Top 5 Reasons Why Small Businesses Fail to Thrive

According to the US Small Business Administration, there are 33.2 million small businesses in the US. Within their first year, approximately 20% of small businesses fail, and nearly 50% will shutter their doors within five years. 

Failure isn’t the only undesirable fate awaiting some owners and entrepreneurs. As successful and failing small businesses settle at either end of the business growth spectrum, many new companies hover in between, stuck in the abyss between failing and thriving. 

It’s true: entrepreneurship is risky. But nobody launches a business with dreams of stagnation. Much ink is spilled on how to avoid business failure, while far less column space focuses on why small businesses fail to thrive.

1. Dysfunctional Management and Teams

Among the most common small business growth killers are dysfunctional management, bad hiring decisions, and ineffective teams. Unfortunately, when a small business fails to thrive, this is often the last place owners look.

When launching, many small businesses limit overhead and operating expenses wherever possible. When a leader opts not to hire or delegate to other senior-level team members, this cost-saving measure can turn out to be quite the false economy. How does a business thrive, after all, with nobody to run it? The answer, of course, is it doesn’t.

Fixating on how to minimize operating expenses keeps you from focusing on how to increase business growth. While many entrepreneurs have the necessary skills to conceive, create, and sell their products and ideas, they may lack management experience and other skills essential for success.

It can be useful to reframe hiring decisions not as operating expenses but as investments in breaking through the ceiling of growth. When the ceiling comes (and the ceiling always comes) you can’t break through it if you haven’t assembled and developed a team to help.

2. Poor Planning and Time Management

Busyness plagues countless small businesses. It can be challenging to differentiate busyness from productivity, making it difficult for many leaders to overcome this ubiquitous hurdle. 

How does busyness impede business growth? Take a look at some of the typical hassles that ensnare busy leaders and teams compared to their productive counterparts: 

Busy: Busy leaders jump first and ask questions later. While launching a new endeavor is exciting, it’s not without its risks. You have to be adventurous and willing to take on some risk to be an entrepreneur, but going into business without a plan is one risk many startups grow to regret. 

Productive: Productive leaders look before they leap. Developing a business plan will give you insight into your market opportunities, threats, and competitors, so you can launch with greater awareness of how to help your business thrive. And, with a well-laid business plan, you’re less likely to be surprised by capital requirements or understaffing that can slow you down just when you need to be ramping up. 

Busy: We’re all familiar with the tale of the Three Little Pigs. Passersby observing the first pig as he quickly built his straw house might even remark upon his busyness. Only if they linger long enough to learn his fate would the contrast between productive and unproductive activity become clear. Businesses with weak foundations suffer similar (though generally wolf-free) fates—spending time and energy on unproductive tasks while leaving their business exposed to threats from every angle. 

Productive: You know where this is going. Strong foundations (bricks) build resilient and productive teams (wolf-resistant housing). Team effectiveness starts with a well-defined mission and organizational structure, a strong management team, and accountability embedded in every role. Without these, you’ll likely find you and your team are too busy patching the foundation and reacting to threats to do the proactive work necessary for business growth.

3. Lack of Implementation

It’s easy to fall into the busyness trap when you don’t have a plan. After you launch your small business, your business plan is a living document. Review it and your organization’s policies and operating procedures regularly, updating them to reflect new challenges and changes in the market.

Once you’ve developed policies and procedures, take the necessary steps to communicate and implement them. Your plans may be groundbreaking, but until you put them into action, they can’t help your business thrive. 

While it may sound banal, there’s more than a grain of truth in the platitude, “don’t let perfect be the enemy of good.” Developing the precision and instincts necessary to successfully navigate from planning to execution is a primary goal for many leaders seeking executive business coaching.

4. Measuring and Monitoring the Wrong Things

Another banality that turns out to be true is “inspect what you expect.” If you haven’t examined or have misjudged your metrics, your measurements will tell you something, though not necessarily  what you expect. 

Consider the folkloric widget factory and its leader, Gidget. Gidget launched her widget business six months ago and keeps a close watch on widget production. Every day, Gidget meets with her senior leadership team to review a detailed widgets-per-hour report. 

One day, eagle-eyed Gidget notices a trend of declining widget production in the last hour of the work day. Gidget directs her managers to assemble a cross-functional project team and uncover the cause. Over several weeks, the team schedules employee roundtables and one-on-one meetings to get to the bottom of the 4:00 widget production problem. 

After reviewing the results presented by her project czar, Gidget implements several changes and immediately sees increased widget production in the 4:00 hour. A few months later, when her factory shutters, Gidget is shocked. How could she, the ever-diligent Gidget, have failed? 

Gidget, of course, measured the wrong thing. Widget production is a valuable metric, but without considering widget production costs and widget sales figures, it doesn’t help her achieve her goal of breaking through the ceiling of growth to become a widget mogul. Gidget also managed her time poorly, opened her widget factory without a plan, and assembled a dysfunctional leadership team. Don’t be like Gidget.

5. Lack of Investment

Another common reason why small businesses fail to thrive is a lack of investment, leading to shortfalls in funding. True: there’s no money tree you can visit to finance your startup or fund an expansion. But, you can overcome shortages by being thoughtful about how you invest in your business. 

Lack of investment can have many causes, but there are several more common than others: 

Pricing: If you price products or services too low for too long or, alternately, higher than the market will bear, your small business will fail to thrive.

Budgeting: Owners who aren’t aware of how much revenue they’re generating or how much their business costs to operate are unable to budget effectively for long-term growth. 

Fear: Many entrepreneurs know they need to price their products for success and carefully budget their funds when launching their small business. Once they become profitable, though, they become stuck in a mindset that no longer serves them. One of the most valuable executive coaching benefits for the fearful leader is learning to adopt a new mindset that reflects his status as a thriving small business owner. 

Conclusion

Learning how to increase business growth is a process every successful leader undergoes. At Leader’s Cut, I engage leaders in collaborative and customized small business leadership coaching relationships designed to help facilitate strong leadership skills, team effectiveness, and business growth. 

If you’re interested in learning how a small business coach can help your business thrive or have questions about whether executive business coaching is right for you, contact me to schedule a 15-minute consultation, and let’s figure it out together.