The five pitfalls of business failure and what to do about it

The Five pitfalls of business failure and what to do about it.

The Small Business Administration tells us that two thirds of new businesses survive at least two years and almost 45% survive at least four years. A few years ago, when I did some work for Kent State University out of Detroit, the figures we used were 50 per cent fail within two years and hear this, 95 percent fail within five years. I think we have come a long way, although since we are now going through difficult economic times, more businesses are failing. Some are thriving, which tells us that if you look for the right opportunity, it doesn’t matter what the economy is doing.

If someone opens a business, it is because they strongly believe that they are going to be successful. If this is the case, why do so many businesses fail? I am certain that there are many reasons but I will only look at five important ones in this article.

People sometimes start new businesses for the wrong reasons. It is very common for you to ask someone why he or she started a business and the answer might be “to make a lot of money. Other reasons given are to be independent, to not have a boss, to do what you want to do etc. These are not good reasons to start a business. How about starting a business because you have a passion for what you will be doing. You have identified a real need in the marketplace that you can meet and meet it well. You are persistent and have lots of discipline, two essential characteristics that if you lack, it is impossible to succeed. You keep your promises and you care for your client’s welfare.

Poor Management. This might be the number one reason people fail in business. New business owners usually know how to do the task that they will be doing in the business rather well. They are good hair stylists, or good cooks or good salespeople but they lack essential business and management expertise in areas such as finance, inventory control, production, purchasing, hiring and many others. If you don’t have expertise in these areas, you either have to acquire it before you open the business or you have to hire the right people to help you. You need a good business and marketing plan. If you need to borrow money, no banker will give you money unless you have a good business plan. The banker wants to make sure he or she will be repaid and your business plan must prove that you will be able to do so.


Not enough capital. This is almost always a fatal mistake. Business owners often underestimate how much money they will need in order to be successful in the business. I made that mistake myself years ago when I opened the Better You Center, a center to help people lose weight and stop smoking and on my opening day I didn’t have any more money. All my money was spent in getting the place ready to open. Luckily I was able to sell it right away.

Location, location, location. In the case of restaurants, retail stores, businesses that need to be found by clients, location is very important. If your business can be done electronically or through the internet, location is irrelevant.


Not having a web site, having a lousy web site or having a web site that no one can find. If you have a business today, you need a good web site that can be found by your prospects where ever they are. In the U.S alone, a very large per cent of the population uses the internet and sales have surpassed billions and billions of dollars. In Puerto Rico, there is also high internet usage and is growing very rapidly. I am convinced that every business should have the ability to sell through its web site. People must be able to find your site, navigate through it easily and then go to a shopping cart in order to make the purchase. A couple of years ago, you needed to have a merchant account and it was sort of complicated to set the whole thing up. Now a day, you can use a service called Pay Pal and everything is taken care of for you. They simply charge you a per transaction fee. Go to www.paypal.com and take a look.

Now, let me share with you a secret. In one of my seminars I asked the attendees: What is the most important factor for a business to be successful?

I got lots of answers to the questions, all of them wrong. Some said a great idea, a good location, a good product, good employees, a good marketing campaign, a good advertising campaign, good prices, etc. etc. etc.

Although these are important factors, no one mentioned the most important factor. And that is: CLIENTS. And you, the business owner, are responsible to find them, sell them and keep them.