Why Do Businesses Fail?

“It’s fine to celebrate success but it is more important to heed the lessons of failure.” – Bill Gates

We all know that making mistakes can be a hugely positive learning experience, so what about business failures? Blogs, books, and podcasts are full recipes on how to succeed but largely silent about how to cope with failure. Why is it taboo to talk about failures in the context of business and leadership? Understanding and learning why business fail can give us greater insight into how to successfully manage and grow our organizations.

So why do business fail?

Is it a lack of leadership or bad management? No competitive differentiation? Shrinking or declining industry? Cash flow problems? Lack of business acumen or financial skills? Lack of planning? In my opinion, business fail for two reasons; it’s either a people problem or a lack of focus. Our 2011 our company was a on the brink of failure because of those exact two reasons.

People Problem (Culture)

The people of your organization, their habits, and values collectively make up the culture, good or bad. Without a strong culture, change initiatives will fail, there will be limited interaction and collaboration between employees and departments, no progress will be made on critical business initiatives, there will be high levels of inconsistency and ambiguity, and there will be a sharp decline in levels of service resulting in a loss of customers. If you don’t have the right people or culture in place, your business will not succeed.

Lack of Focus

The second reason I think business fail is a lack of focus on the core business. As businesses grow and become more successful they often tend to diversify away from their core business. This results in lack of clarity, over-commitment, and improper allocation of business resources. Businesses decide to focus growth on the weaker areas of the business, mistaking them for areas of opportunity, and the core business suffers as a result.

In your experience or opinion, why do business fail?