Why 90% Of Small Businesses Fail?

  • John A. Osborne
  • Jan 11, 2023
Small Business Insurance Utah

Starting a small business is a dream of many aspiring entrepreneurs. However, according to statistics, only 10% of small businesses survive in the long run. It is a sad reality that most small businesses fail, and it’s important for entrepreneurs to understand why. In this article, we will explore the reasons behind the high failure rate of small businesses.

Small businesses are the backbone of the economy, and their success is crucial for economic growth. However, the journey of starting and running a small business is full of challenges and obstacles. From inadequate capital to poor management, there are several factors that contribute to the failure of small businesses. Let’s dive deeper into some of these factors:

1. Lack of Planning and Research

One of the primary reasons why small businesses fail is due to the lack of planning and research. Starting a business without proper planning and research is like going on a road trip without a map. Many entrepreneurs have great ideas, but they fail to develop a solid business plan and conduct market research. They jump into the market without knowing what their target audience wants or needs, which makes it difficult to compete with established businesses.

Furthermore, a lack of planning can lead to poor financial management. Without a clear plan, it’s hard to estimate the initial costs, ongoing expenses, and projected revenue. This can lead to underestimating the capital needed, which can result in a shortage of funds to keep the business running.

2. Insufficient Capital

Money is the lifeblood of any business. Many small businesses fail because they don’t have sufficient capital to sustain their operations. Insufficient capital can lead to a lack of resources, poor inventory management, and inability to invest in marketing and advertising. It can also lead to poor decisions, such as cutting corners on quality, which can ultimately result in customer dissatisfaction.

Moreover, lack of capital can lead to difficulty in paying bills and employees, which can have a negative impact on the morale of the team. This can lead to a high rate of employee turnover and difficulty in attracting and retaining talented employees.

3. Poor Marketing and Advertising

Marketing and advertising are essential components of any successful business. However, many small businesses fail to invest in marketing and advertising due to limited funds or lack of knowledge. Without effective marketing and advertising, it’s hard to attract new customers and retain existing ones. Poor marketing can also lead to a lack of brand awareness and recognition, which can make it difficult for businesses to stand out in the market.

Furthermore, many small businesses fail to adapt to changing marketing trends and consumer behavior. With the rise of digital marketing, businesses need to invest in social media, email marketing, and search engine optimization to stay competitive. Failing to do so can lead to being left behind in the market.

4. Ineffective Management

The success of a business depends on the effectiveness of its management. Poor management can lead to a lack of direction, communication breakdown, and a negative work environment. Many small businesses fail due to ineffective management, such as micromanagement or a lack of delegation.

Moreover, small business owners often wear multiple hats and take on too many responsibilities. This can lead to burnout and a lack of focus on the core aspects of the business. Effective management requires delegation, effective communication, and a focus on the long-term goals of the business.


Starting and running a small business is not an easy task. It requires dedication, hard work, and a willingness to learn and adapt to the market. By understanding the reasons why small businesses fail, entrepreneurs can take steps to avoid these pitfalls and increase their chances of success.

Effective planning and research, sufficient capital, effective marketing, and advertising, and effective management are essential components of any successful business. By focusing on these factors, small business owners can increase their chances of success in the long run.

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