The Public Liability Insurance Blog

10 reasons why businesses fail

If you’ve started a small business, you’ve been told the terrifying statistics of how many fail in the first year. I believe Dragon’s Den very helpfully reminds viewers of failure rates among small businesses at the beginning of every episode just to encourage the entrepreneurial spirit, so today we’re going to have little look beyond the numbers and talk about some of the common reasons for failure.

DownWriting on the public liability insurance blog, it’s very tempting to say the only reason businesses ever fail is “because they don’t get their public liability insurance in order”, but that’s not really true, fair, or terribly helpful so let’s go through some of the general pitfalls that businesses can sink into and just take it as read that you should check your insurance details and make sure that’s all in order too.

Failure 1: Starting a business for the wrong reasons

A common suggestion is that you’re setting yourself up to fail if you have started up on your own because you want to make lots of money and spend more time with your family.

I actually feel that the acquisition of wealth and the desire for more money can be an extraordinary motivator, but I get the point that’s being made here – it’s not going to happen overnight and it’s definitely going to be long hours to get where you want to be.

Starting a small business often means saying goodbye to your weekends for a good few years so having a passion for what you’re doing is probably more important than wanting to get rich, although I still think that making money should be in the back of your mind at all times for obvious reasons.

Failure 2: Having the wrong attitude

stressStarting a business is more demanding than working for someone else. In order to do it successfully, you need to have a mix of physical and mental stamina, patience, drive, determination and all those other things we would like to believe we have.

Truth is, you don’t have to be a superhuman to start a business, but you do have to maintain a positive attitude in the face of crushing adversity. If you read around enough, you’ll see that most successful entrepreneurs have had at least one bankruptcy and will occasionally talk about their first failed company, implying this is almost a rite of passage.

Failure 3: Poor management

As you build your business, you should regularly check that you have adequate coverage for all the business skills that are required. At first, you’ll probably have to do a lot on your own, but sooner or later you’re going to have to start delegating and managing those you delegate to.

I dislike the phrase “hire slow and fire fast” because I have a feeling it creates a toxic environment in a business, having seen the consequences from the ground floor. However, the sentiment is understandable – you need people who can manage workloads and people equally well and can ill afford the time to not have the right people to do this.

Incidentally, if you’re looking for a good manager, apparently you should look for incredibly lazy people, as they’ll make sure all the work goes to other people and won’t try to do everything themselves.

Failure 4: Not enough money

Everyone has done it. Everyone has carefully added up all the money they think they need only to find they have massively under-budgeted. When all that happens is you’re stuck in a foreign country with a little less of its native currency than you would be comfortable with, it’s not such a major issue, but when you’re trying to get a business going, it can be the end of the line.

This really goes back to the importance of planning, which we wrote about last week. Take a very close look at what you will need, double check it and check it again, being sure to factor in everything that you need. Be careful not to forget or diminish living expenses and remember that a rainy-day fund might be useful for those things that can come completely out of nowhere. This feels like a natural point to mention that element of insurance again.

Failure 5: Expansion

Have you ever played Risk? If not, ignore this, but conquering Asia is rarely possible as you have to spread your resources too thin. If you try it too early, you have less resources to spread around and although the gains can seem impossibly tempting, you can lose everything in an instant.

If you expand too early, you can critically weaken your business and lead it to collapse in on itself.

Failure 6: Lack of expansion

Considering the previous comment, this is a good highlight of how the odds are stacked against you. More critically than just a lack of expansion, over-dependence on a single client can sink you. If your only client stops working with you for whatever reason, then your revenue dries up completely.

Pie ChartYour first stages as a startup should involve, contrary to what you might think following failure 5, trying to gather as many clients as possible. Once you can identify your strongest ones that are both good to work with and pay well and on time, then you can start focusing on them and cut out the ones that aren’t good for your business.

Failure 7: Poor marketing

Marketing tends to get a bit of a bad reputation these days which I don’t fully comprehend. The simple issue is that without marketing nobody will know who you are, what you do or that you even exist.

Some people are natural marketers, while others seem to be natural anti-marketers. If you are the latter, find someone to help you out or someone that can handle it for you. In this modern age, you have lots of options available to you beyond traditional advertising and a lot of it is free.

Failure 8: Not understanding the market

You should be passionate about the industry you are entering, but beyond that you also need to understand it. Constantly educate yourself on best practise, advice, opinion and issues affecting your industry as well as local news and what your competitors are up to. Networking can prove invaluable for this sort of information as well – depending on the industry that you are in, events can be an excellent way of keeping up on current issues and aren’t the complete waste of time or luxury that some consider them to be.

Failure 9: Unprofitable areas

Identifying areas of your business that are unprofitable and dragging down the more profitable areas is crucial to the running of your business. This can be particularly difficult to act on too as those unprofitable areas might be a particular focus of yours or be special to you in some way.

If something is not working, you have to adapt and change. If it’s really that important or maybe is the reason you got into your business in the first place, then take it offline for a while and take it back to the drawing board as an ongoing project to come back to. Don’t let it sabotage everything else that you’re doing.

Failure 10: Bad luck

Any combination of factors can conspire to knock you out of business. Maybe a competitor comes along with more resources to do exactly what you’re doing better or faster, maybe an entire market disappears over night, maybe there’s a general economic collapse, or maybe it’s a combination of minor infractions on the failures listed above. Sometimes you are just unlucky. This sort of bad luck is not isolated to small business owners though and is unfortunately life. It’s setbacks like this that test your ability to work past failures and carry on regardless.

During my call-centre days, there’s a phrase that an exasperated sales manager once shared with me when I was complaining about a streak of bad luck. “It’s all about luck, but the harder I try, the luckier I get.” (I seem to remember he told me it was about poker, although a little Googling reveals it’s more likely to have come from golfer Gary Player.)

Bad luck can strike, but you can put of the chance of its appearance with hard work.


Running your own business is hard. I find myself writing variations on that sentence a lot, but it bears repeating. If you are running your own business, you should be applauded for your efforts, celebrated for your resilience and congratulated for the massive contribution you are making to our ailing economy. Don’t let a silly easily fixable and well known mistake take you out of business.

YOUR Insurance specialises in public liability insurance for small and medium sized businesses involved in several trades and professions. You can compare quotes for your business online, or call one of our advisors on 0800 107 8949.