Businesses fail for a variety of reasons. Learn the top three causes and how to avoid them.
The 10 reasons why small businesses fail and how to avoid them is a blog post that discusses the 10 most common causes of business failures.
This post is part of our “Business Startup Guide” – a collection of our articles that will help you get up and running quickly!
When I arrived at our building at 7:00 a.m. on Thursday, I observed some odd activity at the restaurant on the first level. Locks were being changed and doors were being secured by locksmiths. It was an unusual time for maintenance to be performed, but I didn’t think much of it.
Later that day, when I went out to lunch, I saw the vegetable delivery outside the dark restaurant’s closed doors. There were no lights on, and the open kitchen in the rear was dark, even though the tables were set with their tablecloths and wine glasses from the previous evening’s end of service.
Something wasn’t quite right.
As I walked out of the office that evening, a letter was posted to the door that said, “Closed till further notice.” The evening’s wait staff gathered in the entrance, clearly startled by the sudden closure, grumbling about the restaurant management’s lack of business sense and asking whether they would be compensated for the previous week’s labor.
While it’s always surprising to see a company shut so quickly—tables set for customers who won’t show up, kitchen prepped for food that won’t be served—this specific firm’s closure wasn’t entirely unexpected.
My colleagues and I had been wondering how long this business would remain open for the last year. We saw the restaurant being almost empty during lunchtime, and noted that after the initial buzz had died down, just a few customers showed up for supper. While we never want to see a business fail (after all, our company is based on assisting entrepreneurs in their pursuit of success and development), seeing it unfold in front of our eyes reminded us of some important lessons that all companies can benefit from. Lessons that may help you not only prevent failure, but also lay the groundwork for a thriving and expanding company.
But, before I get into these crucial lessons, it’s essential to realize that every company success is founded on three fundamental principles:
- Your target market is dealing with a particular issue.
- Your company offers a solution to this issue.
- You have a well-defined target market that is large enough to sustain your company.
This restaurant did not collapse because one of these key foundations of economic success was missing. All of them were present. Here’s what I saw as an observer from the outside:
- Problem: In our town, there aren’t many options for a decent business lunch or a great supper.
- Solution: A fairly expensive restaurant offering business lunches and exquisite evenings with distinctive farm-to-table food prepared by a skilled chef.
- Within a 3-block radius, there is a vibrant business sector and a gourmet populace ready to spend big-city money on a nice dinner.
While I am not a restaurant expert, this establishment seemed to have all of the elements for success from the outside. I was thrilled for it to debut, and I’d heard from a lot of individuals who were looking for a newcomer to compete with the main option, a pricey French restaurant.
Despite possessing all of the necessary elements for success, this eatery failed. Here are the lessons that might have saved this company and can assist others in their quest for success:
1. Get to know your consumers.
Your clients don’t have to be your closest friends, but you should like having them in your establishment. Customers are, after all, the lifeblood of your company. You should have a good time watching them come in.
It’s obvious how you care for your consumers. Customers will feel good if you are pleased to meet them and welcome them. They will feel as though they have returned home to a familiar environment and will be more at ease. A pleased, at-home client, in my totally unscientific opinion, will spend more.
Your most devoted clients should be treated with extra care. They don’t need free food or beverages, but it’s always good. Often, just knowing clients’ names and welcoming them as if they were old friends is sufficient.
Our failing eatery made no friends among its patrons. Because our offices are in the same building, we had to eat there many times. Despite the fact that we were in the same (small) building and were regulars, we were never acknowledged. We stopped coming because we didn’t feel welcome.
2. Pay attention to your consumers.
You have a tremendous asset when you have clients who are “friends”: a group of individuals who are ready to tell you what is working and what isn’t. Most casual customers won’t tell you the whole truth; instead, they’ll complain as they go back to their vehicles. Customers who can provide feedback and suggestions for development, on the other hand, are very important.
It’s important to pay attention to what people are saying about your company (and your competitors) on social media and review sites, in addition to having pleasant customers. It’s remarkable how many companies either don’t listen to what’s being said about them or, if they do, don’t react.
The beauty of today’s social media is that it’s a two-way street. Customers may post reviews and criticize companies in open forums, but company owners can respond and attempt to address problems.
Our closed business had a Yelp page full of ideas for improvement as well as in-person recommendations from consumers. Those Yelp reviews, however, remained unaddressed, and recommendations for menu modifications were disregarded.
Even if the comments are negative of the firm, a business owner who is open to criticism may use them as a source of fresh ideas and methods to improve the company. That brings us to the third lesson…
3. When things aren’t functioning, change and adapt.
Listen to your consumers and be ready to modify and adapt if things aren’t going well. This is difficult medication for most entrepreneurs who have a vision for their company and how it will develop in the future. However, the capacity to let go of or alter that vision is critical for long-term success.
If consumers don’t want what you have, you’ll have to find out what they do want and need, and then cater to those requirements. It’s nearly always feasible to adjust and adapt to your present circumstances without losing sight of your company’s long-term goals.
Unfortunately, our failing restaurant was adamant about not changing. Despite mixed evaluations citing uneven and unwelcoming service, no significant adjustments to the front-of-house personnel have been implemented. Despite criticism that the lunch meal wasn’t appealing to the local business community, the menu remained mostly unchanged.
Meanwhile, across the street, a new gastropub made significant changes to its menu and abandoned its high-tech (but faulty) dynamic beer pricing, and has since seen steady success. (Yes, this bar featured demand-based beer prices that changed on digital displays on a regular basis.) It’s an intriguing idea, but it’ll have to wait for another blog article.)
4. Don’t spend money on anything that your consumers are unlikely to notice or care about.
I’ll never advocate for scrimping on things that important to consumers, but I see companies become sidetracked by things that aren’t central to the solution they’re delivering to their target market far too frequently.
Thousands of dollars were spent on custom-made, imported light fixtures in this instance. While the lights are nice, this entrepreneur has lost sight of the fundamental solution he was attempting to provide: excellent cuisine in a pleasant environment. The lights were not only a nuisance, but they were also a waste of money. Customers do not return to a restaurant because of excellent lighting. They return because the meal is delicious.
The important takeaway here is to stay focused on the issue you’re addressing and the solution you’re offering. As you get started, ask yourself, “Is this item essential to delivering the solution I’m offering?” as you learn from your consumers and adjust your company to feedback. I believe you’ll find that the answer is no most of the time.
It’s always terrible to watch a business collapse. But, if we can at least learn from our mistakes and share what we’ve learned, maybe more companies will survive and flourish in the future. I’d love to hear about any additional ideas you have for helping companies thrive in the comments.
One of the most common mistakes in business is not understanding the value of a location. The poor location business failure examples are a few businesses that failed due to poor locations.
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Frequently Asked Questions
Why does business fail give one reason?
Businesses fail for a variety of reasons. Most often, businesses fail due to poor management or lack of innovation.
How can a business protect from failure?
Businesses can protect themselves from failure by maintaining a good reputation and staying in touch with their customers.
What makes a business successful and unsuccessful?
A business is successful when it has a high profit margin. This is because the more money that can be made, the more money that can be spent on advertising and marketing.
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