essay on business fail

• Search Search Please fill out this field.

#1 Financing Hurdles

#2 inadequate management, #3 ineffective business planning, #4 marketing mishaps.

• Small Business Failure FAQs

The Bottom Line

• Small Business
• How to Start a Business

The 4 Most Common Reasons a Small Business Fails

Running a small business is not for the faint of heart

• How to Grow a Successful Business
• Business Financing Basics
• How Factoring Works
• How Much Capital Do You Need?
• Selling Stock in Your Company
• Other Small Business Loan Sources
• Biggest Small Business Challenges
• Managing in Hard Times
• Marketing Techniques
• It's All About Relationships
• P&L Statement vs. Balance Sheet
• Lines of Credit
• How to Accept Credit Card Payments
• Best Ways to Use Credit Cards
• Best Business Credit Cards
• Best Small Business Bank Accounts
• The Cost of Hiring
• Raise vs. Bonus
• When to Outsource
• Employee Health Insurance
• Best Health Insurance for Small Business Owners
• QSEHRA Health Coverage
• Best Business Insurance
• Best Business Liability Insurance
• Don't Get Sued
• Licenses and Permits
• Why Small Businesses Fail CURRENT ARTICLE

10'000 Hours / Getty Images

Many small businesses in a broad range of industries perform well and are profitable but a study by the U.S. Small Business Administration (SBA) that covered the years 1994 through 2020 revealed that only 67.7% of new small businesses survived their first two years. The five-year survival rate was 48.9% and the 10-year rate was just 33.7%. Only 25.6% of new small businesses made it to 15 years.

The most common reasons that small businesses fail include a lack of capital or funding, retaining an inadequate management team, a faulty infrastructure or business model, and unsuccessful marketing initiatives.

Running a business is not for the faint of heart. Successful business owners must possess the ability to mitigate company-specific risks while simultaneously bringing a product or service to market at a price point that meets consumer demand levels.

Key Takeaways

• Running out of money is a small business’s biggest risk.
• Owners often know what funds are needed day to day but they're unclear as to how much revenue is being generated.
• Inexperience with managing a business or an unwillingness to delegate can negatively impact small businesses.
• A poorly visualized business plan can lead to ongoing problems when the firm is operational.
• Poorly planned or executed marketing campaigns or a lack of adequate marketing and publicity are among other issues that can drag down small businesses.

A primary reason why small businesses fail is a lack of funding or working capital . A business owner is usually painfully aware of how much money is necessary to keep operations running on a day-to-day basis from funding payroll, paying fixed and overhead expenses such as rent and utilities, and ensuring that outside vendors are paid on time. Owners of failing companies are less in tune with how much revenue is generated by sales of products or services, however.

This disconnect can lead to funding shortfalls that can quickly put a small business out of operation.

Another reason that small businesses fail is that owners miss the mark on pricing products and services. Companies may price a product or service far lower than similar offerings with the intent to entice new customers and beat out the competition in highly saturated industries .

This strategy can be successful in some cases but businesses that end up closing their doors are often those that keep the price of a product or service too low for too long. Small businesses have little choice but to close down when the costs of production, marketing, and delivery outweigh the revenue generated from new sales,

The Small Business Administration offers a variety of loan programs to help small businesses find loans for a variety of needs.

Small companies in the startup phase can also face challenges in obtaining financing to bring a new product to market, fund an expansion, or pay for ongoing marketing costs. Angel investors, venture capitalists, and conventional bank loans are among the funding sources available to small businesses but not every company has the revenue stream or growth trajectory necessary to secure major financing from them.

Small businesses can be forced to close their doors without an influx of funding for large projects or ongoing working capital needs. Business owners should first establish a realistic budget for company operations and be willing to provide some capital from their own coffers during the startup or expansion phase.

It's imperative to research and secure financing options from multiple outlets before funding becomes necessary. Business owners should already have a variety of sources they can tap for capital when the time comes to obtain funding.

Another common reason small businesses fail is a lack of business acumen on the part of the management team or owner. A business owner is the only senior-level person within a company in some cases, especially when a business is in its first year or two of operation.

The owner may have the skills necessary to create and sell a viable product or service but they often lack the attributes of a strong manager and don't have the time to successfully oversee other employees. A business owner has greater potential to mismanage certain aspects of the business without a dedicated management team whether it be finances, hiring, or marketing.

Most small businesses start with the entrepreneur's savings or money from friends and family and then look for outside financing to grow.

Smart business owners outsource the activities they don't perform well or have little time to successfully carry through. A strong management team is one of the first additions a small business needs to continue operations well into the future. It's important for business owners to feel comfortable with the level of understanding each manager has regarding the business’ operations, current and future employees, and products or services.

Small businesses often overlook the importance of effective business planning before opening their doors. A sound business plan should include:

• A clear description of the business
• Current and future employee and management needs
• Opportunities and threats within the broader market
• Capital needs, including projected cash flow and various budgets
• Marketing initiatives
• Competitor analysis

Business owners who fail to address the needs of the business with a well-laid-out plan before operations begin are setting their companies up for serious challenges. A business that doesn't regularly review an initial business plan or one that's not prepared to adapt to changes in the market or industry meets potentially insurmountable obstacles.

Entrepreneurs should have a solid understanding of their industry and competition before starting a company. A company’s specific business model and infrastructure should be established long before products or services are offered to customers and potential revenue streams should be realistically projected well in advance. Creating and maintaining a business plan is key to running a successful company for the long term.

Business owners often fail to prepare for the marketing needs of a company in terms of capital required, prospect reach, and accurate conversion-ratio projections. It can be difficult to secure financing or redirect capital from other business departments to make up for the shortfall when companies underestimate the total cost of early marketing campaigns .

Getting your company's name in front of your customers is a crucial aspect of any early-stage business. Companies must ensure that they've established realistic budgets for current and future marketing needs.

Having realistic projections in terms of target audience reach and sales conversion ratios is critical to marketing campaign success as well. Businesses that don't understand these aspects of sound marketing strategies are more likely to fail than companies that take the time to create and implement cost-effective, successful campaigns.

What Is the Small Business Failure Rate?

Approximately 32% of small businesses fail in the first two years, about 51% fail within five years, about 66% fail within 10 years, and roughly 74% fail within 15 years.

What Are Some Signs That Your Business Is Failing?

Signs that a business is failing include small levels or lack of cash, inability to pay back loans on time, inability to pay suppliers on time, customers that pay late, loss of clientele, and an unclear business strategy.

What Is a Saturated Market?

The market for a product is said to be saturated when the product is no longer in demand. Its availability is significantly greater than customer demand. This can happen when high quantities of a specific product are manufactured or offered, more than there are consumers to purchase them. They effectively begin piling up and gathering dust on store shelves.

New businesses face several challenges when they first open their doors. Statistics gathered by the U.S. Small Business Association reveal a daunting failure rate. Running out of money and lack of experience are the greatest risks but new business owners have options to increase their odds of success. The Small Business Association offers and supports several loan programs. Seeking advice and education from experienced professionals can help, too.

U.S. Small Business Association Office of Advocacy. " Frequently Asked Questions ." Page 3.

U.S. Small Business Association. " Loans ."

CFI Education. " Market Saturation ."

• Terms of Service
• Editorial Policy
• Privacy Policy

6 Reasons Why Small Businesses Fail and How to Avoid Them

7 min. read

Updated October 29, 2023

Roughly 20% of small businesses fail in their first year, according to recent U.S. Bureau of Labor Statistics data . About 50% fail in the first five years, and only one-third of new businesses are able to survive for 10 years. Research by the Small Business Administration found that about 1 in 12 businesses close in America every year.

If you’re a small business owner, another way to think about these statistics is that 80% of small businesses will survive their first year. Over five years, you have a roughly even chance of survival or failure. Looking out 10 years, you have a one-in-three chance of enduring.

What are the reasons businesses fail to thrive, given a 50/50 chance of survival and assuming a product or service for which there’s a demand? Let’s discuss six reasons businesses fail and some ways you can avoid business failure.

• 1. Leadership Failure

Your business can fail if you exhibit poor management skills, which can be evident in many forms. You will struggle as a leader if you don’t have enough experience making management decisions, supervising a staff, or the vision to lead your organization.

Perhaps your leadership team is not in agreement on how the business should be run. You and your leaders may be arguing with each other publicly, or contradicting each other’s instructions to the staff. When problems requiring strong leadership occur, you may be reluctant to take charge and resolve the issues while your business continues to slip toward failure.

How to Avoid Leadership Failure: Dysfunctional leadership in your business will trickle down and affect every aspect of your operation, from financial management to employee morale, and once productivity is hindered, failure looms large on the horizon.

Learn, study, find a mentor, enroll in training, conduct personal research—do whatever you can to enhance your leadership skills and knowledge of the industry. Examine other business and leadership best practices and see which ones you can apply to your own.

2.  Lacking Uniqueness and Value

You may have a great product or service for which there is strong demand, but your business is still failing. It may be that your approach is mediocre or you lack a strong value proposition. If there’s strong demand, you probably have a lot of competitors and are failing to stand out in the crowd.

How to Avoid Value Proposition Failure: What sets your business apart from competitors?  How do you conduct business in a way that is totally unique? What are your competitors doing better than you are? Develop a customized approach or service package that no one else in your industry is using so you can present it as a strong value proposition that attracts attention and interest.

This is how you build a brand . Your brand is the image your customers recognize and associate with your business. Your brand identity, including your logo, tagline, colors, and all the visible aesthetics and business philosophies that represent your company should be supported by your value proposition. It should separate you from the pack and present your individual perspective to your customers. Do everything you can to present that unique value proposition to your market so you can capture a market share and begin building your conversion rates.

To publicize your brand and set yourself apart, you will also need to step up your marketing plan and use as many venues as possible to present your brand to the public. You may be far better than your competitors but that won’t make any difference if your prospects don’t even know you’re in the game. Use social media, word of mouth, cold calling, direct mail, and other tried-and-true marketing techniques. Ensure you have a well-optimized online presence, develop lead generation and contact information capture techniques such as offering high-quality content on your site, a subscriber newsletter, and information giveaways.

3.  Not in Touch with Customer Needs

Your business will fail if you neglect to stay in touch with your customers and understand what they need and the feedback they offer. Your customers may like your product or service but, perhaps they would love it if you changed this feature or altered that procedure. What are they telling you? Have you been listening? Or is the market declining? Are they even still interested in what you’re selling? These are all important questions to ask and answer. Maybe you’re offering a product or service that is fallen well below trend.

How to Avoid Losing Touch with Customers: A successful business keeps its eye on the trending values and interests of its existing and potential customers. Survey customers and do market research and find out what their interests are and keep abreast of changes and trends using customer relationship management (CRM) tools. Effective use of CRM can help keep your business from failing.

Brought to you by

Create a professional business plan

Using ai and step-by-step instructions.

Secure funding

Validate ideas

Build a strategy

4.  Unprofitable Business Model

Akin to leadership failure is building a company on a business model that is not sound, operating without a business plan , and pursuing a business for which there is no proven revenue stream. The business idea may be good but failure may come in the implementation of the idea if there are no strategic guidelines in place.

How to Build a Good Business Model: Research and review the way other businesses in the industry operate. Develop a complete business plan that includes financial forecasting based on predictable revenue, strategic marketing, and challenge management solutions to overcome potential obstacles and competitor activities. Create a milestone chart with specific tasks and objectives assigned along the timeline so you can measure success, solve problems as they occur, and stay on track. A sound business model that incorporates best practices can help your business avoid failure.

5.  Poor Financial Management

SmallBizTrends.com, a business news resource, offers this infographic which states that 40 percent of small businesses make a profit, 30 percent come out even, and the remaining 30 percent lose money.

You must know, down to the last dime, where the money in your business is coming from and where it’s going in order for your business to succeed. Your business can also fail if you lack a contingency funding plan, a reserve of money you can call upon in the event of a financial crisis. Sometimes people start businesses with a dream of making money but don’t have the skill or interest to manage cash flow , taxes, expenses, and other financial issues. Poor accounting practice puts a business on a path straight to failure.

How to Avoid Financial Mismanagement: Use professional business accounting software like QuickBooks or Xero to keep records of all financial transactions, including every expenditure and all revenues received, and use this information to generate income statements (profit and loss statements). Even better if you use a business dashboard tool like LivePlan that makes it easy to monitor your financials. This is valuable information that you need to run your business, know where you stand at all times, and keep it operating in the black. If you lack skill in financial management, consider hiring a small business advisor and professional bookkeeper or certified public account to help manage your financial affairs.

6.  Rapid Growth and Over-expansion

Every now and then a business startup grows much faster than it can keep up with. You open a website with a trending product and suddenly you are inundated with orders you are not able to fill. Or perhaps the opposite is true. You are so convinced that your product is going to take the world by storm that you invest heavily and order way too much inventory and now you can’t move it. These are both additional paths to business failure.

How to Avoid Growth and Expansion Problems. Business growth and expansion take as much careful and strategic planning as managing day-to-day operations. Even well-established and successful commercial franchises such as fast-food restaurants and convenience stores conduct careful research and planning before opening a new location. They measure local and regional demographics and spending trends, future development plans for the area, and other pertinent issues before they move forward. You must do the same for your business to avoid failure.

Conduct thorough research to ensure the time is right and the funding is available for expansion. Make sure the initial business is stable before expanding to an additional location. Don’t order inventory you’re not sure you can sell but have a plan already in place to fill orders quickly should the demand present itself. The key to successful growth and expansion—and avoiding business failure—is strategic planning.

• Avoiding business failure starts with planning

If 50% of new businesses fail, then 50% of new businesses can succeed. Starting a business is an exciting endeavor that requires a clearly defined product or service and a strong market demand for it. Whether you desire to start a new business or you’re already running a business, you must understand that success depends on careful strategic planning and sound fiscal management that begin prior to startup and continue throughout the life of the business.

Mike Kamo is the VP of marketing for Strideapp. Stride is a Cloud-based CRM and mobile app that helps small- to medium-sized agencies manage and track leads, as well as close more deals.

Table of Contents

• 2.  Lacking Uniqueness and Value
• 3.  Not in Touch with Customer Needs
• 4.  Unprofitable Business Model
• 5.  Poor Financial Management
• 6.  Rapid Growth and Over-expansion

Related Articles

6 Min. Read

Ask the Experts: Things I Wish I’d Known Before Starting a Business

7 Min. Read

How to Think About (and Reduce) Risk When Starting Your Own Business

3 Min. Read

5 Keys to Keeping Your New Business on Track

5 Min. Read

How to Be a Business Owner and Also Have a Life

The Bplans Newsletter

The Bplans Weekly

Subscribe now for weekly advice and free downloadable resources to help start and grow your business.

