The Top 10 Reasons New Businesses Fail
The Wall Street Journal consulted with “experts” to produce its list. Did they get it right? Did they miss anything?
Here are today’s highlights:
Gene Marks says pass-through structures may not always be the best option for business owners.
The rise of artificial intelligence is making the demise of billable-hour pricing inevitable.
In our latest Dashboard, Brandon Gray, a partner with CRI Simple Numbers, talks about how his firm tracks the part of the economy that matters most to business owners.
Every year in South Korea, thousands of new cafes open. And every year, thousands of cafes close. It’s kind of what happened in the U.S. with cupcakes.
ENTREPRENEURSHIP
Here’s why only half of new businesses survive two years: “Everything seemed to be going right for Dan Moyer. During the pandemic, he decided to launch a business with a friend—creating frames for displaying comic collections. What began as a passion project turned into a thriving enterprise. His company, Crafti Comics, was shipping thousands of frames worldwide, and revenue was flowing. But the good times didn’t last. Even though sales were soaring, costs were growing too, as Moyer sank money into machinery to meet customer demand for different sizes and styles of frame. The business failed to turn a profit, and tensions mounted between Moyer and his business partner. Things finally came to an end this March, as Moyer shipped his final orders and closed the business. ‘We expanded too quickly,’ he says. ‘Instead of doubling down on our core products and customer experience, we tried to appease too many people with too many variations.’”
“Growing too fast is just one of many mistakes that can sink a small business. Entrepreneurs face many challenges and make a lot of common missteps that can send a company into a tailspin, experts say. And small operations don’t have the same capital reserves as big companies to ride out rough times.”
“Small wonder that only half of new businesses survive two years, and only a third last five years, according to research by Robert Fairlie, distinguished professor of public policy and economics at UCLA. With that in mind, we asked experts for the biggest reasons that small companies fail. Here is a subjective ranking of their top 10.”
“Being too stubborn: Ultimately, many small-business failures are a matter of poor leadership. The problem can manifest in many different ways, but it comes down to an ‘inability to hear, to listen, to be open to other perspectives,’ says [Danna Greenberg, Walter H. Carpenter professor of organizational behavior at Babson College]. Many entrepreneurs want to be in complete control, so tied to their ideas that they refuse to correct course when necessary.”
“Lack of a market: It is economics 101: If there is no market for your products, your business won’t succeed. But it can take a lot of work—and resources—to study a potential market in depth, and many small-business owners aren’t prepared to make that kind of investment up front. For instance, many people start small businesses because they have a passion for the core activity, says Robert Blackburn, professor of entrepreneurship at the University of Liverpool in the U.K. People who like to cook might want to open restaurants, for instance. But making good food isn’t enough.” READ MORE
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