businesses that sell physical products or services and expect customers to walk in. If these stores, offices or service centres are in a location with low foot traffic, the business will run into problems. To attract customers, they will have to offer steep incentives which will reduce their revenue and profits.

10. Lack of flexibility

Your bestselling product may not be the one you started your business with. What will make you profitable might be a service you still haven’t thought about. Your most frequent customers may not have been on your initial list. Corporate consultants call it agility but here’s a simple and friendlier version: it’s the ability to spot new opportunities and challenges and change your tactics accordingly.

11. Poor customer service

When customers are happy with your service, they will repeat their business with you and refer you to friends and colleagues. When they are unhappy, they will stop buying from you. But more than that, they might leave a negative review about you online, which could cost you future customers and revenue.

12. Bad financial management

A great idea is meaningless if not backed by proper financial management. Entrepreneurs who don’t have reliable financial projections and market estimates will find it a challenge to plan and invest. This will make it difficult to pay vendors and employees and will eventually force the founder to shut down their business.

In short

With these reasons as a checklist, it will be easier to launch and manage your business. It will go a long way in ensuring that your small business plan succeeds in any competitive market.

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