We care about your privacy. See our privacy policy .

The quickest way to turn a business idea into a business plan

Fill-in-the-blanks and automatic financials make it easy.

No thanks, I prefer writing 40-page documents.

Discover the world’s #1 plan building software

• Starting a Business
• Growing a Business
• Small Business Guide
• Business News
• Science & Technology
• Money & Finance
• For Subscribers
• Write for Entrepreneur
• Tips White Papers
• Entrepreneur Store
• United States
• Asia Pacific
• Middle East
• South Africa

Copyright © 2024 Entrepreneur Media, LLC All rights reserved. Entrepreneur® and its related marks are registered trademarks of Entrepreneur Media LLC

The Real Reason Why Most Businesses Fail (And What to Do About It) The part of our brains with critical thinking skills is turned off - here's what you can do to activate it at will.

By Dr. Eugene K. Choi Edited by Russell Sicklick May 14, 2021

Opinions expressed by Entrepreneur contributors are their own.

The Bureau of Labor Statistic published that 70% of business owners fail by their 10th year in business. What most people don't know is the underlying reason for why this is the case. It turns out that for about 70% of our adult lives, the part of our brains that is capable of our best critical thinking skills, revenue generation skills, and problem solving skills is actually turned off.

The reason for it is this:

Volatility, uncertainty, complexity, and ambiguity

In the leadership space, these elements are commonly referred to as VUCA . Your brain naturally likes to avoid VUCA at all costs. This is hardwired in us from our cavemen ancestors who avoided areas of uncertainty due to the risk of being killed by a wild animal. However, when it comes to entrepreneurship, we need to move through the uncertainty because the solutions to the problems we are trying to solve are not known yet. Hence the importance of being adaptable to iterate in order to move towards better outcomes.

But if VUCA is activating the survival state that prevents you from succeeding in business, then why is it on for so much of your adult life? Even though you're rarely in life-threatening situations now?

It's because the brain feels it needs not to just survive physically, but emotionally. Research has shown that emotional pain can be just as painful as physical pain. The amount of stress, frustration and anxiety entrepreneurs face on a daily basis because of VUCA tends to trigger the part of the brain that only knows how to be reactive. This is why emotions like fear, anxiety, and frustration trigger the short-sighted survival response. As a result, the brain's most needed functions for entrepreneurs are shut off. When your brain is in this reactive state, it cannot think.

When 86.3% of small businesses make less than $100K per year with a good chunk of that going right back towards expenses, it's no wonder the business owners are consistently in a survival state. The brain equates money with survival because it's what puts food on the table and a roof over your head, but when you're in this state trying to grow a successful business, you often make short-sighted decisions that you regret because the critical thinking and creativity centers of the brain are shut off. What's even worse is your empathy center in the brain is shut off when you're in survival, which ultimately prevents you from being able to keep your focus on the one thing that helps you generate revenue: the customer.

Related: The 6 Main Reasons Businesses Fail and How to Avoid Each

The two states of the brain

The brain is only ever in one of two states. The survival state or the executive state. Survival state is activated when the brain thinks your life is in danger. In this state, your brain goes ahead and reacts without thinking. And it can only react in one of three ways: fight, flight, and freeze.

This can be a straightforward reaction such as when one gets cut off on the road and they flip their lid and try to fight back by cutting the other person back off. Where this can cause a big problem for many business leaders is their overactive survival state causes them to fight hard and overwork themselves in an attempt to generate growth for the company. This counterintuitive approach actually severely damages the business in the long term. It leads to burnout and shortsightedness on what can help the company grow the most. When your brain is in survival state, it develops tunnel vision and looks for the nearest exit because it needs to survive from the threat. This tunnel vision hurts business leaders because they cannot see the bigger opportunities and solutions that exist around them and it constantly feels like they're putting out fires all the time.

In entrepreneurship, a classic flight response is procrastination. This often occurs as a reaction to not having full clarity on how to move forward. Another reason may be having a sense of not feeling ready or capable, which then triggers the survival brain to flee the task. This can also lead to fleeing by engaging in numbing behaviors to intentionally distract yourself, such as binge-watching television, comfort eating, or any other type of overindulgent behaviors.

This plays out as inaction or indecision, and often occurs when you are overwhelmed from the amount of work you need to complete. This survival response comes from the strategy of playing dead, where if you pretend not to exist, perhaps the problem will go away.

This fight-flight-freeze response is what often occurs when we face VUCA situations in our business. This is why we often don't feel like working and procrastinate. Or, we don't feel like working on the most important action steps that will help the business thrive.

However, it's in the executive state that you are able to access some of your brain's most critical functions that will help you uncover the solutions you are looking for in your business.

The reason for this is because you're able to activate the following:

Critical thinking skil ls

You are able to take a look at all the variables involved with a particular challenge and come up with a solution. This experience where your brain can connect the dots and finally see the solution only occurs in an executive state.

Executive function

This is the ability to make great decisions.

We need our creativity because it allows us to see things we normally wouldn't have paid attention to before. This helps our brain see new solutions and opportunities that are there, and that the survival brain would not have seen otherwise.

Many business leaders often hurt team culture because they enter into survival state. It's hard for them to see all the needs that may be communicated to them, whether it's from the employees or the customers. This occurs because the focus becomes protecting yourself when you're in survival state.

Related: 6 Lifelines That Could Save Your Failing Business

How to activate your executive state

Awareness is what will help you get out of survival state and into your executive state. You cannot change until the awareness of the real problem is there first. If you have a piece of broccoli stuck between your teeth, you don't have the power to remove it until someone points it out to you or you see it in the mirror. So the first and foremost step is to examine your own actions, and reflect on how many of them were a reactive fight-flight-freeze response.

This journey of self-awareness is the key factor to tapping into your executive state, so you can start seeing the opportunities and solutions that have always existed for you and your business. That's when you realize what you thought was the problem wasn't the real problem. And that realization is what helps you address the true bottleneck that may be affecting your business.

This is exactly why some of the most forward-thinking companies are implementing things like mindfulness meditation into their culture. There are also neurofeedback technologies that can sense whether your brain is in a survival state or executive state and train you to get out of survival on a more moment to moment basis.

These are all great starts to improving performance as we continue to find more scientific evidence around how to shift the parts of the brain that aren't serving you. So make time each day to simply observe. How often do you engage in the reactive fight-flight-freeze response?

Do you notice your triggers where it upsets you? That's a fight response.

Do you notice times you procrastinate because you don't feel like working? That's a flight response.

Do you tend to enter into indecision when you have too much work on your plate? That's a freeze response.

Whatever you notice, once you become more aware of these reactive survival reactions that significantly delay your progress, you've given yourself the power to start the process of change and improvement.

Related: 5 Reasons Why Businesses Fail (Infographic)

Founder/CEO of Destiny Hacks

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

Editor's Pick Red Arrow

• This 26-Year-Old's Side Hustle That 'Anybody Can Do' Grew to Earn $170,000 a Month. Here's What Happened When I Tested It .
• Lock Adopt These 4 Practices to Override Your Negative Impulses
• Gen Z Employees Lack Enthusiasm About Work. Here's Why — Plus 3 Ways to Start Motivating Them .
• I Quit My Corporate Role to Work a 'Lazy Girl Job' Instead — Here's How This Career Change Helped Me Earn 10 Times More
• Lock Why Successful People Are Still Unhappy
• These 5 Beloved Restaurant Chains Are Making a Comeback After Nearly Disappearing. Is Your Former Favorite on the List?

Most Popular Red Arrow

He turned his high school science fair project into a product that solves a $390 billion problem: 'this has not been done before'.

Vasya Tremsin was just 18 years old when he came up with the idea for outdoor fire sensor company Torch Sensors.

Why Does Taylor Swift Keep Stopping Her Shows Mid-Song? It's Actually a Great Lesson in Leadership.

Taylor Swift has paused nearly half of her shows while on the European leg of her Eras tour, and the reason is something leaders can learn from.

This Mom Started a Side Hustle on Facebook — Now It Averages $14,000 a Month and She Can 'Work From a Resort in the Maldives'

Heather Freeman was searching for a way to make some extra cash — and her cousin gave her a great idea.

YouTube Takes on TikTok With New Tools: 'You Can Build a Business'

Though YouTube Shorts videos are brief, they still draw 70 billion daily views.

This State Just Banned Small Toiletry Bottles at Hotels

The new law will go into effect on January 1, 2025, for hotels with 50 rooms or more and on January 1, 2026, for all other hotels.

This 26-Year-Old's Side Hustle That 'Anybody Can Do' Grew to Earn $170,000 a Month. Here's What Happened When I Tested It.

Stephen Alvarez was working at a dental supply company and following his passion for cars on the side — then an Instagram ad changed everything.

Successfully copied link

About Stanford GSB

• The Leadership
• Dean’s Updates
• School News & History
• Commencement
• Business, Government & Society
• Centers & Institutes
• Center for Entrepreneurial Studies
• Center for Social Innovation
• Stanford Seed

About the Experience

• Learning at Stanford GSB
• Experiential Learning
• Guest Speakers
• Entrepreneurship
• Social Innovation
• Communication
• Life at Stanford GSB
• Collaborative Environment
• Activities & Organizations
• Student Services
• Housing Options
• International Students

Full-Time Degree Programs

• Why Stanford MBA
• Academic Experience
• Financial Aid
• Why Stanford MSx
• Research Fellows Program
• See All Programs

Non-Degree & Certificate Programs

• Executive Education
• Stanford Executive Program
• Programs for Organizations
• The Difference
• Online Programs
• Stanford LEAD
• Seed Transformation Program
• Aspire Program
• Seed Spark Program
• Faculty Profiles
• Academic Areas
• Awards & Honors
• Conferences

Faculty Research

• Publications
• Working Papers
• Case Studies

Research Hub

• Research Labs & Initiatives
• Business Library
• Data, Analytics & Research Computing
• Behavioral Lab

Research Labs

• Cities, Housing & Society Lab
• Golub Capital Social Impact Lab

Research Initiatives

• Corporate Governance Research Initiative
• Corporations and Society Initiative
• Policy and Innovation Initiative
• Rapid Decarbonization Initiative
• Stanford Latino Entrepreneurship Initiative
• Value Chain Innovation Initiative
• Venture Capital Initiative
• Career & Success
• Climate & Sustainability
• Corporate Governance
• Culture & Society
• Finance & Investing
• Government & Politics
• Leadership & Management
• Markets and Trade
• Operations & Logistics
• Opportunity & Access
• Technology & AI
• Opinion & Analysis
• Email Newsletter

Welcome, Alumni

• Communities
• Digital Communities & Tools
• Regional Chapters
• Women’s Programs
• Identity Chapters
• Find Your Reunion
• Career Resources
• Job Search Resources
• Career & Life Transitions
• Programs & Webinars
• Career Video Library
• Alumni Education
• Research Resources
• Volunteering
• Alumni News
• Class Notes
• Alumni Voices
• Contact Alumni Relations
• Upcoming Events

Admission Events & Information Sessions

• MBA Program
• MSx Program
• PhD Program
• Alumni Events
• All Other Events

Why Do Some Companies Thrive While Others Fail?

Researchers in the growing field of organizational ecology say it's vital to look at the entire life cycle of the business, including the failures.

August 01, 2002

What makes some businesses sprout, grow, adapt, and succeed, while most never get off the ground? Researchers in the growing field of organizational ecology say it is not enough to study the companies that thrive. Answers lie in the stories of failure.

Bitten by the technology bug and drawn by the scent of riches, 10 men got together in a garage on Alma Street, Palo Alto, to launch a start-up company. They never made it. The venture collapsed before any sustained manufacture of their dream product.

The year was 1908, and the new, new thing that drew these entrepreneurs was the internal combustion engine. Their firm, the Stanford Automobile and Manufacturing Co., shared the same fate as the Divine Motor Car Co. of Chicago, McHardy of Detroit, and more than 1,600 others that entered the industry between 1900 and 1920, only to fade into oblivion.

For one group of scholars, however, the very existence and varied fates of these myriad enterprises do matter. With the dogged determination of census takers, these researchers enumerate whole populations of organizations—not just the Fords and Chevrolets of an industry, but also the lesser-known and short-lived businesses that make up the majority of firms.

They call their approach “organizational ecology.” This perspective tries to capture the full range and diversity of corporations, through their birth, growth, transformation, and mortality. Organizational ecology yields insights into how industries develop and change over time. Many of the findings in the field have challenged conventional wisdom about competition, demanding the attention of policy makers and business leaders alike.

In December, 2002, proponents of organizational ecology will celebrate the discipline’s 25th anniversary at a conference to be held at Stanford GSB. The Farm has provided a particularly fertile ground for scholars working within this research tradition. Organizational ecology can trace its birth to a 1977 paper coauthored by Stanford sociologist Michael Hannan, who is now the StrataCom Professor of Management at the Business School.

One of Hannan’s students, Glenn Carroll, has been prolific in adding to the organizational ecology literature. Carroll, who is the School’s Lane Professor of Organizations, in turn taught William Barnett, now a colleague in strategic management and organizational behavior—creating, so far, a three-generation chain of organizational ecology scholars under one roof at the Business School’s Knight Building. “They’re calling me the grandfather of the conference. They joke that it’s my retirement event,” says Hannan, hastily adding that he is not quitting anytime soon.

The research program grew out of a mounting unease with organizational studies’ prevailing focus on large, dominant firms. Hannan’s intuition was that there is a lot of diversity within industries, with hundreds of firms that people don’t notice. He also took issue with the assumption that organizations are plastic and changeable—if so, why is failure so common? Organizations are characterized by inertia, he felt, and there are good reasons for this. Reliability and accountability are valued attributes of organizations. These qualities are strengthened by predictable routines and structures, which create inertia as a byproduct.

Hannan was looking around for conceptual models for working out these kinds of arguments when he came across exciting new work in what seemed a totally unrelated field: population ecology. Ecologists in the early 1970s were exploring several new approaches. “That had a big impact on me,” Hannan says. With John Freeman of the University of California, Berkeley, he wrote the seminal paper “The Population Ecology of Organizations.”

The research tradition’s name tends to provoke suspicion. Business people might say that it’s a jungle out there, but surely serious scholars shouldn’t confuse man-made organizations with the world of plants and animals. The academics stress that, indeed, their approach is not about turning organizational studies into a natural science. “Ecology was used as a source of inspiration,” Carroll says, “but not as a source for understanding organizations.” The ecological twist to organizational studies includes an emphasis on the fact that each organization’s environment is made up of other organizations. It also shifts the analysis up from a single organization to the level of whole populations of organizations.

