Failed tree - Why businesses fail

Why do companies fail

Reasons for businesses to fail

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What can kill your business

The reasons why companies fail are very different. Statistically most startups fail and most companies don’t make it to year 5. Although we may dispute whether all businesses really fail or some of them just fall out of love with what they were doing or have more attractive options, the hard facts are that they close in big numbers. How to stay in business and what pitfalls to avoid? Here are a few most common issues and some tips how to deal with them. 

Why companies fail 

1. Negative cash flow

Many startups fail because they run out of money before they start making enough money to thrive. You need to keep an eye on the cash flow all the time and act quickly if things get tight. 

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2. Not having a winning team

One of the reasons why businesses fail is lack of the right people in the team. Your business success depends on the people around you. Not building a winning team can ruin your efforts, cost you a lot of money and be a real roadblock. That’s why focusing on recruiting the right people to your team is crucial. 

3. Expensive or ineffective way of attracting customers

Sometimes too long conversion time can kill the business. If the time from marketing spent to the moment when customers pay is too long, you will run out of cash. It’s also very important to know how much it costs you to acquire customers and see if your marketing cost is justifiable. 

4. Not enough paying customers

You may generate a lot of interest in your product, but not enough customers are ready to pay for it. The source of this problem may be offering too much for free or not having an offer attractive enough for the customers to buy.

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5. Lack of systems and metrics

You can’t scale up a business without systems. Without systems and metrics you won’t be able to identify problems and hold people accountable. What follows this, is that when you’re unable to evaluate, management becomes ineffective and delivery is inconsistent.

6. Lack of need

Product – market fit or its lack is what determines how well the business will do. Many business start off believing they have a great product but in reality there aren’t enough people who need it. 

Summary

The above mentioned are just a few most common issues causing business failure and the list is much longer.In most cases of failed companies there were more than just one reasons for running into difficulties. I hope that being aware of the reasons why companies fail will help you to avoid some mistakes. 

If you have any comments or want to share with others what you think entrepreneurs should watch out for, do leave a comment. 

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