Why Do Small Businesses Fail?

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“Surviving the messy middle”

Half of new small businesses fail sometime during their first 5 years.

Some statisticians put the number a little higher, and some maybe lower, but 50% seems to be a pretty common result.

If a business survives its first 5 years, it’s way more likely to survive the next 5 years after that.

I had lunch today with a good friend who is just entering the third year of his business. He’s in that vulnerable spot we might call “the messy middle.”

The business makes enough to survive, but not enough to thrive. The “new car smell” has worn off, and the business has legs to stand on, but it’s hard. It’s a grind.

It’s one bad mistake from disaster and one good break from a rocket ship.

My buddy is a fighter, and I know he’s going to make it.

Today’s conversation brought back memories from my early days as an entrepreneur.

I thought about the print error I made in 2009 that nearly sunk my business. I remembered being forced to lay off my two employees and go into a spending freeze just to survive.

It wasn’t fun.

As an empathetic peacekeeper (enneagram 9 for those who care) it was like kicking me in the gut to have those conversations.

But I did it, and I made it.

Although my business has twisted and turned over the past 12 years, I’ve come through the messy middle. I’ve beat the worst statistics.

I can’t claim that I have it all figured out or that I even know what I was doing in the first few years of my business.

Honestly there are still days I feel like I don’t know what I’m doing. 

But, looking back on my experience, I can identify a few reasons why small businesses fail. Hopefully these simple observations can help someone survive the messy middle of the solopreneur and entrepreneur journey.

Small businesses fail because they don’t play the long game.

As a small business owner, it’s easy to fall into the trap of wanting too much too soon.

You’re bombarded by the apparent success of others pushing their highlight reels on social media.

You slog through the grind, disappointed that you can’t seem to get ahead.

So you take shortcuts.

You lose focus on the long game and sacrifice the future on the altar of the present.

Decisions are made that serve yourself over the customer. In your quest for more now, you settle for less later.

Entrepreneurs that survive the messy middle find a way to stay focused on the long term principles that got them to where they are.

They trust those same principles to take them where they want to go. 

Small businesses fail because they’re reckless with debt.

I’m always impressed when I hear of a business that bootstraps it.

They avoid debt and just grow slow and steady.

In a business landscape crowded with venture capitalists and eager lenders, this seems to be more rare.

However, a business that avoids debt increases its odds of success exponentially.

In 2008, I had some business mentors loan me $10,000 to start my graphic design company. This was an older couple that simply believed in me and took a chance on my character.

It was a handshake loan with loose terms, and my friends assumed all the risk. A couple years later, I took out a business loan and was able to pay them back.

Their generosity helped me get on my feet and find my wings. They weren’t looking to make money from me, they just wanted to help and to experience the joy of investing in a success story.

I’m forever grateful.

Not everyone has this opportunity, and the temptation to start floating growth on credit cards and loans is real.

Fight this urge!

Do all you can to fund your business with sales. Every time you say “no” to debt, you’re voting “yes” for success. Make debt your last resort!

Small businesses fail because their owners operate in a bubble.

Owning a small business can get really lonely.

If you’re a one-man band it can get downright scary.

You start having conversations with yourself. Your head is down in the business and you start operating in a vacuum.

Decisions are made only based on your personal perspective and you start missing obvious things.

If you let your mind wander far enough and long enough, you can convince yourself of almost anything.

In those vulnerable moments, it’s possible to make hasty or uninformed moves that can damage or capsize your company. No man or woman is an island. We all need peers and mentors to be a sounding board for us.

There’s an old Bible proverb that says “in the multitude of counselors there is safety.”

Don’t make big decisions in the bubble! Get feedback. Allow others who aren’t in your bubble to speak into it.

You’ll be amazed sometimes at the alternate perspectives they provide.

CONCLUSION:

There are other reasons why small businesses fail, but most can be traced back to one of these three that I’ve mentioned.

The truth is, sometimes you do everything right and the business still doesn’t make it. Other times you might be guilty of all three of these and still pull through.

These aren’t bulletproof guarantees, but as a new business fighting the odds, you need all the help you can get!

Set yourself up for success by playing the long game, avoiding debt, and seeking input from peers and mentors.

You can make it through the messy middle!

What are some traps you’ve seen yourself or others fall into as small business owners! How did you learn from that? I’d love to know!

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