Most industry studies would define the relevant players as companies that have opened for business. This doesn’t satisfy the organizational ecologists. They note that before an organization is formally launched, the founders have to work hard developing their plans and assembling resources. Some of these activities culminate in successful births, but others are aborted or stillborn. Studies that begin at the organization’s legal incorporation or commencement of production thus underestimate mortality rates and the degree of difficulty involved in entrepreneurial activity.

The automobile industry is a case in point. In a 1994 study, Carroll, Hannan, and their collaborators looked at producers and preproducers—defined as firms that had begun some form of organizing effort but had not reached production—for almost a century since 1886. They found that historians and economists have tended to overlook the astonishing number of hopeful producers, especially in the industry’s early years. They count 3,845 preproduction organizing attempts in the United States, of which only 11 percent succeeded in transitioning to the production stage.

Collecting data of this kind is no walk in the park. It usually involves hundreds of hours of interviews and archival research. Tracking down members of a population and recording their characteristics requires the tenacity of a detective on a chase and the attention to detail of an archaeologist on a dig. Clues come from unlikely sources. For the auto industry study, researchers relied partly on the 1,568-page Standard Catalog of American Cars 1805–1942 published for vintage car hobbyists and collectors. Carroll’s study on the microbrewery movement drew on collectors of beer mats.

Organizational ecologists suggest that the failure to appreciate the full diversity of organizations within an industry may translate into weak policy. “For example, in current policy debates concerning the competitiveness of a nation’s firms in the international marketplace, this issue often gets analyzed on the basis of a few anecdotes or highly publicized cases,” Carroll and Hannan write in their book, The Demography of Corporations and Industries. Similarly, discussions about the ability of Western nations and Japan to meet the pension burden of baby-boomers tend to focus on national social security systems and large old corporations, when in fact the greatest needs are generated by small new firms lacking private pension coverage.

Today, there is an international network of some 100 scholars working through an organizational ecology perspective. The approach has merited an entry in the forthcoming International Encyclopaedia of the Social Sciences (2002) and is recognized as a core specialty in organizational studies textbooks. A growing number of industries have been scrutinized through this lens, ranging from disk drive manufacturing to wineries and from airlines to auditing.

The Nature of Competition

One of the main insights of organizational ecology is that the environment of a firm is made up largely of other firms. Scholars in this tradition therefore have looked closely at how organizations affect each other. A key theory put forward in the original paper by Hannan and Freeman is “density dependence,” which says that organizations’ vital rates—their founding rates, growth, and mortality—depend on the total number of organizations within the relevant population. Population density is said to have two separate effects: through legitimation and through competition.

Legitimation is the process by which a certain way of doing things comes to be seen as natural or taken for granted. Legitimation increases founding rates and reduces mortality rates. Competition arises when organizations need to rely on the same pool of resources, such as capital and customers. Competition has the opposite effect of legitimation: It reduces founding rates and raises mortality rates.

Rising population density increases both legitimation and competition. However, the force of legitimation is stronger when the population density is rising from a low base, such as in the early history of an industry. The competition effect is stronger at higher densities. Combining both effects, the theory predicts that founding rates will show an inverted U-shape relationship with density, first rising as legitimation increases, then falling as competition kicks in. For the same reason, mortality rates should show a U-shape pattern, falling at first, then rising. The basic tenets of density dependence theory have been widely accepted and demonstrated to apply in many contexts.

A newer take on the organizational environment is the “Red Queen” theory, which highlights the relative nature of progress. The theory is borrowed from ecology’s Red Queen hypothesis that successful adaptation in one species is tantamount to a worsening environment for others, which must adapt in turn to cope with the new conditions. The theory’s name is inspired by the character in Lewis Carroll’s Through the Looking Glass who seems to be running but is staying on the same spot. In a 1996 paper, William Barnett describes Red Queen competition among organizations as a process of mutual learning. A company is forced by direct competition to improve its performance, in turn increasing the pressure on its rivals, thus creating a virtuous circle of learning and competition.

Barnett and David McKendrick of the University of California, San Diego, have tested this theory against data on the global hard disk drive industry. Tracking more than 150 firms over four decades, they found that those with a history of enduring competition had a higher chance of survival than those that avoided competition by technological or geographic differentiation. In line with Red Queen theory, it appears that isolation from competition, while having short-term advantages, deprives an organization of the long-term benefit of an ecology of learning, thus stymieing innovation. Their study also suggests that a lack of domestic competitive experience can prove to be a critical disadvantage when a firm is thrust into global competition.

Aging and Adapting

Organizational ecology has helped to illuminate what happens to industries over time. Many other studies have suggested that young organizations suffer a so-called “liability of newness” and have a higher risk of failure than old ones. Research in organizational ecology challenges this conclusion. Its more comprehensive data suggest that what seems like the effect of age might really be an effect of size: Infant companies may be vulnerable because they are small, not because they are young. When size is taken into account, the liability of newness often is canceled out by the liability of obsolescence.

One of the key challenges that organizations face as they age is the need to adapt to changing circumstances. Hannan’s original hunch continues to be borne out by organizational ecology research: Change is easier said than done. The social and economic environment at the time of an organization’s founding can have an enduring impact on its mission, structure, and operation. Those that try to transform core elements of their structure often experience increased risk of failure.

The scholars do not claim that organizational change is always dangerous. In the context of dramatic environmental shift, it may be necessary and beneficial to change core organizational features. However, in most cases the process of change itself can be so disruptive in the short term that the organization never gets to see the long-term benefit.

The opposing view, that organizational change is helpful and simple, may arise from case studies of successful organizations—the kind found in popular management books. These star firms may have undergone successful transformations, but their experience is not representative of the vast population of firms. “It is tempting—and many analysts succumb—to infer from this information that, had other organizations attempted the same changes, they too would have experienced success. Unfortunately, this inference comes from considering data that are heavily biased toward the successful firms,” Carroll and Hannan write.

Of course, an enduring industry, taken as a whole, can be seen to adapt to its changing environment. But organizational ecology holds that the driving mechanism for an industry’s evolution is unlikely to be the adaptation of its individual firms. Instead, it is through the selective replacement of outdated organizations that industries adapt. In the airline industry, for example, the once-dominant Pan Am, TWA, and Eastern are all no more. Old household names in retailing such as Montgomery Ward, Sears, and J.C. Penney have given way to Wal-Mart and Target. And steel giants such as Bethlehem and U.S. Steel have lost out to mini-mills such as Nucor. Thus, companies die while industries evolve. One of the current forays in this research direction is the Stanford Project on Emerging Companies, or SPEC, which Hannan directs together with James Baron, the Walter Kenneth Kilpatrick Professor of Organizational Behavior and Human Resources.

The project tracked the evolution of nearly 200 high-technology startups in Silicon Valley between 1980 and 1996, and was later extended to mid-2001, creating probably the most comprehensive database on the histories, structures, and human resource practices of this global center of entrepreneurship.

The study found several different basic models for employment relations. The most common was what the researchers call the “engineering” model, which involves selecting staff based on specific task abilities, using challenging work as the basis for employee attachment to the firm, and controlling and coordinating employee effort through peer groups. Some firms later transitioned to a “bureaucracy” model, in which control becomes more formalized.

The researchers have found that—in line with organizational ecology’s theories about the disruptive effects of change—companies that reorganized their human resource blueprints tended to suffer higher employee turnover and diminished performance. Enterprises in which the blueprint changed were more than twice as likely to fail as similar firms with blueprints that were stable. Over a three-year period, the latter firms grew at almost triple the rate of the former.

Personnel changes at the top are not disruptive as such. It is when chief executives change employment relationships that staff turnover increases. In fact, changing the blueprint seems to be most disruptive when it is implemented by the company’s first CEO, who then stays on. This could be because the founder CEO’s continued presence serves as a reminder that the organization has deviated from its original model.

The findings are especially significant, the scholars note, because it is hard to imagine a setting in which constant flux is more prevalent and where organizational change seems more justified than Silicon Valley. Given the benefits of staying the course, the authors recommend that entrepreneurs should pay more attention to picking an appropriate organizational model from the start. The study challenges the view—popular in the heyday of Silicon Valley’s “built to flip” ethos—that steady organization-building is passé in a new economy flying at Internet speed.

They add that the initial blueprint at founding should be a compromise between the current and the expected future needs—a point that few company founders seem to care about. “It’s by no means uncommon to see a founder spend more time and energy fretting about the scalability of the phone system or IT platform than about the scalability of the culture and practices for managing employees,” write Hannan and Baron.

A quarter-century since the publication of his seminal paper, Hannan says his own thinking has evolved. As one looks more closely at what exactly these organizational forms are that make up a population, it is clear that they are not merely manifestations of formal technical features. “It’s clear that they are social constructions, rooted in identities, and at some level as cultural as you can get,” he says.

Hannan does not claim to be setting the agenda for organizational ecology. The scholars in this area draw on certain shared analytical ideas but, like the industries they study, organizational ecology today is marked by theoretical diversity. This is good news, Hannan says: “It assures that talented young people still join it.” It may not be long, therefore, before they start calling him a great-grandfather.

Old Assumptions Challenged

Organizations change easily and often. Actually, the research shows inertia reigns. The relevant players in an industry are companies that have opened for business. Industries are also shaped by ideas from companies that are aborted or stillborn. Companies without competitors have the best chance of survival. Companies with enduring competition are better survivors. New organizations are the most likely to fail. It is not their youth but their small size that is the biggest risk factor. Personnel changes at the top of a company are disruptive. It is more disruptive for existing executives to change the company blueprint.

For media inquiries, visit the Newsroom .

Explore More

Your summer 2024 podcast playlist, leading with values: when good intentions aren’t enough, jensen huang on how to use first-principles thinking to drive decisions, editor’s picks.

The Demography of Corporations and Industries Glenn R. Carroll Michael T. Hannan

The Red Queen Among Organizations: How Competitiveness Evolves William P. Barnett

Agilent Technologies: Organizational Change (B) William Barnett, Glenn Carroll, Victoria Chang

Agilent Technologies: Organizational Change (A) William Barnett, Glenn Carroll, Victoria Chang

The World Trade Organization and the Seattle Talks Michael Hannan, John McMillan, Joel Podolny, Mary Ann Warren

