The Number One Reason For Small Business Failure!

According to the Australian Bureau of Statistics, more than 60 percent of small businesses cease operating within the first three years of starting. With the number one reason for business failure is inadequate planning or strategic management.

Before you get financing or mortgage your house, you need to know if your business is going to do more than survive. You want to assess if it’s good enough to thrive!

In fact, you want to make sure your business has three strong components that when combined will help prevent the issue of poor planning ruling your chance of success.

The three components that help businesses stay in business for five years or longer are:

  1. The Idea
  2. The Market
  3. Your Ability

Now I know that sound simple but these components are the firm foundation of your success.

The Idea

Of course, a successful business startup will always start with an idea. It needs to make your business stand out from the rest. Many call this your USP or Unique Selling Proposition, but it doesn’t really matter what it is called along as you have one.

You probably have a good idea if you can answer the following questions with a Yes!
– Does your Idea provide a solution to a significant problem that your target market is having?
– Does it satisfy and want or a need in those people?
– Does it create an opportunity in the marketplace for you?

If you answer yes to these questions, then keep reading, if no take some time to answer these questions as they are a significant component in making your business a success.

Most successful businesses will either increase customer’s pleasure or fix problems (they can be real or perceived, the result will be the same). These businesses create a repeatable need for a product or service for their target market.

The Market

Now let’s look at your Market as this is the next component in your businesses chances of survival. If your answer is yes to the following questions you are going well.

  • Is there a market already for your product or service? (If there is no market in this day and age you need to consider why)
  • Is the product or service you create affordable for your given market? (If they can not afford it does not matter how great it is, it won’t sell anyway!)
  • Does your market see the value in what you have to offer? (If your market does not perceive value in your product or service they won’t buy, simple.)

Once again if you answer yes to these questions, then keep reading, if no take some time to answer these questions as they are the next factors in making your business a success.

Your Ability

The last component you need to look at is your ability. Can you now answer yes to these questions?

  • Do you have the knowledge, resources and/or people to provide to your target market your product and services consistently?
  • Can you maintain a competitive advantage? (Ensuring you created on in the idea phase)
  • Do you have the resources and manpower to supply your products and services?
  • In the long run, do you have the cash flow to purchase the supplies and materials you need?

If you have answered yes to these questions as well, you are definitely on the way to creating a sustainable business, and your chances of failure will significantly reduce.

You can take this information and use it to create a business plan. Make your business plan a working document that you refer back to not something that you do once and then forget about. Your business plan should be a living roadmap that you adjust and are aware of, it should help you stay on course and reach your goals and aims that you have set for your business.

Now you have helped prevent the Number One Reason For Small Business Failure. You can look at taking a further two steps in your journey to business success.


Having enough capital to keep your business going when you are first starting off and also when you start to see increased sales is vital. Without factoring this in you may have to halt in creating your product or service simply because of money and this could halt your success.

If financing is a problem because you either don’t have enough equity or credit, you will need to look at other ways to create cash flow. Don’t ignore this issue and hope it goes away be proactive in finding a solution. There are resources available in your community. Such as grants, microloans for entrepreneurs, bridging loans if you know where to look, for example, Chamber of Commerce or local government small business association.

Find a mentor

You can also help yourself even further by finding a Mentor. Most entrepreneurs and new business owners have skills and abilities in their given field, but no one does it all.

You may already know your strength and weakness (from when you did your business plan), so instead of ignoring them find a mentor to help build up your weakness and offer advice to build an even stronger business that will overcome the first three years of business and create something that moves into the future.

If you would like to learn more about Starting a Business check out our Starting a Business Guide and Workbook. This guide and workbook have been designed to give you an overview of what it means to start a business and to provide you with reference links so that you can make an informed decision about your new business needs.