Reasons Why Businesses Fail

Reasons Why Businesses Fail

  • Arhun Nishanthan|  
  • July 13, 2021

No competitive advantage

It all sounds cool and exciting, you’re going to launch a business, and you see them all around you so you think to yourself, why I wouldn’t be a successful entrepreneur. I have plenty of ideas, I can figure this out.

You borrow money from the 3 Fs, family, friends, and other fools & open up a coffee shop on your street.

3 months later, a brand new Starbucks pops up 1 block away from you and you don’t think much of it.

But fewer people are coming in, you try selling all kinds of things in the store just to supplement the income because your rent doesn’t care that people want their Frappuccino’s not you generic lattes and in 6 months you close it all down, losing money and putting a strain on your relationships.

It’s easy to blame your failure on the faceless corporations that are slowly taking over the world when in reality, you have no differentiators. You were selling something people could’ve bought anywhere else, you didn’t approach the issue in an innovative way, and you didn’t leverage new resources others didn’t.

This is even more accelerated in the online space, where you’re not only competing against the people in your area, you’re competing against everyone in the world who’s coming after your customers.

Legendary CEO Jack Welch put it best when he said: “If you don’t have a competitive advantage, don’t compete.”

We recommend you pick up his book called WINNING and as long as you’re in business re-read it every 18 months. You get an inside look at the 40-year lessons one of the most prominent CEOs of this century has learned and implemented.

No strategy

We were never the business plan type of entrepreneurs but we always understood what the plan for our business was. You need to know where you’re going and what steps you need to take.

If I do this -> then I can do that -> and then we can expand into this.

It’s all a chain process.

Everybody calls it strategy and without it, any business is doomed to fail.

Your strategy is what allows you to deal with the market, with how you behave in times of prosperity and in times of crisis.

It’s the foundation of all your decisions and it allows you to keep track of how well you are performing.

Poor understanding of market needs

One of the simplest things to do that leads companies to failure ignores the customer. This might sound counter-intuitive, but you’d be shocked how widespread this issue is.

Listening to your customer is an invaluable practice that allows any company to mature, learn and adapt.

Customers are constantly offering feedback and suggesting what they would need in order to better fulfill their needs.

Always keep the customer in mind and based on his problems you can generate valuable products.

Wrong partners

Partnerships are always difficult, especially when the founders complement each other but grow to have different drives and priorities.

As humans, we are complex beings, our desires and focus shift as time goes on influenced by an array of variables.

Imagine being a year into a project and finding out your partner no longer feels the same fire you do about this business, or he simply has a different idea of what the business should look like. You both go your separate ways and both your likelihood of success go down the drain.

And that’s the mildest of the outcomes.

Talk to any venture capitalist in Silicon Valley and they’ll tell you crazy stories about founders stabbing each other in the back in order to take the upper hand. Even the most famous companies have similar stories.

It’s hard to go at it alone, but if you can, we recommend it.

Lack of a vision

Most companies that survive have a long-term vision, they know where they’re headed and what they’re looking to become.

This vision is brought on by the early team and it’s used as the North Star for the business journey.

Most people get this wrong, despite it sounds simple. They all think world domination or being the most profitable company in the world, but these are macro-measurements.

Instead of spewing out 1 number and running with it, work a little bit backward from it.

What does it mean to be a billion-dollar company? How many customers do we need, how much product do I need to sell? How many employees will it take? What kind of infrastructure will be in place, how many geographies, how big am I today, what is a realistic growth rate we can achieve to close in on our north star?

Once you start digging in a bit, the vision gets clearer and clearer.


A 1 person business doesn’t make you a boss, you’re the only employee of a company you’ve just formed.

Basically, you’re still an employee, but now you’ve got way more things to take care of and you’ll be paid a lot less.

Eventually, you’ll bring the first person in.

The biggest temptation you’ll face when hiring your first employee will be to micromanage everything he or she does.

You’ve been accustomed to doing things one way and paying at most attention to detail as possible.

Here’s some brutal truth almost nobody cares to admit:

None of your employees will work as hard or care as much about the business as you do.

And that’s a fact.

The goal here is to train your employees in a way that they can improve themselves in time. Set the guidelines, point them to your north star, and then give them the freedom to not feel like machines in an assembly line – unless you’re running a literal assembly line where you can’t afford robots.

Not hiring the right people

Finding the right people is almost a form of art, you need to have a certain Flair for it.

A valuable employee will help you grow a business, a couple of them could help you navigate even the most dangerous waters, but to keep this boat metaphor alive, a bad employee is like having a hole in your boat.

It doesn’t matter how hard your rowing, you’re still going to drown.

So how do you find the right employees?

There are a bunch of books out there talking about how to prospect, analyze, create systems for hire, vetting processes, and more. Most of these books are aimed at large corporations with hundreds and thousands of employees, so they’re probably not the right recommendation for you.

So we looked at our own situation and asked our entrepreneurial friends about the hiring process we came around to a golden rule, that seems to apply to all our businesses. And that is:

Hire people that are smart enough to know when they don’t know something & who have the ability to learn, that want to go on a long journey with you.

That’s basically the gist of it. You want people who understand what you’re asking them to do, not just repeat the same process.

These people will earn more, because they are able to provide you with additional value by saving you time, instead of constantly needing to be hand-held.

One thing we want you to remember that’s incredibly valuable:

Employees can not read your mind! You can not hold someone accountable for something you didn’t take action to train and correct.

Lack of capital

If we were to ask most of you what is the main reason why you don’t have a business, probably the majority of you would’ve said: lack of money.

It’s understandable to some degree, that you believe you need large amounts of money in order to start a business, but that’s an excuse lazy people push forward in order to justify their lack of effort.

Money is never an issue when you have time and skill. Because you can always trade-in that combination to earn more money and then deploy it in your business.

Most wanna-be entrepreneurs fantasize about somebody coming up to them and giving them a large sum of money for them to play around, you might even be one of them.

The truth is, it’s easy to make more money when you already have money, the true differentiator between the REAL and the Pretenders is to make money when you don’t have any.

Lack of capital is never the main reason why businesses fail. It’s usually poor management of the existing resources, the idea is bad, the implementation is bad, and so on.

We were looking to recommend a book or resource for this one, but to be honest, the best recommendation is to cut down some of your sleep hours and figure out how to obtain the necessary capital by working on projects or side-gigs while you’re building your business.

This should be a very short commitment to get that initial ball rolling and then it’s up to you to manage those funds.

Trying to do too many things at once

It’s super easy to get distracted by all the shiny opportunities around you when you have an entrepreneurial mind.

“We’re gonna be a software company, but we’ll also do hardware & merchandising & licensing and SEO & Pay-per-click & social media marketing..”


Find one thing that works for you and get really… really good at it. Only once you’ve hit a growth ceiling in that regard you can slowly branch out to what makes sense for your business.

This is a constant problem for most companies and it leads to the dilution of the vision, we had to deal with it as well when we were growing and it took us taking a step back and looking at the company objectively.

If you try to do too many things at once, you’re neglecting what’s actually important and it’s hurting your chances of success.

A great resource on this topic is a book called: The One Thing. It helps you focus your actions to achieve extraordinary results in a particular field.








This content is the sole responsibility of its creators. Any opinions expressed herein do not necessarily reflect the views of USAID or the United States Government, European Union or Swiss agency for Development and Cooperation.


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