• Priorities for the GSB's Future
• See the Current DEI Report
• Supporting Data
• Research & Insights
• Share Your Thoughts
• Search Fund Primer
• Teaching & Curriculum
• Affiliated Faculty
• Faculty Advisors
• Louis W. Foster Resource Center
• Defining Social Innovation
• Impact Compass
• Global Health Innovation Insights
• Faculty Affiliates
• Student Awards & Certificates
• Changemakers
• Dean Jonathan Levin
• Dean Garth Saloner
• Dean Robert Joss
• Dean Michael Spence
• Dean Robert Jaedicke
• Dean Rene McPherson
• Dean Arjay Miller
• Dean Ernest Arbuckle
• Dean Jacob Hugh Jackson
• Dean Willard Hotchkiss
• Faculty in Memoriam
• Stanford GSB Firsts
• Class of 2024 Candidates
• Certificate & Award Recipients
• Dean’s Remarks
• Keynote Address
• Teaching Approach
• Analysis and Measurement of Impact
• The Corporate Entrepreneur: Startup in a Grown-Up Enterprise
• Data-Driven Impact
• Designing Experiments for Impact
• Digital Marketing
• The Founder’s Right Hand
• Marketing for Measurable Change
• Product Management
• Public Policy Lab: Financial Challenges Facing US Cities
• Public Policy Lab: Homelessness in California
• Lab Features
• Curricular Integration
• View From The Top
• Formation of New Ventures
• Managing Growing Enterprises
• Startup Garage
• Explore Beyond the Classroom
• Stanford Venture Studio
• Summer Program
• Workshops & Events
• The Five Lenses of Entrepreneurship
• Leadership Labs
• Executive Challenge
• Arbuckle Leadership Fellows Program
• Selection Process
• Training Schedule
• Time Commitment
• Learning Expectations
• Post-Training Opportunities
• Who Should Apply
• Introductory T-Groups
• Leadership for Society Program
• Certificate
• 2024 Awardees
• 2023 Awardees
• 2022 Awardees
• 2021 Awardees
• 2020 Awardees
• 2019 Awardees
• 2018 Awardees
• Social Management Immersion Fund
• Stanford Impact Founder Fellowships
• Stanford Impact Leader Prizes
• Social Entrepreneurship
• Stanford GSB Impact Fund
• Economic Development
• Energy & Environment
• Stanford GSB Residences
• Environmental Leadership
• Stanford GSB Artwork
• A Closer Look
• California & the Bay Area
• Voices of Stanford GSB
• Business & Beneficial Technology
• Business & Sustainability
• Business & Free Markets
• Business, Government, and Society Forum
• Get Involved
• Second Year
• Global Experiences
• JD/MBA Joint Degree
• MA Education/MBA Joint Degree
• MD/MBA Dual Degree
• MPP/MBA Joint Degree
• MS Computer Science/MBA Joint Degree
• MS Electrical Engineering/MBA Joint Degree
• MS Environment and Resources (E-IPER)/MBA Joint Degree
• Academic Calendar
• Clubs & Activities
• LGBTQ+ Students
• Military Veterans
• Minorities & People of Color
• Partners & Families
• Students with Disabilities
• Student Support
• Residential Life
• Student Voices
• MBA Alumni Voices
• A Week in the Life
• Career Support
• Employment Outcomes
• Cost of Attendance
• Knight-Hennessy Scholars Program
• Yellow Ribbon Program
• BOLD Fellows Fund
• Application Process
• Loan Forgiveness
• Contact the Financial Aid Office
• Evaluation Criteria
• GMAT & GRE
• English Language Proficiency
• Personal Information, Activities & Awards
• Professional Experience
• Letters of Recommendation
• Optional Short Answer Questions
• Application Fee
• Reapplication
• Deferred Enrollment
• Joint & Dual Degrees
• Entering Class Profile
• Event Schedule
• Ambassadors
• New & Noteworthy
• Ask a Question
• See Why Stanford MSx
• Is MSx Right for You?
• MSx Stories
• Leadership Development
• How You Will Learn
• Admission Events
• Personal Information
• GMAT, GRE & EA
• English Proficiency Tests
• Career Change
• Career Advancement
• Daycare, Schools & Camps
• U.S. Citizens and Permanent Residents
• Requirements
• Requirements: Behavioral
• Requirements: Quantitative
• Requirements: Macro
• Requirements: Micro
• Annual Evaluations
• Field Examination
• Research Activities
• Research Papers
• Dissertation
• Oral Examination
• Current Students
• Education & CV
• International Applicants
• Statement of Purpose
• Reapplicants
• Application Fee Waiver
• Deadline & Decisions
• Job Market Candidates
• Academic Placements
• Stay in Touch
• Faculty Mentors
• Current Fellows
• Standard Track
• Fellowship & Benefits
• Group Enrollment
• Program Formats
• Developing a Program
• Diversity & Inclusion
• Strategic Transformation
• Program Experience
• Contact Client Services
• Campus Experience
• Live Online Experience
• Silicon Valley & Bay Area
• Digital Credentials
• Faculty Spotlights
• Participant Spotlights
• Eligibility
• International Participants
• Stanford Ignite
• Frequently Asked Questions
• Operations, Information & Technology
• Organizational Behavior
• Political Economy
• Classical Liberalism
• The Eddie Lunch
• Accounting Summer Camp
• Videos, Code & Data
• California Econometrics Conference
• California Quantitative Marketing PhD Conference
• California School Conference
• China India Insights Conference
• Homo economicus, Evolving
• Political Economics (2023–24)
• Scaling Geologic Storage of CO2 (2023–24)
• A Resilient Pacific: Building Connections, Envisioning Solutions
• Adaptation and Innovation
• Changing Climate
• Civil Society
• Climate Impact Summit
• Climate Science
• Corporate Carbon Disclosures
• Earth’s Seafloor
• Environmental Justice
• Operations and Information Technology
• Organizations
• Sustainability Reporting and Control
• Taking the Pulse of the Planet
• Urban Infrastructure
• Watershed Restoration
• Junior Faculty Workshop on Financial Regulation and Banking
• Ken Singleton Celebration
• Marketing Camp
• Quantitative Marketing PhD Alumni Conference
• Presentations
• Theory and Inference in Accounting Research
• Stanford Closer Look Series
• Quick Guides
• Core Concepts
• Journal Articles
• Glossary of Terms
• Faculty & Staff
• Researchers & Students
• Research Approach
• Charitable Giving
• Financial Health
• Government Services
• Workers & Careers
• Short Course
• Adaptive & Iterative Experimentation
• Incentive Design
• Social Sciences & Behavioral Nudges
• Bandit Experiment Application
• Conferences & Events
• Reading Materials
• Energy Entrepreneurship
• Faculty & Affiliates
• SOLE Report
• Responsible Supply Chains
• Current Study Usage
• Pre-Registration Information
• Participate in a Study
• Founding Donors
• Location Information
• Participant Profile
• Network Membership
• Program Impact
• Collaborators
• Entrepreneur Profiles
• Company Spotlights
• Seed Transformation Network
• Responsibilities
• Current Coaches
• How to Apply
• Meet the Consultants
• Meet the Interns
• Intern Profiles
• Collaborate
• Research Library
• News & Insights
• Program Contacts
• Databases & Datasets
• Research Guides
• Consultations
• Research Workshops
• Career Research
• Research Data Services
• Course Reserves
• Course Research Guides
• Material Loan Periods
• Fines & Other Charges
• Document Delivery
• Interlibrary Loan
• Equipment Checkout
• Print & Scan
• MBA & MSx Students
• PhD Students
• Other Stanford Students
• Faculty Assistants
• Research Assistants
• Stanford GSB Alumni
• Telling Our Story
• Staff Directory
• Site Registration
• Alumni Directory
• Alumni Email
• Privacy Settings & My Profile
• Success Stories
• The Story of Circles
• Support Women’s Circles
• Stanford Women on Boards Initiative
• Alumnae Spotlights
• Insights & Research
• Industry & Professional
• Entrepreneurial Commitment Group
• Recent Alumni
• Half-Century Club
• Fall Reunions
• Spring Reunions
• MBA 25th Reunion
• Half-Century Club Reunion
• Faculty Lectures
• Ernest C. Arbuckle Award
• Alison Elliott Exceptional Achievement Award
• ENCORE Award
• Excellence in Leadership Award
• John W. Gardner Volunteer Leadership Award
• Robert K. Jaedicke Faculty Award
• Jack McDonald Military Service Appreciation Award
• Jerry I. Porras Latino Leadership Award
• Tapestry Award
• Student & Alumni Events
• Executive Recruiters
• Interviewing
• Land the Perfect Job with LinkedIn
• Negotiating
• Elevator Pitch
• Email Best Practices
• Resumes & Cover Letters
• Self-Assessment
• Whitney Birdwell Ball
• Margaret Brooks
• Bryn Panee Burkhart
• Margaret Chan
• Ricki Frankel
• Peter Gandolfo
• Cindy W. Greig
• Natalie Guillen
• Carly Janson
• Sloan Klein
• Sherri Appel Lassila
• Stuart Meyer
• Tanisha Parrish
• Virginia Roberson
• Philippe Taieb
• Michael Takagawa
• Terra Winston
• Johanna Wise
• Debbie Wolter
• Rebecca Zucker
• Complimentary Coaching
• Changing Careers
• Work-Life Integration
• Career Breaks
• Flexible Work
• Encore Careers
• Join a Board
• D&B Hoovers
• Data Axle (ReferenceUSA)
• EBSCO Business Source
• Global Newsstream
• Market Share Reporter
• ProQuest One Business
• Student Clubs
• Entrepreneurial Students
• Stanford GSB Trust
• Alumni Community
• How to Volunteer
• Springboard Sessions
• Consulting Projects
• 2020 – 2029
• 2010 – 2019
• 2000 – 2009
• 1990 – 1999
• 1980 – 1989
• 1970 – 1979
• 1960 – 1969
• 1950 – 1959
• 1940 – 1949
• Service Areas
• ACT History
• ACT Awards Celebration
• ACT Governance Structure
• Building Leadership for ACT
• Individual Leadership Positions
• Leadership Role Overview
• Purpose of the ACT Management Board
• Contact ACT
• Business & Nonprofit Communities
• Reunion Volunteers
• Ways to Give
• Fiscal Year Report
• Business School Fund Leadership Council
• Planned Giving Options
• Planned Giving Benefits
• Planned Gifts and Reunions
• Legacy Partners
• Giving News & Stories
• Giving Deadlines
• Development Staff
• Submit Class Notes
• Class Secretaries
• Board of Directors
• Health Care
• Sustainability
• Class Takeaways
• All Else Equal: Making Better Decisions
• If/Then: Business, Leadership, Society
• Grit & Growth
• Think Fast, Talk Smart
• Spring 2022
• Spring 2021
• Autumn 2020
• Summer 2020
• Winter 2020
• In the Media
• For Journalists
• DCI Fellows
• Other Auditors
• Academic Calendar & Deadlines
• Course Materials
• Entrepreneurial Resources
• Campus Drive Grove
• Campus Drive Lawn
• CEMEX Auditorium
• King Community Court
• Seawell Family Boardroom
• Stanford GSB Bowl
• Stanford Investors Common
• Town Square
• Vidalakis Courtyard
• Vidalakis Dining Hall
• Catering Services
• Policies & Guidelines
• Reservations
• Contact Faculty Recruiting
• Lecturer Positions
• Postdoctoral Positions
• Accommodations
• CMC-Managed Interviews
• Recruiter-Managed Interviews
• Virtual Interviews
• Campus & Virtual
• Search for Candidates
• Think Globally
• Recruiting Calendar
• Recruiting Policies
• Full-Time Employment
• Summer Employment
• Entrepreneurial Summer Program
• Global Management Immersion Experience
• Social-Purpose Summer Internships
• Process Overview
• Project Types
• Client Eligibility Criteria
• Client Screening
• ACT Leadership
• Social Innovation & Nonprofit Management Resources
• Develop Your Organization’s Talent
• Centers & Initiatives
• Student Fellowships

Looking for AI in local government? See our newest product, Madison AI.

More Like this

Ten common causes of business failure.

Failure is a topic most of us would rather avoid. But ignoring obvious (and subtle) warning signs of business trouble is a surefire way to end up on the wrong side of business survival statistics.

What’s the survival rate of new businesses? Statistically, roughly 66 percent of new businesses survive two years or more, 50 percent survive at least four years, and just 40 percent survive six years or more. This is according to the study “Redefining Small Business Success” by the U.S. Small Business Administration.

Does Your Strategy Suck? Get this Free Guide to Find Out.

Learn how to avoid the most common pitfalls in strategic planning here .

With this information as a backdrop, we’ve put together a list of 10 common reasons businesses close their doors:

• Failure to understand your market and customers. We often ask our clients, “Where will you play and how will you win?”. In short, it’s vital to understand your competitive marketspace and your customers’ buying habits. Answering questions about who your customers are and how much they’re willing to spend is a huge step in putting your best foot forward.
• Opening a business in an industry that isn’t profitable. Sometimes, even the best ideas can’t be turned into a high-profit business. It’s important to choose an industry where you can achieve sustained growth. We all learned the dot-com lesson – to survive, you must have positive cash flow. It takes more than a good idea and passion to stay in business.
• Failure to understand and communicate what you are selling. You must clearly define your value proposition. What is the value I am providing to my customer? Once you understand it, ask yourself if you are communicating it effectively. Does your market connect with what you are saying?
• Inadequate financing . Businesses need cash flow to float them through the sales cycles and the natural ebb and flow of business. Running the bank accounts dry is responsible for a good portion of business failure. Cash is king, and many quickly find that borrowing money from lenders can be difficult.
• Reactive attitudes . Failure to anticipate or react to competition, technology, or marketplace changes can lead a business into the danger zone. Staying innovative and aware will keep your business competitive.
• Overdependence on a single customer. If your biggest customer walked out the door and never returned, would your organization be ok? If that answer is no, you might consider diversifying your customer base a strategic objective in your strategic plan.
• No customer strategy . Be aware of how customers influence your business. Are you in touch with them? Do you know what they like or dislike about you? Understanding your customer forwards and backwards can play a big role in the development of your strategy.
• Not knowing when to say “No.” To serve your customers well, you have to focus on quality, delivery, follow-through, and follow-up. Going after all the business you can get drains your cash and actually reduces overall profitability. Sometimes it’s okay to say no to projects or business so you can focus on quality, not quantity.
• Poor management. Management of a business encompasses a number of activities: planning, organizing, controlling, directing and communicating. The cardinal rule of small business management is to know exactly where you stand at all times. A common problem faced by successful companies is growing beyond management resources or skills.
• No planning. As the saying goes, failing to plan is planning to fail. If you don’t know where you are going, you will never get there. Having a comprehensive and actionable strategy allows you to create engagement, alignment, and ownership within your organization. It’s a clear roadmap that shows where you’ve been, where you are, and where you’re going next.

Running an organization is no easy task. Being aware of common downfalls in business can help you proactively avoid them. It’s a constant challenge. We know, but it’s also a continuous opportunity to avoid becoming one of the statistics.

36 Comments

This article is apt for everyone who’s planning to make a business, i admire this article so much ths more clear, understandable and realistic. I really appreciate this information, thanks for those people behind this informative thing. thumbs up!!!!!!!!!!

I have been looking at countless articles on why businesses fail. This one seems to make the most sense.

Thanks! David

Wonderful article thank to those behind this am really happy to read this article,u will be blessed in Jesus name (amen).

Awesome article

The article is very helpful and I have been assisted by it keep posting helpful thing.

I found this useful to us in Africa; especially Uganda

why is small business fail

Item number 8 is an eye opener for me thanks. More grace!

I found this useful to us in Africa; especially Uganda lol

mind opening article keep on posting

Cash flow or lack thereof is the #1 thing I evaluate when helping a company turn their business around. I am not disagreeing with any one of the 10 but unless you have enough cash you may not have enough runway to fix any one of the other 9 items to turn the situation around.

I thought I would have a look at the article and then add something that was missed as I have good understanding of these issues. Well darn and hats off Todd Ballowe. You have covered all the issues in a very tightly worded manner. Well done.

your article is good. keep on posting such important stuff. the information is helpful. thank you very much.

Right on point about why some businesses fail??

This is the richest article I have ever read while doing my research on the cause of business failure.

thank to the author, Keep up.

am very grateful about this article

The points are well put and straight to the point.

Thanks to the author we are now aware of whats causes our business to fail .

Sir/Madam! The article is fine. If you don’t mind, please specify the internal and external factors that influence a business to success or to failure. Because, in this modern world, specification i every field is appreciated. The tips are good, but quite mixed, please categorize them, thankyou

woo ,this article is awesome.I have found what i was looking for

what must a manager do to sustain a business growth?

this article is so helpful cause it contains sense why bussineses fail

Great article! Covered a lot of perspectives. Most owners believe that “knowledge is power” however they should understand that only “applied knowledge” is only the power that works! -great point. Came across a blog on Buymaster.co which really compliments and adds to this article. Take a look http://blog.buymaster.co/why-small-businesses-fail-or-fail-to-thrive/

thanks this artical is very helpful

Wow , great article. it touches an interesting field that i’m studying “Strategic management Accounting” This field seeks to involve the marketing environment with accounting as the strategy to gain sustainable competitive Advantage in the market. Thus , this articles highlights the importance of strategic tools in the market.

I am just a new comer in business, but I think this article can be a help for me.

Its a nice article but its just that we read these kind of articles only after failing in business and there are mistakes that we do again and again..as much as your articles helps me to understand the common reasons for failure I would like to point out some major reasons in my own way:

1) Lack of Capital- This is by far the most major reason for any business to fail although I am not saying this is the only reason. But it is often seen that people have capital to start up a business but in a long run they are not able to fulfil the internal and external demands of the business like salaries of staff, rent, raw materials etc. 2) Lack of Managerial expertise: This is also a major reason. It is often seen first time entrepreneurs lack management skills like planning, organizing, controlling etc. 3) Competition: This also plays in the success or failure of any business. Before or even after starting a business one must know who there competitors are and what are there strategy like what is the price of the products that they are offering, similarly quality,finish etc. Know your competition. 4) Random: There are many other reasons like understanding the needs and mentality of the customer. Know their likes and dislikes, their paying capacity, handling raw materials, keeping proper money/cash flow and accounting the same at regular intervals, having an open thinking and attitude, and their could be many that might not be present in what all I have stated. Please do give a feedback on this one

i found this article very useful , i have 40 years experiance in managing various business . thank you

Thaxs I loved the article since it opens up peoples’ minds.

Must say, this is an excellent article.

Covers the most important point in perfect details with no extra fluff.

