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- 5 min read

Four Reasons Why Businesses Fail

Written By: Mo Elhammady @the_business_lounge_ @moelhammdy

Running a business is very risky. As a matter of fact, it’s estimated that roughly 49% of businesses fail within their first five years and approximately 30% of those don’t even make it through the first two years. Certain industries are particularly risky and have even higher failure rates. Take restaurants for example, about 61% of independent restaurants don’t make it through their first three years. Another statistic you might find surprising is the failure rate for technology startups; almost three times higher than that of all other businesses.

Now I know these statistics don’t sound encouraging to new entrepreneurs, but I truly believe chance plays a small role in the fate of a business. There are countless reasons why a business might fail, but generally speaking, there are four fundamental reasons why this happens to them.

· 42% of businesses have no market for their product or service.

· 14% of businesses ignore their customers.

· 23% of businesses don’t have the right team in place.

· 29% of businesses run out of cash in their first year of operating.

Let’s dive into each reason with a little more detail and see what you can do to avoid these very serious pitfalls.

THERE IS NO MARKET FOR THEIR PRODUCT OR SERVICE

When you build a product or service that’s exactly aligned with what your target customers’ need and want, you have what’s called product/market fit. If you have a product or service that’s wanted in your target market, all you have left to do is figure out the best way to present it to them, and how to retain them once they’re customers. However, if you don’t have a product/market fit, and you develop a product or service that nobody wants, your business will ultimately fail.

As you can see in the Venn Diagram below, you need the market opportunity (a hole or gap in the market), a service or product you can build, and the demand for it.

Photo: www.startupdevkit.com

Otherwise, why start if you don’t meet these requirements? It makes no sense. We all have ideas about different things in life, but that doesn’t necessarily mean we have to act on them.

Instead of building a startup based on an idea without knowing whether it’s good or not, you should go through the following process of idea validation: