10 Reasons Why 7 Out of 10 Businesses Fail Within 10 Years

There’s a fierce tide of potential for failure in business. Half of all businesses won’t make it to the five-year mark.

While startup life seems glamorous at best when it comes to dizzying valuations and unsustainable bubbles that help to prop up newly-formed businesses in the hottest sectors, the truth of the matter remains that 70 percent of all businesses with employees fail within 10 years. According to the Bureau of Labor Statistics, this has less to do with the economic climate, but numbers do vary according to different industries.

If you’re a business that has employees, this should give you reason for alarm. Business failure is a harsh reality. While 80 percent will make it past that first-year mark, the rate begins to drop off substantially each year thereafter. Only about two-thirds of all businesses with employees are able to survive their second year. The fifth year? Just half. Ten years out? Just 30 percent. That means that seven out of 10 businesses will fail within the 10-year mark.

However, as wild-eyed entrepreneurs looking to start a business, we don’t think that way. We don’t want to group ourselves in some category. That doesn’t help, does it? Yet, ignoring that proverbial 800-pound gorilla in the room won’t make it go away. Now, there are some specific reasons why these businesses are failing. There are certain things that they seem to overlook, ignore or push aside to the wayside, helping them to become just another statistic.

If you don’t want this to apply to your business, there are some steps you need to take to avoid failure. Clearly, you won’t fail unless you entirely give up. At the end of the day, it won’t really matter how many times you fail (Henry Ford’s first two automotive efforts went bust) if you hit it out of the park just one time. That’s all. You could fail 20 times and reincarnate your business 21 times. If on the 21st time you make it, you didn’t actually fail because you didn’t give up.

Rather than brood theoretically here, let’s look at the steps you need to take to avoid failure. If you don’t want to be labeled as just another statistic, there are some ways to combat this. Most of that has to do with just how much you sweat the so-called small stuff. If you fail to pay homage to certain principles of success, and you don’t put your customers first, the potential for failure skyrockets.

Why do most businesses fail?

If you’re an entrepreneur who’s knee-deep in the trenches battling it out, or you’re simply someone looking to enter the startup fray, then the looming prospect of failure is ever-present and always there to catch you when you’re slipping. With so much demanding our time as business owners, it’s easy to be caught off guard. If you’re not prepared for those often-occurring trials and tribulations, you could easily find yourself on the streets of failure.

Now, if you’re looking to avoid business failure, there are definitely some things you should being doing, and other things that you shouldn’t be doing. Take heed of these 10 recurring reasons for why most businesses fail, and do your best to ensure that you address these before they address you. Some might be easy to overlook. Others are usually rather obvious. Regardless of your situation, find a good mentor who can help you navigate the stormy waters of any business in the current climate.

No. It’s not easy by any measure to build a substantial business. If it were, everyone would be doing it. But wouldn’t you prefer to spend a few years of your life like most people won’t to enjoy the rest of your life like most people can’t? Sure you would. Focus on the long term. Do your best today while keeping your eye on the proverbial prize.

1. Failure to deliver real value.

At the heart of any business is value. The world’s most successful businesses deliver the most value. Plain and simple. Find a way that you can under-promise but over-deliver. Always over-deliver. No matter what the situation. If you’re looking for a fast buck or to get rich quick, you’ll quickly find yourself at a dead end. Instead, focus on the real value proposition. If you’re not adding as much (if not more) value as your competitors, then you need to rethink your approach.

Why add value? For starters, it creates buzz. Just think about it. You receive a service that simply blows your mind. Don’t you want to tell all your friends about it? And if you didn’t have to pay an arm and a leg for it, you’re definitely going to be singing that company’s praises from the mountain tops. Why? Because, then you become the value-deliverer. Again, it’s all about value. It might cost you more at the outset, but it will pay off in spades.

2. Failure to connect with the target audience.

If you can’t connect with your target audience, your business will fail. An inability to connect with your demographic means that not only are you unaware of your potential consumer’s wants and needs, but you’re also oblivious to how you can best help them. What do they want? Not just what they need. But who are they and what do they really want? Is it to invoke a certain emotion? To attain a certain status? How is your product or service going to help them solve their problems?