It’s a great article and very knowledgable here are some pointers hope this could help you 1) Lack of Capital- This is by far the most major reason for any business to fail although I am not saying this is the only reason. But it is often seen that people have capital to start up a business but in a long run they are not able to fulfil the internal and external demands of the business like salaries of staff, rent, raw materials etc. 2) Lack of Managerial expertise: This is also a major reason. It is often seen first time entrepreneurs lack management skills like planning, organizing, controlling etc. 3) Competition: This also plays in the success or failure of any business. Before or even after starting a business one must know who there competitors are and what are there strategy like what is the price of the products that they are offering, similarly quality,finish etc. Know your competition. 4) Random: There are many other reasons like understanding the needs and mentality of the customer. Know their likes and dislikes, their paying capacity, handling raw materials, keeping proper money/cash flow and accounting the same at regular intervals, having an open thinking and attitude, and their could be many that might not be present in what all I have stated. Please do give a feedback on this one https://www.meshcowork.com/en/blog/read/620446883/failure-in-entrepreneurship

Thanks I have enjoyed the article ,,, very sensitive to understand especially to students who study financial management

It’s really very helpful. Thanks for sharing this amazing strategy

Comments Cancel

Join 60,000 other leaders engaged in transforming their organizations., subscribe to get the latest agile strategy best practices, free guides, case studies, and videos in your inbox every week..

Leading strategy? Join our FREE community.

Become a member of the chief strategy officer collaborative..

Free monthly sessions and exclusive content.

Do you want to 2x your impact.

Entrepreneurship

• Jan 18, 2023
• 10 min read

10 Effective Ways to Overcome Business Failure

Is your business venture turning sour? Here are a few ways to save it!

Andrew Moran

Business and Finance Expert

Reviewed by Hayley Ramsey

Business is a tough racket. When you succeed, you feel like you are on top of the world. When you fail, it feels like you’ve hit rock bottom. It is estimated that about  20% of small businesses shut down in their first year , and nearly half of smaller enterprises crumble in their fifth year. These numbers do vary worldwide, but one thing is for sure: running a company is not for the faint of heart .

For a lot of entrepreneurs — neophytes and mavens — understanding how to overcome corporate failure in a rational manner is one of the hardest  lessons to learn . No entrepreneur sets out to invest in a startup, only to see it shut its doors within a year. But it does not need to be a glass-half-empty scenario. In fact, it can be the opposite by knowing that success can be attained through failure .

To help you turn the experience into a stepping-stone towards something greater, we have outlined what business failure looks like, where its roots lie, and how it can be overcome.

What is business failure?

“Business failure” is the term we use for when companies can no longer meet their financial requirements and are forced to cease their operations.

In financial terms, businesses fail due to a poor management of cash flow and an insufficient working capital. Positive cash flow is when cash inflow, the money you bring in, outweighs cash outflow, the money that you spend. Negative cash flow, which implies the opposite, is what causes most businesses to crash. When you’re no longer able to go up, you will, unfortunately, go under.

What causes business failure?

Business failure is typically brought about by a string of smaller, consecutive failures. Some of the most common ones being an initial lack of research, an unfocused strategy or plan, inadequate marketing efforts, and financial mismanagement .

Companies who don’t do their homework at the beginning end up building their business on an unsteady foundation. This is due to a poor understanding of the market . If there is no demand for a product or service, there won’t be an audience to help them sustain their operations. Likewise, the lack of a great business plan can quickly take on the form of financial and managerial unsteadiness.

On the flip-side, if a product is good and there is an audience, failing to spread the word will sadly translate into wasted potential. Similarly, well-thought-out business strategies will prove useless if C-level management fails to stick to them .

How to overcome business failure

Taking a gut-wrenching sense of disappointment and turning it into an opportunity to grow isn’t easy. However, a willingness to learn and a refusal to give up are key characteristics of successful people in business . So, let’s see what you can do to stay focused and overcome failure.

1. Establish a contingency plan

A business contingency plan is a necessary component for every entity’s strategy planning because it prepares us for the worst-case scenario. It is comparable to a rainy-day savings account. Sure, you don’t want to prepare for a sickness or a  job loss , but life happens, and it’s better to be ready than blindsided.

This is how contingency planning works; Your organization has a detailed course of action to implement, should an unforeseen circumstance or unexpected situation unfold before your very eyes. You’re proactive.

Here are some tips when putting together a contingency plan:

• Perform tests to determine if your plan works.
• Refine your contingencies as time progresses to ensure you adapt to changing conditions.
• Partner with a dependable IT firm that can ensure your data is safe and retrievable.
• Implement checks and balances to identify weaknesses.
• Designate someone in your firm to devise a contingency plan — if you have a large business.
• List your credit options, like a business loan, as a “just-in-case” survival element.

2. Conduct a SWOT analysis

Every organization — large and small — should conduct a SWOT analysis. The primary objective of this age-old technique is to understand the ins and outs of your enterprise and what factors are taken into account before action is taken.

 Wait a minute. What does SWOT analysis stand for?

• Strengths: Positive internal attributes, physical assets and competitive advantage over rivals.
• Weaknesses: Negative internal factors, such as gaps in your staff or processes that need to be improved.
• Opportunities: External elements that might contribute to your corporate success.
• Threats: Outside forces that you do not have control over, like a global pandemic that shuts down entire economies.

Since you are attempting to overcome business failure, it is imperative to concentrate on the weaknesses and opportunities aspects of your SWOT analysis. These two considerations may likely have been the cause of your entrepreneurial demise.

3. Focus on your customers

Without an injection of customers, it will be hard to maintain operations. If you are unable to build leads, accumulate prospects and gain new clients, then it is imperative to concentrate on the customers you do have . It is comparable to the  inspirational movie ,  Jerry Maguire , where a sports agent loses all his clients, except one football player, and the agent needs to apply all his resources and energy to this particular athlete.

When you can’t capture a new revenue stream, you must harness the power of your current patrons. Whether this is attempting to expand upon their business with discounts and new products or leveraging their patronage for  email marketing  tactical purposes, focusing on your most loyal and frequent clients can be one of the smartest business tricks you can utilize.

4. Be SMART

Just how SMART is your company? This analysis can quickly revive your operations by quantifying the aims of your firm , enabling your organization to possess an articulated objective with all parties. You may be wondering by now what SMART is:

• Specific: Your goal is quite elementary, my dear Watson. It is simple, precise and unambiguous for all stakeholders.
• Measurable: Your objective is easy to measure and assess your progress, allowing you to determine if you are on the right track.
• Attainable: Your aim is realistic and achievable. If it is a pie-in-the-sky dream, you set yourself up for failure.
• Relevant: Your target matters and relates to the entire firm, not just a select few (or none at all).
• Time-bound: When do you wish to achieve your goal? The answer to that question can matter significantly, because the timeline can affect your solutions and options. Six weeks or six months — your practices can vary by the calendar.

Do you feel SMART enough yet?

5. Manage cash flow during downturn

During any hiccup, you must count your pennies. Without consistent cash flow, your firm could succumb to the basic laws of finance . If you don’t have money coming in, it will be hard to keep your doors open. Until that dire day, there are several ways to attain a regular injection of cash:

• Send out invoices on time to ensure you are promptly paid.
• Contact clients that are in arrears and that have been bucking you for weeks.
• Accept deposit payments in advance.
• If applicable, use an accounts receivable financing service to add the balance of money to your coffers.
• Refrain from falling behind on your own bills to avoid additional expenses.

Even if some of the invoices seem inconsequential, there is an old saying that says, follow the pennies and the dollars will follow!

6. Invest in social media

Marketing professionals often say that if you aren’t on social media, then you aren’t trying. It has become a cliché, but it still rings true for many businesses that think social networking is overcrowded and that it is a waste of time and resources. This is a mistaken belief, because the better viewpoint is that there are millions of potential customers at your fingertips.

Social media platforms, such as Twitter, Facebook, Pinterest and Instagram, are all valuable tools that can be utilized when you want to generate new leads, advance your brand strategy and  amplify your digital operations . If most consumers are in a certain place, why would you avoid traveling to that destination?

7. Hire a business advisor

One of the causes of a failing business is that too many owners are stubborn and refuse to adapt or even take responsibility . We get it. You have put your blood, sweat and tears into your company, and you don’t want to be told that a lot of what you did was wrong. 

Whether you are just starting out or you have been an entrepreneur for a few years, hiring a business advisor can be one of the best investment decisions you will ever make . Since a business advisor is a successful entrepreneur with a knack for the corporate world and the marketplace, you can pick their brain about what went wrong, what you can do to move forward and how you can achieve success.

8. Avoid emotional decision-making

Making decisions based on emotions is one of the reasons behind a business failure. It may be easier said than done, especially when you are in a moment of rage or sadness. That said, taking a few moments to collect yourself and become rational again is paramount to ensure you overcome the hurdles and barriers. Go for a walk, grab a coffee or just take a deep breath — this is the  entrepreneurial mindset  you need to maintain during the bear and bull markets of your business cycle.

9. Surround yourself with the right people

It is said that you are the company you keep, suggesting that if you surround yourself with the wrong type of people — morose, procrastinators, ignorant or lazy — then you will adopt their characteristics. There is some truth to that, particularly when you are running a company. Imagine having someone in your office who shrugs about everything and says no to everyone. This toxic behavior can significantly affect your business’s performance . 

Instead, you want to have  top talent on your team , and you want your immediate circle to be encouraging, upbeat and equally invested in your company.

10. Experiment outside your comfort zone

Entrepreneurship is about taking risks. If you are uncomfortable with uncertainty, then you should work for somebody else instead of being  self-employed . However, if you can take a sensible business risk by weighing your options, stimulating your little gray cells and testing them out, then why not? Risk is manageable when you are not doing it based on emotion .

Ultimately, to run a successful company, you need to step outside your comfort zone on occasion. In the years to come, you will have accrued a reservoir of experience, knowledge and wisdom that can be tapped into when you need them.

Final thoughts

Everybody wants to be perfect at something on their first try. While it would be great to perform Bach’s Goldberg Variations on the first attempt, it takes months and even years of practice to execute a stellar performance of the classical composition. The same reasoning applies to business. 

A lot of resources go into owning and operating a company, whether it is a hot dog stand or a consultancy firm . Not everyone will know what to do on day one, from cash flow management to digital marketing, it will take plenty of trial and error for your business to excel. 

In the end, do you have the patience and resilience to survive the harsh world of business? Better yet, what have you learned throughout all this agony and anguish? These are the questions to ask yourself at the end of every workday to be sure that you are ready to enter the next stage of business.

Have you ever had to overcome business failure? What are your tips and tricks? Join the discussion in the comments section below!

Originally published May 7, 2020. Updated by Electra Michaelidou.

Business Strategies

Managing a Business

More From Forbes

The three reasons businesses fail and how to avoid them.

• Share to Facebook
• Share to Twitter
• Share to Linkedin

Dylan Ogline is serial entrepreneur and author known as a pervader of work and lifestyle optimizations. He is the founder of Ogline Digital .

Entrepreneurs tend to be optimists. They don’t like to think about failure. If you believe in the law of attraction or the power of positive thinking, you might even feel like you’re attracting failure to you by thinking about it.

While I don’t believe in the power of positive thinking myself, I believe in the power of positive action . And knowing what action to take means studying success as well as studying failure. If you want to avoid the fate of high-profile failed businesses, wouldn’t it be helpful to understand the mistakes they made so you can avoid them?

Here are my top three reasons businesses fail as well as some tips on how to avoid them.

1. Failing To Solve A Market Need

I hammer into my mentees the idea of “product-market fit.” Your idea has to solve a market need—one that they are willing to pay you to solve. And the only way to confirm their willingness is if they pull out their credit card and pay for it.

Best Travel Insurance Companies

Best covid-19 travel insurance plans.

Too many entrepreneurs get led astray by technology like crypto, click funnels, SEO, live streaming and organic discovery. They get seduced by the technology and charge enthusiastically into business without confirming that someone is willing to buy what they’re selling.

What does it take to verify product-market fit? Two things:

Identifying Your Market

“Everyone” is not a market. It’s impossible to sell to everyone, at least at the beginning. Yes, Amazon sells to everyone today. But it was originally an online bookseller in the early days of the internet, so its market was “book lovers with internet connections who know enough about HTTPS to be willing to type their credit cards into a website.” Pretty specific, right?

So who is your ideal buyer? Get specific: sex, age, occupation, industry, familial status, pets, politics, favorite music, favorite breakfast cereal— anything that helps you understand who you’re talking to.

Identifying Their Problem

We talk about this like it’s as easy as asking them, but it isn’t. People often don’t even know what their problem is. If they knew they had a problem, it would be easy to solve. They usually have a generalized sense that something isn’t right, but they can’t articulate what.

The most successful businesses identify a problem that no one knew was there. No one had thought of blending the gig economy and mobile technology to replace the cumbersome taxi business before Uber, but can we imagine our lives without it now?

2. Not Enough Cash

Obvious, right? Not enough money? But I didn’t say that. I said not enough cash .

The difference is subtle, but companies that use the accrual method of accounting tend to treat revenue as cash. Revenue could mean “accounts receivable,” but try paying your water bill with accounts receivable. You’ll be sent packing in search of an AR loan.

Revenue is a vanity metric. It makes you feel good. But good revenue and bad cash have the possibility of destroying businesses. So how do successful businesses manage their cash? By being:

Cash-Forward

A cash-forward business receives value before they have to pay for it. Think of Amazon again; they stock inventory, sell it and ship it to their customers before they owe their suppliers a dime. They’ve collected the cash before their expenses are due.

Compare that to restaurants. They have to rent space, buy ingredients, buy supplies and equipment and commit to payroll before they have made one dollar. This is one of many reasons why restaurants operate on such slim margins, fail so frequently and you have to be a little bit crazy to open one.

Capital-Efficient

Especially in the early days, companies must be capital-efficient—that is, extremely judicious about the cash they have. Every decision needs to address how to keep overhead low. Working from home, relying on contractors instead of staff—anything to preserve capital.

In the end, capital efficiency enables you to take bigger risks. How bold could you be if the cash in your business account could cover your expenses for one whole year?

3. Not A Good Enough Team

In the early going, it may be tempting to hire anyone who will say yes. But successful companies set high hiring standards and take the time they need to find the right people. They need to be outstanding and they need to buy into the mission of the company.

This might seem to contradict the previous point since the best people often command higher salaries, raising your overhead and impacting your cash. But a great teammate is more valuable than all the cash in the world. It’s the glue that will hold your business together in the tough spots.

Success leaves clues and so does failure. To avoid the pitfalls that lead promising entrepreneurs to epic fails, make sure you solve a market need, maintain your cash and hire the best team possible.

