The 5 most frequent causes of business failure

causes of business failure

If we want to talk about success, it seems contradictory that we start talking about failure. However, the logical thing to do is to start there. It is as important to know what should be done as what should not be done. I am sure you know that famous statistic according to which 9 out of 10 companies have to close before their fifth year of life. I can tell you that, from personal experience, this statistic is totally true. The reasons? We will discuss the causes of business failure this in this article.

After several years of practicing as a business management professional, I have seen many cases of companies and organizations that failed and I have been able to analyze the causes that led to the project’s failure. Keep reading: How to start a car wash business in the city?

5 most frequent causes of business failure

causes of business failure

Almost all cases can be grouped within these five causes to a greater or lesser extent. You will agree with me that knowing the causes of failure will help you to avoid it as much as possible.


This is probably the biggest cause of failure in organizations. A project that focuses exclusively on the “here and now”, simply, has no future. Among other things, because by the time you come to realize that the market has changed, most of your competitors will already have more experience using the new principles and tools.

This culture of innovation should not be produced only in multinationals and large companies, in fact, the most surprising results occur in SMEs that adopt this reality in their strategic plans. In any case, it will be of little use to hire the services of an external consultancy service if you lack the disposition and conviction necessary to apply them. Remember that, ultimately, you are, to a large extent, responsible for the actions and results of your company.

causes of business failure


Most Marketing experts often complain that the budget contributed to their departments is always insufficient. It is also true that many of them are not able to understand the indispensable rules of investments and finances, so it is not surprising that, in many cases, marketing actions are ineffective.

On the other hand, we have very little involved companies with the Marketing philosophy that consider that investing part of their resources in brand actions are a waste of time and money, therefore their marketing budgets are always insufficient for the results that they want to get.

Either of the two actions is wrong. You must know how to find the intermediate point, and give the marketing budget the necessary resources to be able to achieve the objectives that you are asked for, demanding in return, an adequate return to continue maintaining those investments.

causes of business failure


In general, the structures of most businesses depend too much on the financing of others. Own financing should not, under any circumstances, be less than 40% of the total financial resources of any project. The opposite would be more typical of operations of a speculative nature than of a serious investment with a vision in the long term.

Similarly, many business owners literally “drown” the company in the first years of life. I usually recommend reinvesting the benefits, if any, for at least the first 5 years in order to capitalize the business enough. In any case, the most advisable thing is to invest in businesses with a margin of approximately 10 years, before starting to give back to the owners, if we want them to have the maximum chance of success.


causes of business failure

Many companies are unable to get the best professionals for their staff, mainly due to guidelines and personnel selection policies of the first half of the last century. A company that does not perceive its workers as its most valuable capital is in serious trouble. I find that most processes are done too quickly and moved by subjective criteria rather than by truly logical and scientific processes.

Similarly, planning and continuously improving aspects such as compensation plans, promotions system or other rewards that make our workers feel comfortable and comfortable within our organization will help you improve your results. Keep in mind that your objective as an entrepreneur or manager is above operational work or field work. A leader leads so that others can achieve with their work the objectives of the organization. Never forget it.


Many companies let their products and services stagnate, and over time they are overtaken by solutions proposed by more innovative companies. Even in traditional services, we find different and innovative business models and proposals. A serious problem is that our project seems “another of the same”.

causes of business failure

Think of Apple and the recently deceased Steve Jobs. There are many companies that manufacture technology, but Apple always seems to contribute “something more” to its customers. Do not be afraid to be different. Quite often, “different” companies become benchmarks in their sector. And, to achieve this, investment in R & D & I is completely necessary.

I am sure that, after reading this information, you realize the enormous importance of avoiding these five mistakes and, perhaps, you feel overwhelmed by the enormous amount of work that may be necessary to achieve optimal performance in each and every one of these aspects. Do not be scared, it is natural that you cannot be an expert in each and every one of the various fields that make up business management. For that, there are, among many other valid alternatives, consulting firms.

The most important thing for every businessman is to know the causes of business failure. We cannot pretend to be able to handle all the problems that would be too pretentious on our part. Therefore, I invite you to meet some professionals, and their added value offers, to assess the benefits they can bring to the management of your business. You may also like:

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