Really and truly, if you’re not addressing the consumer’s pain points, you probably don’t understand the consumer very much. And if that’s the case, then you have no business selling until you do really do understand them. Use focus groups, market surveys, email ask-campaigns, or straight-up phone calls, to understand and connect with your target audience better. Discover who they are right down to the most minute detail. That’s one way you’ll avoid business failure.

3. Failure to optimize conversions.

Most entrepreneurs have so much that they need to deal with that they forget to address the absolute heart of any business. Without optimizing conversions, no matter what a business does, especially if it raises money and has a high burn rate, it’ll be futile trying to survive when the money runs dry. Address the conversions early on to ensure that there’s a positive ROI on any ad spends. Then you know you have a sustainable business.

You can’t solely rely on organic traffic methods like search engine optimization. Without conversion optimization, any business is wasting their time. Even long-shot unicorns need to focus on income-producing, conversion-optimizing activities, even while building up a customer base. Without it, it’s merely a matter of time until the money runs out and executives are scrambling to keep the doors open.

4. Failure to create an effective sales funnel.

Building an effective sales funnel should be one of the primary goals of any founder. These automated selling machines help to reduce friction in making the sale and help to put many of the functions of running a business on autopilot, allowing founders to grow things like traffic sources or to educate consumes through webinars and so on. Sales funnels also help to build a relationship with the consumer through email warming campaigns.

The truth is that it’s hard to sell anything to straight cold traffic. Sure you can. You’ll definitely need some pre-existing proof and customer testimonials to do it. But bigger brands that have been around and are trusted will achieve that much easier than newcomers will. The sales funnel will create that relationship with the consumer, relate your story and journey, while also pitching the product or service. It’s more of a soft-sell that’s veiled in real value-added prose. That’s where the magic happens.

5. Lack of authenticity and transparency.

Businesses that lack authenticity and transparency will fail. Maybe not today or tomorrow, but one day soon. Without the customer’s needs in sight, and a focus on the wrong things, businesses could easily lose the consumer’s trust. Rather than risk that from happening, focus on being authentic, transparent, and finding ways that you can give more rather than take. It’s a rare commodity in business, but one necessary if it’s going to survive for the long term.

6. Unable to compete against market leaders.

Staying afloat is exponentially harder when competition is fierce and smaller businesses have a bulls eye on their backs, especially true in lucrative markets where the stakes are high. If smaller businesses can’t compete against their larger counterparts, they need to find ways to pivot and stay in business. To do that takes a keen business sense and true guts.

7. Inability to control expenses.

It’s easy to spend when the coffers are full. But having an acute sense to control the company’s expenses is imperative. Much of this comes back to the founder’s personal money habits. Are they millionaire habits? Or are they detrimental? When the expenses spiral out of control, or a founder uses much of the company’s money for personal or frivolous expenses, it’s impossible for the business to survive.

8. Lack of strategic and effective leadership.

Most businesses lack strategic and effective leadership. Without real experience in the business world, most newcomers to the entrepreneurial fray struggle with the overwhelming amount of demands placed on them. When problems do arise, which they often do, navigating those murky waters becomes an impossible task. That’s why businesses, big or small, need to build up their board of seasoned advisors, and founders need to find trusted mentors, if they’re serious about longevity.

9. Failure to build an employee “tribe.”

Your employee tribe and culture is crucial for long-term success. Most businesses will fail because they forget about their employees. When it becomes an us-versus-them scenario between executives and employees, a downward spiral begins to occur. That spiral might not happen overnight. It might takes years to occur. But it does happen. And when the opportunity is right, the best employees jump ship to go somewhere they’re well appreciated.

10. Failure to create the proper business systems.

Sales funnels aren’t the only automation required to run a successful business that’s built for the long term. Other proper business systems need to be put in place. CRMs need to be implemented and customized. Policies need to be enacted. Financial audits and tracking procedures need to be created. And so on. Without a good deal of systems and automation, the amount of work becomes overwhelming and the details can easily be overlooked.


This article was originally published on Entrepreneur.