Forbes Business Council is the foremost growth and networking organization for business owners and leaders. Do I qualify?

• Editorial Standards
• Reprints & Permissions

Failures and Success in Business

How it works

Our life is made up of both bright and negative sides which are interconnected. There are two phenomena that characterize human life which are failure and success. At some point of our lives, most people are struggling. It is critical and essential part of our lives. Though failure can be describe as a lack of success, an unsuccessful individual, business or item, a lack or deficiency of a desirable quality, people usually have to fail before they succeed in their lives.

Failure is not a means to an end. It does provide any evidence of permanence. Failure itself is not dangerous – it’s that fear of failure that keeps a person doing nothing. Failure is failure to hit ones’ target, whatever it may be, but it does not preclude one from attempting to take actions again.

We shouldn’t believe a failure is a loss. It is, of course, part of life and also part of every business industry. Every popular and well-known entrepreneur failed and this is the truth of entrepreneurship. Entrepreneurs experience failures first before becoming what they are right now, which is becoming successful. There are several reasons why business struggle to do so. First reason is insufficient experience. Lack of business knowledge is one of the major factors that many business struggle during the first year or two. Just because you don’t have any experience does not necessarily imply your business is going to struggle. But because it’s one of the major reasons why certain firms struggle, this will inspire you to know the ins and outs before you leap in the head first. Having awareness is important so know everything before making the leap. Second explanation is bad management. It is some of the biggest causes why many businesses struggle. Some would claim this is as a reason of lack of business knowledge. In certain situations this might be valid but not all of them. There have been many individuals who have begun a business with lots of expertise but the business falls flat on their faces because of having bad management decisions. Monitoring every part of the company means things are going on. Next is failure to prepare ahead. Often when beginning a company people have all the best ideas however other times people get nervous and eager and launch the company with little too little thought. The idea is to get a business set up before start-up in order to find any support to fund the business. And last explanation is because of the wrong reasons to start a company. Most of the entrepreneurs start their business because they are really eager to provide products and services for their fellow countrymen. But there are also people who would start company as they think it would create a lot of revenue for them. Begin a business you have keen interest. Those people who only want income from their business seem to just bother thinking about what they’re doing a bit. To be successful, learn while you’re doing it and choose a business you’re really involved in.

To be humiliated is our propensity for failure. It is because we don’t like how it makes us feel ashamed and disappointed for what we have done. That’s why we ought to change our attitude to look at defeat as a way to grow to develop. Some productive entrepreneurs experienced disappointment but instead of seeing failure as a cause to give up they were building on those failures and seeing them as potential development as an entrepreneur.

Cite this page

Failures and success in business. (2021, Oct 15). Retrieved from https://papersowl.com/examples/failures-and-success-in-business/

"Failures and success in business." PapersOwl.com , 15 Oct 2021, https://papersowl.com/examples/failures-and-success-in-business/

PapersOwl.com. (2021). Failures and success in business . [Online]. Available at: https://papersowl.com/examples/failures-and-success-in-business/ [Accessed: 13 Jul. 2024]

"Failures and success in business." PapersOwl.com, Oct 15, 2021. Accessed July 13, 2024. https://papersowl.com/examples/failures-and-success-in-business/

"Failures and success in business," PapersOwl.com , 15-Oct-2021. [Online]. Available: https://papersowl.com/examples/failures-and-success-in-business/. [Accessed: 13-Jul-2024]

PapersOwl.com. (2021). Failures and success in business . [Online]. Available at: https://papersowl.com/examples/failures-and-success-in-business/ [Accessed: 13-Jul-2024]

Don't let plagiarism ruin your grade

Hire a writer to get a unique paper crafted to your needs.

Our writers will help you fix any mistakes and get an A+!

Please check your inbox.

You can order an original essay written according to your instructions.

Trusted by over 1 million students worldwide

1. Tell Us Your Requirements

2. Pick your perfect writer

3. Get Your Paper and Pay

Hi! I'm Amy, your personal assistant!

Don't know where to start? Give me your paper requirements and I connect you to an academic expert.

short deadlines

100% Plagiarism-Free

Certified writers

Three Essays in Business Failure

PDF Version Also Available for Download.

Description

This dissertation consists of three essays exploring market reactions to business failure. In the first essay, the filing strategies are divided into three basic types, voluntary, involuntary and prepackaged. The second essay provides insight into industry wide factors impacting assimilation of information by the market. The third essay provides a view of the GARCH-M model in measuring a risk premium as a firm approaches bankruptcy.

Physical Description

viii, 249 leaves: ill.

Creation Information

Theis, John D. (John Dennis) May 1997.

This dissertation is part of the collection entitled: UNT Theses and Dissertations and was provided by the UNT Libraries to the UNT Digital Library , a digital repository hosted by the UNT Libraries . It has been viewed 188 times. More information about this dissertation can be viewed below.

People and organizations associated with either the creation of this dissertation or its content.

• Theis, John D. (John Dennis)
• Impson, Michael Major Professor

Committee Members

• Redfearn, Michael R. Minor Professor
• Poe, Stephen L.
• Thornton, John Hugh
• Molina, David J.
• University of North Texas Place of Publication: Denton, Texas

Rights Holder

For guidance see Citations, Rights, Re-Use .

Provided By

Unt libraries.

The UNT Libraries serve the university and community by providing access to physical and online collections, fostering information literacy, supporting academic research, and much, much more.

Descriptive information to help identify this dissertation. Follow the links below to find similar items on the Digital Library.

Degree Information

• Level: Doctoral
• Grantor: University of North Texas
• Name: Doctor of Philosophy
• Department: Finance, Insurance, Real Estate, and Law
• Discipline: Finance
• financial economists
• market reactions

Library of Congress Subject Headings

• Business failures.
• Thesis or Dissertation

Unique identifying numbers for this dissertation in the Digital Library or other systems.

• Call Number : 379 N81d no.4493
• Accession or Local Control No : 1002659629-Theis
• UNT Catalog No. : b2040706 | View in Discover
• Archival Resource Key : ark:/67531/metadc278851

Collections

This dissertation is part of the following collection of related materials.

UNT Theses and Dissertations

Theses and dissertations represent a wealth of scholarly and artistic content created by masters and doctoral students in the degree-seeking process. Some ETDs in this collection are restricted to use by the UNT community .

What responsibilities do I have when using this dissertation?

Digital Files

• 259 image files available in multiple sizes
• 1 file (.pdf)
• Metadata API: descriptive and downloadable metadata available in other formats

Dates and time periods associated with this dissertation.

Creation Date

Added to the unt digital library.

• March 26, 2014, 9:30 a.m.

Description Last Updated

• April 20, 2020, 10:05 a.m.

Usage Statistics

When was this dissertation last used?

Interact With This Dissertation

Here are some suggestions for what to do next.

Search Inside

• or search this site for other thesis or dissertations

Start Reading

• All Formats

Citations, Rights, Re-Use

• Citing this Dissertation
• Responsibilities of Use
• Licensing and Permissions
• Linking and Embedding
• Copies and Reproductions

International Image Interoperability Framework

We support the IIIF Presentation API

Print / Share

Links for robots.

Helpful links in machine-readable formats.

Archival Resource Key (ARK)

• ERC Record: /ark:/67531/metadc278851/?
• Persistence Statement: /ark:/67531/metadc278851/??

International Image Interoperability Framework (IIIF)

• IIIF Manifest: /ark:/67531/metadc278851/manifest/

Metadata Formats

• UNTL Format: /ark:/67531/metadc278851/metadata.untl.xml
• DC RDF: /ark:/67531/metadc278851/metadata.dc.rdf
• DC XML: /ark:/67531/metadc278851/metadata.dc.xml
• OAI_DC : /oai/?verb=GetRecord&metadataPrefix=oai_dc&identifier=info:ark/67531/metadc278851
• METS : /ark:/67531/metadc278851/metadata.mets.xml
• OpenSearch Document: /ark:/67531/metadc278851/opensearch.xml
• Thumbnail: /ark:/67531/metadc278851/thumbnail/
• Small Image: /ark:/67531/metadc278851/small/
• In-text: /ark:/67531/metadc278851/urls.txt
• Usage Stats: /stats/stats.json?ark=ark:/67531/metadc278851

Theis, John D. (John Dennis). Three Essays in Business Failure , dissertation , May 1997; Denton, Texas . ( https://digital.library.unt.edu/ark:/67531/metadc278851/ : accessed July 13, 2024 ), University of North Texas Libraries, UNT Digital Library, https://digital.library.unt.edu ; .

• Entertainment
• Environment
• Information Science and Technology
• Social Issues

Home Essay Samples Life

Essay Samples on Failure

Understanding the relation between failure and success.

What is the link between failure and success? Failure, though agonizing and arduous, is an import step to success. Everyone fails. Take for example, Albert Einstein. Arguably the most famous professor of all time started as a failure of a student. He was constantly skipping...

Personal Failure: Learning to Succeed in Life

Everyone fails at something in their life at least once and you'd be lying if you said you never have. It’s ok to fail as long as you take it as an opportunity to grow and learn and not as a defeat. I’ve had my...

• Overcoming Obstacles

Failure Is Not an Option: the Importance of Accepting Failure in the Pursuit of Success

Introduction Becoming successful is not an easy task. On the journey towards success, it's vital to remember that failure is just a stepping stone. This essay will explain why, even in the face of tough challenges and initial setbacks, it is essential to persevere and...

Personal Experience Essay About Perseverance In Everyday Life

The act of persevering; persistence in anything undertaken; continued pursuit or prosecution is what is defined as perseverance in a dictionary. Most people would summarize it as not giving up. Although people have a good idea of the word perseverance I still feel like they...

• Perseverance

How Much Luck Matters in Achieving Success in Business: Analysis of the Studies

The controversy of the topic of luck and success in the world of business has always been discussed and argued about. Successful business people share their views on the importance of luck in business, and even then, there are disagreements being faced. People often see...

Stressed out with your paper?

Consider using writing assistance:

• 100% unique papers
• 3 hrs deadline option

Analysis of David Roberts' Article The Radical Moral Implications of Luck in Human Life

'The radical moral implications of luck in human life' by David Roberts It is not hard to perceive any reason why numerous individuals complain when helped to remember their good fortune, particularly the individuals who have gotten the most. Taking into account fortunes can gouge...

Bridge Disasters: Analysing the Most Horrible Bridge Failures

Tay Bridge Introduction The Tay Bridge crosses the Firth of Tay between Newport and Dundee in Scotland on a railway line. It was 10,320 feet long. The failure of the Tay Bridge took place on December 29, 1879, resulting in the death of 75 people....

Failure of European Disneyland Attractions and Analysis of Macro Environment

Introduction Many of Businesses in America make detailed assumptions about the potential of expand their business to other countries.One of the examples of the outcome to intercultural business is Disney Corporation's European attempt. Euro Disney has a very difficult beginning experience in France. Due its...

Responsibilities and Failures of Civil Engineering Profession

When you become a civil engineer, you take on the responsibility to serve the public and improve the quality of life within the community. The ASCE Code of Ethics was established for civil engineers to practice ethical behavior in their profession. The ASCE Code of...

• Civil Engineering
• Responsibility

Factors Behind Failure of Modernism

According to Collingwood, the development of the arts has presented a painful and unstable process because it was generally not progress but retrogression (Read 2006). But arts received its own advance and construction in this constant failure or when went backwards. Thus in the study...

• Art History

A Story of Being Human and Making Mistakes

We are all human. Therefore, we all make mistakes. But the one thing that comes out of these mistakes, is we usually learn a lesson. Making mistakes is human nature, none of us are exempt. That is even true in writing this paper, I will...

• Human Nature

Analysis Of Merck Vioxx Failure Case

Vioxx was introduced by Merck & Co. , on 1999 in United State of America. Due to Merck & Co. , aggressive promotion at that time it was really famous not only in US but also in other 80 countries. Within 4 year its worldwide...

• Company Analysis

The Path to Success: How Failure Is A Blessing In Disguise

Failure, a single word that strikes fear into the hearts of many. We all know failure as not being able to achieve that one thing you’ve been dreaming of for so many years. Failure, reaching for success but falling hard, hitting the ground hard, having...

Failure Is A Great Teacher

This might look funny and not welcoming to you, but the truth is that you can’t learn all your lessons from success stories. Success and Failure are same thing, what makes it same is that the share the same experience but with different outcome. The...

• Personal Life

How I Have Turned My Fail Into An Achievement

Most of the essays you will read are about people bragging about their achievements and never talk about the failures that got them to that point. Of course, you only want people to hear good things about you, not the bad traits. I believe that...

• Personal Experience

The Lesson I Learnt From Failure

When you fail, and you fail big, it feels like the end of the line. It feels like everything you once hoped for and dreamed for is now completely out of your reach. It takes an emotional toll on you. It breaks you physically, mentally,...

Best topics on Failure

1. Understanding the Relation Between Failure and Success

2. Personal Failure: Learning to Succeed in Life

3. Failure Is Not an Option: the Importance of Accepting Failure in the Pursuit of Success

4. Personal Experience Essay About Perseverance In Everyday Life

5. How Much Luck Matters in Achieving Success in Business: Analysis of the Studies

6. Analysis of David Roberts’ Article The Radical Moral Implications of Luck in Human Life

7. Bridge Disasters: Analysing the Most Horrible Bridge Failures

8. Failure of European Disneyland Attractions and Analysis of Macro Environment

9. Responsibilities and Failures of Civil Engineering Profession

10. Factors Behind Failure of Modernism

11. A Story of Being Human and Making Mistakes

12. Analysis Of Merck Vioxx Failure Case

13. The Path to Success: How Failure Is A Blessing In Disguise

14. Failure Is A Great Teacher

15. How I Have Turned My Fail Into An Achievement

• Career Goals
• Personality

Need writing help?

You can always rely on us no matter what type of paper you need

*No hidden charges

100% Unique Essays

Absolutely Confidential

Money Back Guarantee

By clicking “Send Essay”, you agree to our Terms of service and Privacy statement. We will occasionally send you account related emails

You can also get a UNIQUE essay on this or any other topic

Thank you! We’ll contact you as soon as possible.

What percentage of businesses fail and why?

Discover what percentage of businesses fail and explore the key reasons behind their failures. Learn insights and strategies to avoid common pitfalls and succeed.

Go to section

Starting a business is like planting a seed. You hope it'll grow into a big, strong tree, but not all seeds make it. 45% of businesses fail within the first 5 years and more than half don’t make it after 10 .

