[WSJ] The Top 10 Reasons New Businesses Fail

E-commerce Business Management
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https://www.wsj.com/business/entrepreneurship/business-failure-reasons-top-10-0762e18b?st=rZWZnP&reflink=desktopwebshare_permalink

The Top 10 Reasons New Businesses Fail

Entrepreneurs face many challenges, and common missteps can send a small company into a tailspin

BY ANDREW BLACKMAN

Everything seemed to be going right for Dan Moyer. During the pandemic, he decided to launch a business with a friend— creating frames for displaying comic collections. What began as a passion project turned into a thriving enterprise. His company, Crafti Comics, was shipping thousands of frames worldwide, and revenue was flowing.

But the good times didn’t last. Even though sales were soaring, costs were growing too, as Moyer sank money into machinery to meet customer demand for different sizes and styles of frame. The business failed to turn a profit, and tensions mounted between Moyer and his business partner.

Things finally came to an end this March, as Moyer shipped his final orders and closed the business. “We expanded too quickly,” he says. “Instead of doubling down on our core products and customer experience, we tried to appease too many people with too many variations.”

Growing too fast is just one of many mistakes that can sink a small business. Entrepreneurs face many challenges and make a lot of common missteps that can send a company into a tailspin, experts say. And small operations don’t have the same capital reserves as big companies to ride out rough times.

Small wonder that only half of new businesses survive two years, and only a third last five years, according to research by Robert Fairlie, distinguished professor of public policy and economics at UCLA.

With that in mind, we asked experts for the biggest reasons that small companies fail. Here is a subjective ranking of their top 10, from least to most important.

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Many apply to older businesses too.

Although I usually question the opinions of experts, these experts seem right on the mark for most of their points.

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Quotes from the WSJ article.

“When the business is struggling, it becomes much more difficult to make a clear decision to close because it’s not just losing the business—it’s also sort of losing part of who you are,”

Agree, I find this particularly in men, including myself. I consider myself as one with no emotion only business. However, I have always absorbed what I do whether it is avocations or a vocation to become part of me.

It becomes part of my soul, part of my being the lens I look through, the man I am.

Inability to Pivot
“The ones that weren’t flexible or stuck by their current offerings even though they weren’t the most convenient solution for the job that needed to get done, well, their customers went somewhere else,”

This is one thing that has saved us over the years, thirty six years now. As technology and markets change we needed to change. We started in making slides from computer files. We went through four or more different shifts in those decades. Though we ended up with a mix of eCommerce and local customers we theme on site. We are now in the middle of our biggest one ever.

I remember they all were hard, just not sure if they were as hard as this pivot.

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That depends a lot on who you are and what you stand to lose.

I have pulled the plug on two businesses over the years, and did it early compared to what my peers did, I got to keep rather than risk the money I had previously made.

I have never doubted my worth and was able to retain my sense of self worth, even when it was evident that the market and the world had moved on in way that did not bring my companies along.

For many years, I had to respond to friends and relatives who asked why I was not invested in the stock market. My stock response was that I could get far better returns investing in my own businesses, and it was absolutely true.

In the tax returns of the last year of each of my businesses, I showed a profit. I would not have if I continued. I could get a better return on my capital as an investor. Knowing that made accepting the closing a strength, and I have never looked back with regret,

As for pivoting, there comes a point at which a new venture is required, because the there is nothing salvageable from the existing business other than cash.

There is more to life than business, and life is capable of making things harder than markets and competition can.

Sometimes trimming one’s business goals and efforts is the right thing for one’s life.

You will make the right decisions, even if you don’t realize you have immediately.

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Absolutely true.
I think the article left out a key component and that is - Always have an exit strategy.

I have sold two business’ that have gone on to be more successful after I sold them, because the people that bought them had a different vision of how to grow and be profitable in a niche business. I made money, they went on to make money, and they very much enjoyed being able to skip the baby steps at the beginning.
Like you, I closed one knowing the world was shifting around the industry, and the writing was on the walls. I can see how for others, there can be a sense of identity tied into selling something they built. I have never had that feeling, as I look at a company as an asset more than a relationship.

Always have a plan to sell, or liquidate. I would go one step further and even say a business owner should have a plan in place for succession should they pass away suddenly. A friend in the tractor industry died suddenly in a motorcycle accident, and his spouse had no clue what kind of business he had, let alone knowledge of inventory, customers, etc. For all she knew, she inherited a car wash from Walter White. He clearly should have taken a minute and cracked open the books or left a plan.

Yup. Nailed it.

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