Why Small Businesses Fail

Why Small Businesses Fail

Why small businesses fail – The Truth

To explain why small business fail, experts often turn to two widely accepted reasons. One is insufficient capital to sustain the venture. The other is inadequate knowledge of the business and how to operate it. While those factors can contribute to failure, there is a much more basic cause that schools, agencies and advisors stubbornly refuse to acknowledge. And that cause is far more powerful and important than knowledge or capital. The age old saying of ‘where there is a will there is a way’ plays the most important role life’s accomplishments. Starting and succeeding as an entrepreneur is a perfect use of that phrase.

Capital is NOT the primary reason for small businesses failure

First, in terms of capital, a great number of entrepreneurs shoe-string new ventures. As the saying goes, there’s more than one way to skin a cat and entrepreneurship is no exception. Example: a food concept normally associated with an expensive brick-and-mortar location can be a food truck or cart, can it not? Don’t be afraid to start out small. In fact, limited capital can be a blessing, not an impediment to starting a business. Vast amounts of capital can lead to mistakes whereas a limited money supply forces one to be frugal. It also forces one to labor diligently over financial matters. In other words, being light on cash can force better decision making.

Starting with light funds

Let’s go back to our prospective entrepreneur with an interest in food, specifically making and selling sandwiches. At the same time let’s add some limitations; the kinds of limitations that could very easily stop a person from getting started. Our subject is married and works full time to support a family. They also carry some of the standard all-American debt, such as a home mortgage and car payment. In other words, our entrepreneur faces challenges that could interfere with and/or halt the idea of self employment all together.

So what is our subject going to do? The first thing is to figure out the bare bones necessities of making and selling sandwiches. Our subject needs basic equipment, but can find inexpensive equipment like cutting boards, knives and other utensils at home. Certainly the vendor needs a cart with refrigeration, but that doesn’t represent a lot of money. In fact, the vendor can lease or rent equipment as required. Supermarkets will provide breads, meats and cheeses until the owner arranges wholesale purchases. The sandwiches require a venue, but there are lots of festivals in every part of the country. And the fact that most festivals take place on weekends fits perfectly with our 9 to 5, five day a week worker.

Finances are generally NOT the end of the road for the committed entrepreneur. In fact, as mentioned above, low funds are often a blessing considering the fundamental need for self-employed people to be inventive. However, if a franchise is the goal, then it’s normally an all or nothing proposition. In franchising, one either makes the required investment or does not acquire franchise rights. To be clear though, acquire franchise rights to establish a unit is only the first step. One can still fail, and it happens often, in franchising.

An alternative to current thinking

After many years of study, observation and consulting, our response to lowering the high rate of small business failure is The Focus Program for Emerging Entrepreneurs. The Focus Program is a huge departure from current thinking but it represents the truth, and its time has come. The program is a process that helps entrepreneurs understand themselves relative to self-employment before considering business plans and launching into ownership.

Go to Part Two of ‘Why Small Businesses Fail’.