It's tough out there in the business world, but why do so many fail? Is it bad luck, not enough money, or something else? Let's find out what makes some businesses thrive – while others wither away.

Average business failure rate – in a nutshell

Starting a business is risky, with many factors influencing success or failure. The failure rate for new businesses is notably high. About 20% fail within the first two years. By the five-year mark, almost half ( 49.7% ) have shut down. After ten years, more than 65% have closed their doors. According to the U.S. Bureau of Labor Statistics , there were 1,054,052 new businesses started in the year ending March 2023. Based on historical data, we can expect around 210,810 of these to fail within the first two years.

Top reasons why businesses fail

You’ve probably heard the phrase "half of startups fail" and the comment can seem off-putting for aspiring business owners. Fortunately, the vast majority of failed businesses share some common pitfalls, lets explore them in more detail.

Cash flow problems and running out of capital

Cash flow problems and running out of capital are critical issues. Surprisingly, despite 82% of businesses failing due to cash flow issues and 38% running out of cash entirely, some argue that other factors could be more crucial.

Businesses that start with insufficient funding or spend beyond their means are more likely to fail in the early years. Without enough money, companies struggle to cover essential costs and grow. Many new businesses take on too much credit card debt or fail to secure a proper business loan, leading to financial strain.

Business failure statistics show that poor financial management is a primary reason many businesses fail within the first five years.

So, cash flow can make or break a business.

It raises the question: Are businesses overly focused on cash flow at the expense of innovation or customer relationships? Understanding these dynamics and their connection is really important for business owners aiming for sustainable growth.

Strong competition

Cash flow problems are critical issues. However, strong competition is another major reason why businesses fail. About 20% of businesses fail because they cannot keep up with their competitors. Small businesses often struggle to compete against larger, more established companies.

The small business administration notes that the ability to stay competitive influences small business failure rates. Many businesses face significant startup costs, and they need the right team or strategy to stay caught up.

Business owners must understand the competitive landscape to achieve business success. Lack of competitive edge contributes to the high percentage of businesses that fail within the first few years. To avoid becoming part of these failure statistics, businesses need to continuously innovate and work on their USP.

Lack of market need for the product or service

It's tempting to open a business, but often founders set up a business first and find out whom they sell to and what their USP is second, while it should be the other way around. Lack of market need is a primary reason small businesses fail, with 35% of startups failing due to no market demand.

Business owners should understand their target audience and develop a unique selling proposition before they invest. Such oversight can lead to businesses closing and discourage would-be entrepreneurs.

Successful businesses focus on potential customers and industry data to ensure they meet a genuine need in the market.

And if it's not possible, they develop a minimum viable product (MVP) to validate their idea before putting a lot of dollars into it.

Poor business planning and market research

Neglecting to thoroughly research the market and develop a solid business plan is a major factor in why businesses fail.

Often, the excitement of having a business comes first, and research comes second.

Doing so might lead to poor decisions and the business idea never taking off. Many businesses fail because they simply don't check the business environment or understand their market need before launching their operations.

Poor location, online presence, and marketing

Businesses can suffer from growing pains if they're stuck in a bad location or haven't built a strong digital presence.

Imagine a storefront hidden in a back alley – customers won't stumble upon it easily. Similarly, a weak online presence means you're invisible in the vast digital marketplace.

This can make it tough to reach your target audience and address their needs, leaving your product or service a secret and your business missing out on valuable customers.

While launching a business is exciting, it's important to be aware of some common hurdles new ventures face. The good news is that these challenges are often interconnected, and by addressing them together, you can increase your chances of success.

We'll check the strategies for overcoming these hurdles later in the article.

How can small businesses protect themselves from falling?

Thrive in the right space

Ever feel like your business is shouting into a void? You've got a great product, but customers just aren't coming through the door (or clicking "buy").

It's not always about the product itself. Often, location (physical or digital) plays a huge role.

Sure, some businesses can thrive anywhere. But for many, choosing the right space is critical. A charming bakery tucked away on a quiet street might be a hidden gem for locals, but it would attract better foot traffic on a bustling avenue.

The same goes online.

A strong website and social media presence are your digital storefront. Without them, potential customers can't find you, no matter how amazing your products are.

Think of a local coffee shop. They might choose a location near a busy office park, offering quick breakfast options and convenient online ordering for busy professionals.

That's thriving in the right space!

Design your customer message

Think of it like this: if most businesses fail in the first year, wouldn't it be valuable to understand the primary reasons? It's not just about market conditions or economic downturns, although those can play a role. Often, it comes down to failing to connect with your target audience.

• Successful business ownership requires understanding your ideal customer. What are their needs, wants, and pain points? Speak directly to those in your message.
• Don't just tell people about your product or service. Explain how it solves their problems or improves their lives. People buy benefits, not features.
• Your message should be easy to understand. Avoid jargon and technical terms that might confuse your audience.
• Before investing heavily, test your concept with potential customers. Get feedback on how your product or service addresses their needs. Use surveys, focus groups, or even a simple landing page – whatever can bring you insights, fast.
• Let your brand personality shine through. People connect with genuine businesses, not robots.

That's how you lay the foundation for a thriving business. You attract loyal customers, differentiate yourself from competitors in other industries [oil and gas extraction companies might not face the same customer needs as a bakery, for example], and build a sustainable business model.

Manage money wisely

Even the best entrepreneurs with great business ideas can struggle if they don't manage their cash flow wisely. Cash flow is the lifeblood of any business, regardless of industry.

A steady cash flow allows you to reinvest in your business. This could be anything from paid advertising to attract customers (social media marketing, influencer marketing) to developing new products or services (online courses, digital products).

Let's state the obvious, too. You need cash to cover expenses like rent, payroll, and marketing costs. Without proper cash flow management, you risk falling behind on payments and damaging your reputation.

So, how can you manage your cash flow effectively? Here are a few tips:

• Track your income and expenses to understand where your money is going. This will help you identify areas where you can cut costs or increase revenue.
• Offer early payment discounts or implement stricter payment terms to encourage customers to pay on time.
• Set aside a cash reserve to cover unexpected expenses or slow periods.

Managing cash flow isn't about actually having a lot of money upfront. It's about being smart with your resources and planning for the future.

Stand out from competitors

Don't just blend in with the crowd – find your unique selling proposition (USP) and shout it from the rooftops. Start by thoroughly researching your competitors. What do they offer? How do they market themselves? Identify gaps in their offerings or services that you can fill with your own business.

Develop a strong brand identity that resonates with your target audience. This goes beyond just a logo – think about consistent voice and personality across all touchpoints.

Consider offering something unique that your competitors don't. It doesn't have to be a product – how many new businesses actually come up with extremely unique offerings? Exactly! You can differentiate yourself with exceptional customer service, a novel product feature, or an innovative business model.

A great example of this kind of rivalry is " the Cola wars ". Coca-Cola and Pepsi have been competing for decades, not just with their soda products, but through their unique marketing campaigns and brand experiences. Pepsi introduced the Pepsi Challenge to directly engage customers, while Coca-Cola focused on its classic branding and customer loyalty programs.

Both companies innovate and adapt their strategies to stand out, but also watch their competitor's steps. Similarly, your business can thrive by finding that unique edge and consistently delivering value that sets you apart from the competition. Even if you're smaller than Pepsi or Coke.

Sometimes, a bold campaign can greatly increase brand awareness and attract new customers.

Remember, standing out isn't about being the loudest – it's about being the most relevant and valuable to your specific audience.

Take care of a customer feedback loop

Create a system to regularly collect and act on customer feedback. Involve post-purchase surveys, follow-up emails, or even in-person conversations for local businesses. Set up an automated email sequence that asks for feedback a few days after a purchase.

Analyze the feedback regularly, looking for patterns or recurring issues. Use this information to make concrete improvements to your products, services, or processes.

Close the loop by reaching out to customers who provided feedback, letting them know how you've addressed their concerns or implemented their suggestions.

Show that you value their input and can turn even negative experiences into positive ones.

Implement a referral program

Referrals can help your business growth because they are fairly easy to implement, don't cost much, and can be highly beneficial if done right.

You can use these strategies:

• Design a simple, attractive incentive for both the referrer and the new customer. This could be a discount, a free product, or an exclusive offer.
• Create clear, easy-to-understand terms for your referral program. Make sure it's easy for customers to participate and track their referrals.
• Promote your referral program through multiple channels – email, social media, in-store signage (for physical businesses), and on your website.
• Track the performance of your referral program. Monitor metrics like the number of referrals, conversion rate, and the lifetime value of referred customers. Use this data to refine and improve your program over time.

You need to make it beneficial for everyone involved – your business, the referrer, and the new customer.

Use efficient tools

There are awesome tech tools like design software and planners that can help your business run like a well-oiled machine.

But what happens when you're drowning in emails, customer info, and sales numbers?

That's where you're a step away from losing business.

And that's where a CRM system comes to the rescue. Think of it as a great address book for all your important client stuff. It keeps everything organized, helps you track potential customers, and even lets you see how sales are going on a daily basis.

With a CRM on your side, you can ditch the information overload and focus on what really matters – growing your business and steering clear of any bumps in the road.

We happen to know a great one. Capsule CRM can help you streamline your collaboration, optimize your contact management, and make the most of your sales workflow.

Stay updated with Capsule by signing up for our newsletter

Read our full privacy policy here .

What to read next

Why staying small is the new big thing in business

10+ Practical small business spreadsheet templates

I want to start a business but have no ideas – sound familiar?

The ultimate guide to creating a marketing strategy

• SUGGESTED TOPICS
• The Magazine
• Newsletters
• Managing Yourself
• Managing Teams
• Work-life Balance
• The Big Idea
• Data & Visuals
• Reading Lists
• Case Selections
• HBR Learning
• Topic Feeds
• Account Settings
• Email Preferences

Why Are Companies That Lose Money Still So Successful?

• Vijay Govindarajan,
• Shivaram Rajgopal,
• Anup Srivastava,
• Aneel Iqbal,
• Elnaz Basirian

New research on how to identify investments that produce delayed but real profits — not just those that produce short-term accounting profits.

In a well-functioning capital market, profits should be the sole criterion for firm survival; that is, firms reporting losses should disappear. Of late, however, loss-making firms are highly sought after by investors — often more than some profitable firms. Unicorns, or startups with valuations exceeding a billion dollars, are examples of such loss-making firms. What has changed over time? When and why did losses lose their meaning? The authors’ series of new research papers provide some answers, guiding managers to make the right investments: those that produce delayed but real profits — not just those that produce short-term accounting profits but decimate shareholder wealth in long run.

In 1979, psychologists Daniel Kahneman and Amos Tversky famously posited that losses loom larger than gains in human decision-making. For example, a dollar of loss affects our behavior more than a dollar of profits . Likewise, when a firm announces losses, its stock price declines more dramatically than it increases for the same dollar amount of profits. Investors abandon and lenders tend to stop financing loss-making firms , which then start restructuring their business lines and laying off employees. Some firms go even further, conducting M&A transactions without substance and “managing earnings” to report profits instead of a loss.

• Vijay Govindarajan is the Coxe Distinguished Professor at Dartmouth College’s Tuck School of Business, an executive fellow at Harvard Business School, and faculty partner at the Silicon Valley incubator Mach 49. He is a New York Times and Wall Street Journal bestselling author. His latest book is Fusion Strategy: How Real-Time Data and AI Will Power the Industrial Future . His Harvard Business Review articles “ Engineering Reverse Innovations ” and “ Stop the Innovation Wars ” won McKinsey Awards for best article published in HBR. His HBR articles “ How GE Is Disrupting Itself ” and “ The CEO’s Role in Business Model Reinvention ” are HBR all-time top-50 bestsellers. Follow him on LinkedIn . vgovindarajan
• Shivaram Rajgopal is the Roy Bernard Kester and T.W. Byrnes Professor of Accounting and Auditing and Vice Dean of Research at Columbia Business School. His research examines financial reporting and executive compensation issues and he is widely published in both accounting and finance.
• Anup Srivastava holds Canada Research Chair in Accounting, Decision Making, and Capital Markets and is a full professor at Haskayne School of Business, University of Calgary. In a series of HBR articles, he examines the management implications of digital disruption. He specializes in the valuation and financial reporting challenges of digital companies. Follow Anup on  LinkedIn .
• Aneel Iqbal is an assistant professor at Thunderbird School of Global Management, Arizona State University. He examines the accounting measurement and financial disclosures for new-economy firms and incorporates his wide-ranging industry experience into his research and teaching. He is a seasoned accounting and finance professional with diverse experience in auditing, financial analysis, business advisory, performance management, and executive training. Follow Aneel on LinkedIn .
• Elnaz Basirian is a PhD student at the Haskayne School of Business. She examines the influence and role of intangibles in accounting and finance, aimed at improving valuation and market efficiency. She brings a decade of work experience in international financial markets. Follow Elnaz on LinkedIn .

Partner Center

Boeing’s fraud case shows that some businesses are still too big to fail

Associate Professor, School of Management, University of Bath

Disclosure statement

Akhil Bhardwaj does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

University of Bath provides funding as a member of The Conversation UK.

View all partners

In January, Alaska Airlines flight 1282 nearly fell out of the sky when it lost a door plug at an altitude of more than 10,000ft, leading to rapid decompression of the main cabin of the plane.

Although no one was killed, the incident happened after two similar Boeing-manufactured 737 Max planes crashed in 2018 and 2019, killing 346 people.

These crashes sparked investigations by the US Department of Justice (DoJ), leading to Boeing being charged with one count of conspiracy to defraud regulators in 2021.

The DoJ agreed not to prosecute Boeing if the firm promised to pay a US$243.6 million (£190 million) criminal fine and enter a three-year probationary period that involved enforcing a compliance and ethics programme. But the Alaska Airlines incident prompted the DoJ to reopen the case and has resulted in Boeing agreeing to plead guilty to the original charge and paying an additional US$243.6 million.

The US government is now in the position of having to decide whether to do business with a company that has admitted a felony. This is particularly ignominious for a country that routinely strips felons of their right to vote.

But apparently, the US government is willing to look the other way. In 2006, the US Air Force cited “compelling business interest” in letting the corporation settle criminal charges related to felony violations , which allowed Boeing to continue competing for defence contracts.

Boeing is not the only major corporation with a chequered history that the US government is willing to do business with. In 2008, Siemens pleaded guilty to routinely using bribes to secure public contracts but avoided a conviction, which allowed it to maintain its status as a “responsible contractor” .

Dependency runs deep

Pleading guilty to all sort of felonious acts, for the purpose of doing business with the US government, apparently does not make a corporation irresponsible. You might say some corporations are too big to fail because the government is far too dependent on them.

Path dependencies run deep, switching costs are far too high, and bilateral dependencies exist between these parties. For Boeing, being too big to fail means continuing to secure billions of dollars in defence contracts.

What does this mean for Boeing’s customers – both airlines and passengers? And, more importantly, will Boeing mend its ways? Its behaviour indicates that it has fallen into a confidence trap – since past risk-taking paid off, it seems to believe that continuing to do so in the future would also be lucrative.

Even when Boeing encountered clear signs that something was amiss – two planes that it manufactured crashed – it did not lead to soul-searching. Rather, the giant apparently continued to do business as usual including requesting safety exemptions from the US Federal Aviation Administration (FAA).

Not only is Boeing a major defence contractor, it is also part of a duopoly (with European rival Airbus), with orders secured for years into the future. Certainly, Airbus cannot simply ramp up production to grab more of the market share. Meanwhile, Boeing’s executives continue to be awarded tens of millions of dollars in remuneration.

Quite simply, there seems to be no real impetus for key decision-makers at Boeing to change their ways – they are paid handsomely for their public humiliation .

On the face of it, the terms of the present agreement are also not very different from the 2021 deal, except for third-party oversight (although observers await more details). But this oversight involves auditing Boeing’s safety and compliance practices, which is what the FAA is supposed to be doing routinely in any case.

In calling for third-party oversight, the DoJ does not seem to have much confidence in the FAA’s ability to monitor Boeing effectively. Perhaps this move marks the beginning of a new era of much more “privatised” regulatory oversight in aviation.

Are airlines worried? Some seem to be, and others are not. Emirates has warned Boeing that it must act to fix problems, and its president Sir Tim Clark had said that the airline would send its engineers to monitor quality.

United Airlines CEO Scott Kirby reportedly asked Boeing to stop making more advanced versions of the Max.

In contrast, Ryanair has expressed wholehearted support for Boeing. In fact, CEO Michael O’Leary reversed course from calling Boeing management “headless chickens” in 2022 to praising them in 2024 saying that safety was their “number one byword” .

But as these events unfold and the turmoil at Boeing continues, passengers are likely to face higher fares . Those wishing to avoid flying in Boeing planes such as the 737 Max can , but it’s often complicated and expensive.

There are, however, bigger concerns. Namely, the perception that the arc of the moral universe does not bend towards justice – rather it bends to the will of the rich and powerful.

Correcting this problem requires an approach that makes clear that no one is above the law, which means holding executives responsible.

One way of doing so would be to institute financial clawbacks – in this case, designing contracts to recover CEO compensation in the event of crashes or near-misses resulting from criminal behaviour.

Those of us who fly literally put skin in the game every time we climb aboard a Boeing – or indeed any kind of – plane. Financial clawbacks inject much-needed executive skin in the game. While this does not put passengers and executives on parity, it might just restore some trust in the system.

• US government
• US Air Force
• Boeing 737 Max
• Give me perspective

Project Manager

Management Information Systems & Analytics – Limited Term Contract

Publications Manager

Audience Insight Officer

Director, Student Administration

Causes of Business Failure Essay

• To find inspiration for your paper and overcome writer’s block
• As a source of information (ensure proper referencing)
• As a template for you assignment

Business is one of the most popular enterprises practiced by people in the world. The reason for this is because of the conducive environment given to people practicing these enterprises. It is believed that setting up a business does not require many facilities and no minimum amount is required to start it. It is also believed that no qualification is required in setting up a business. All these among others have caused the growth of businesses in many places across the world. (Biz/ed, n.d.)

Due to the growth of businesses without qualifications, many challenges have caused businesses to fail. Researchers show that most businesses that are set up do not last for more than five years. For businesses to run well, there is a need to discern the reasons that cause a business to fail. Some strong factors are known to cause businesses to fail. One of these is poor business planning. If a business is started without proper planning, there is a high chance for it to fail. For any business to remain strong, proper planning should be adhered to at its initial stages. There is also the need for experts to provide insight on how to set up businesses in a way that will enable them to remain running. Since poor planning wrecks a business, it is important to ensure that great care is applied in business planning. (Loveureyes, 2009)

Another cause of business failure is management deficiency. It is said that when supervision falls short, a business has a high chance of failing. Management is important in a business that needs a sensible supervision system. When the management is poor, it is hard for the business to grow successfully. Another problem that has been a leading contributor to business failure is fixed budgets. When a budget is tight, the business will have a high chance of running short of money.

As an effect, this causes a business to fail. (Zopounidis,& Dimitras,1998,p.125) Erroneous location is also another cause of failures in business. It is said that if the business is located in places where there are no people, it becomes hard for it to grow. Poor services or unpopular products are other factors that cause many businesses to fail. It is a known fact that for a business to stay ahead of its competitors, standard service has to be maintained. It is also believed that deprived services or low-quality products fail in businesses. (Farrar, 1979, p.75)

Keeping untrained staff is another cause of failure for businesses. If the managers are not fully trained, they become unable to run an enterprise efficiently hence causing it to fail. Lack of unity among the staff also contributes a big part in the ruin of many businesses. When the customers understand that employees are not on good terms, they lose trust with them resulting in low production and by so doing, the business starts deteriorating. All these factors among others contribute a lot to the failure of many businesses. Stern measures should therefore be taken to enable businesses to stand firm without the fear of failing. (Keough, 2008, p.162)

With minimum requirements being required to set up businesses, many challenges have presented themselves in maintaining the businesses. Some issues like poor management, erroneous location, poor services, and having untrained staff have caused many businesses to fail. It is very important to know how to handle a business for it to remain firm. Finally, proper training should be introduced to teach people who want to start businesses to ensure that they start businesses which will stand and keep growing.

References list

Biz/ed. (n.d.) causes of business failure . Web.

Farrar, H. (1979). Company insolvency , Taylor & Francis, pp. 56-87.

Keough, D. (2008). The Ten Commandments for Business Failure , Portfolio, pp. 156-190.

Loveureyes. (2009). What causes a business to fail ? Web.

Zopounidis, C,& Dimitras, A. (Ed). (1998). Multicriteria decision aid methods for the prediction of business failure , springers, pp. 117-171.

• India’s Business Management Issues
• Home-Based Business in Saudi Arabia: Suitable Incentives for Its Citizens Wishing to Start Businesses From Home
• George Washington's Achievements and Farewell Address
• Medical Staff Shortage Issues Root
• Resting Heart Rate: Athletes vs Non Athletes
• Corruption and Ways to Prevent Its Occurrence
• Financial Barriers and Difficulties for Company
• Small Business Management and Outsourcing Issues
• Amazon's Crude by Joe Berlinger Review
• Economic Factors Affect Business for Cold Stone Creamery
• Chicago (A-D)
• Chicago (N-B)

IvyPanda. (2021, December 23). Causes of Business Failure. https://ivypanda.com/essays/causes-of-business-failure/

"Causes of Business Failure." IvyPanda , 23 Dec. 2021, ivypanda.com/essays/causes-of-business-failure/.

IvyPanda . (2021) 'Causes of Business Failure'. 23 December.

IvyPanda . 2021. "Causes of Business Failure." December 23, 2021. https://ivypanda.com/essays/causes-of-business-failure/.

1. IvyPanda . "Causes of Business Failure." December 23, 2021. https://ivypanda.com/essays/causes-of-business-failure/.

Bibliography

IvyPanda . "Causes of Business Failure." December 23, 2021. https://ivypanda.com/essays/causes-of-business-failure/.

Fail fast has become the de facto success formula. Most entrepreneurs can’t afford to fail once

The fail-fast mindset is everywhere in our society today. Fail fast, fail often, and pivot often has been a very popular mantra in the business world since the last great financial crisis in 2008. Its primary purpose was to minimize the psychological and economic impact of losing. Keep on trying to fail rapidly and keep on pivoting until failure does not happen anymore. Hopefully, we will have gained enough momentum before running out of resources and energy from all the failures. How is a mindset that looks forward to failing fast and failing often still the de facto success formula in the world today?

Maybe for someone who is privileged with plenty of financial resources, it might be a fun adventure to take bold actions with the intention to fail. Most of us cannot afford to fail once, let alone failing often. In the event that we take a chance and fail, we will not have the luxury and the financial capability to pivot and start again and again until we find success.

Feel-good failure strategy

As many of my friends in top leadership roles in some of the biggest companies in the world often say, “Let alone failing fast, failure just wasn’t an option when I was faced with this crisis.” In spite of this, the premier management consultants on their advisory board keep insisting that the only way to innovate and succeed in this new world is to celebrate failure and make failing fast a desirable goal.

When your reputation as a leader and the livelihoods of the people who depend on you are at stake, failure cannot be the outcome we should be looking forward to, regardless of how fast and often it is. For those of us who grew up failing often without intending to fail, we know that it isn’t so cool to fail fast and fail often intentionally now that we have tasted some success and stability.

So, why are so many smart people in the world today trying to start their mission with the goal of failing fast?

We are all afraid of losses, pain, and embarrassment. Human beings do not like to experience such feelings. Ironically, these are exactly the same feelings associated with failure. One way of keeping away from the pain of failure is to avoid taking actions that have a high risk of leading to negative outcomes. However, leaders have to drive their organizations into the future. The future is always unknown and risky by nature. Therefore, leaders have no choice but to take risks. As a shortcut solution to this, leaders have been taught to hack their minds to believe that failing is a good thing. By setting failure as a goal, they are protecting themselves from feeling all the pain that comes after the inevitable failures.

Some take it to the next level and actually celebrate failure. This has been going on in the business world for over a decade now, and it is such a feel-good strategy that it has become extremely popular.

Failure hurts—more so if you don’t learn from it

I have used the fail-fast methodology for many years in my personal and professional lives on dozens of critical projects. I used to believe in it very religiously. In the end, I concluded that it’s not an effective approach because it gives you a false sense of progress and can be very costly in the long run without you realizing it. Just like alcohol and drugs numb people’s pains, celebrating failure suppresses the real problem. I believe that this is a big mistake, and it’s the root cause of many problems in society today because when you start a journey with the expectation to fail, your first instinct is to accept roadblocks as failures and give up too fast or pivot rapidly to your next idea. As a result, you won’t go as far as needed to experience your breakthroughs.

Don’t get me wrong. I am not saying that failure is not important. What I am emphasizing is that we should not be looking forward to failure when starting any journey. It is extremely important to learn profoundly and learn fast from your failure so that you can grow to the next and better version of yourself.

Failing is painful, but it’s even more painful when you don’t learn and evolve from it.

We should definitely not be celebrating failure because by associating a positive feeling to it, we will not learn from it. We should be aiming and planning everything so that we succeed, but if and when failure comes, we should take the time to feel the pain and let it sink in. We need to experience the emotional pain of failure and then ask ourselves what we can learn from this. What could we have done better so that we know better for next time?

It is important to experience the pain of your failures. Learn deeply from them to earn your breakthroughs to the next level. It will make you stronger and wiser, faster.

From the book Failing Fast?: The 10 Secrets to Succeed Faster {Innovation Done Right} by Luv Tulsidas. Copyright © 2024 by Luv Tulsidas. Used with permission of Forbes Books, Charleston, South Carolina. 

Latest in Success

Luxury gym CEO scopes out new locations for his $318-a-month fitness centers by standing outside train stations and grading potential members

The world’s top HR association cuts ‘equity’ from its diversity program amid DEI backlash

 A sacred 13,000-year-old tree faces off with a California real-estate development

Working from home increased for the first time since the pandemic

AI’s Bizarro World, we’re marching towards AGI while carbon emissions soar

A $3 billion software unicorn scrapped its plan to give AI ‘workers’ rights after tech execs said it ‘disrespects the humanity of your real employees’

Most popular.

Citigroup has now been fined more than half a billion dollars for risk issues. CEO Jane Fraser has staked her tenure on fixing the bank

65,000 mugs have gone missing at Tesla’s German factory

Millennials and Gen X will inherit $83.5 trillion in the next two decades—but not before spouses of the wealthy obtain their $9 trillion

Tesla walks back Robotaxi reveal, sending its stock plummeting

Women can’t fix the ‘broken rung’ unless they acknowledge the role they play in workplace bullying and discrimination

After a surge in pandemic profits, Rolex, Patek Philippe and Audemars Piguet face a significant downturn as sales slip—extending a two-year decline

• Share full article

Advertisement

Supported by

What Happens When Your Bank Isn’t Really a Bank and Your Money Disappears?

For unsuspecting depositors of online financial start-ups, the unraveling of a little-known intermediary has separated them from their life savings.

By Rob Copeland

Rob Copeland covers Wall Street and banks but has never before encountered this type of unusual conundrum.

For close to a century, putting your savings into a federally insured bank has been a sure thing: If the institution fails, up to $250,000 of your money will be protected.

What if it isn’t anymore?

The promise of bank insurance — a tenet of U.S. consumer protection since the Great Depression — is now being tested by a crisis swirling around online-only lenders with hundreds of millions of dollars of deposits between them. Customer accounts have been frozen, preventing people from cashing out their life savings. Most depositors have little clue where their money has gone, and whether they will get any of it back.

The turmoil was set off this spring with the bankruptcy of Synapse Financial Technologies, the kind of company you’ve probably never heard of unless you suffered through all the fine print of your account statements. It operated banking software for fast-growing online lenders with names like Juno, Yieldstreet and Yotta.

Backed by some of Silicon Valley’s bigger venture capitalists, the start-ups offer accounts that charge lower fees and pay far higher interest rates than traditional brick-and-mortar banks. Their slick websites advertise insurance from the Federal Deposit Insurance Corporation, the U.S. agency that pledges to pay back lost funds.

Unlike stodgy brick-and-mortar institutions, this group’s pitch is that banking can be downright fun. “Play Games. Win Big,” says Yotta, which features a lottery-like system that boosts returns for some lucky customers.

This model is increasingly popular — especially among 20- and 30-somethings — and legal.

The rub is that although these start-ups may look and feel like banks, they are not. They simply collect customer money and pass it through financial technology intermediaries like Synapse to old-school banks that may have as few as one physical branch and minimal online presence. The banks, including Evolve Bank & Trust of West Memphis, Ark., according to filings, are the ones that actually manage the depositors’ money.

We are having trouble retrieving the article content.

Please enable JavaScript in your browser settings.

Thank you for your patience while we verify access. If you are in Reader mode please exit and  log into  your Times account, or  subscribe  for all of The Times.

Thank you for your patience while we verify access.

Already a subscriber?  Log in .

Want all of The Times?  Subscribe .