The #1 Reason Small Businesses Fail: Warning, the Answer May Be Hard to Swallow!

Small Business Failure Rate

Do you want to know the real reason why the majority of small businesses won’t make it past five years? No, it’s NOT the poor economy… It’s NOT political uncertainty… It’s NOT lack of available financing… It’s NOT the natural disaster of the month… It’s NOT Big Business… Are all of these things making it more difficult to run a small business today? For sure. But, 9 times out of 10, the reason why small business owners close up shop is something else entirely…

A Template for Business Success

Small Business Failure Rate Before I get to the answer, I want to mention a guest post that I saw over at Firepole Marketing a couple weeks ago from an online entrepreneur who figured out how to use Instagram to double his online sales. His strategy is quite brilliant.

But what made the post so notable is not that he figured out how to game Instagram, it’s not the details of the steps he took to increase his revenues, nor even the useful tips and tricks he shared. It’s that he explained the “why” behind all those steps, tips, and tricks.

The real brilliance over here is that it’s obvious he thoroughly understands his target audience, and that he made a good effort to understand how Instagram works, and how his target market, in particular, uses that platform. This may not sound so sexy, but it’s really the secret to his success, and I have little doubt that should another relevant platform come along, he would use the same general approach [understanding of target market + understanding of the medium + understanding of how current and potential customers interact with the medium => Marketing strategies] to effectively reach his customers there as well.

Once you have the right business model, once you understand how your audience ticks, then moving your marketing across mediums is not as daunting.

My hunch is that many of readers of that post, some of whom are online entrepreneurs themselves, will totally miss this point. With such undeniable results, many will have an urge to just jump right in on Instagram. They may even “cut and paste” his tactics- especially if they are also trying to sell physical products. But this “bandwagon” approach will likely fail for most people, and they won’t even realize where they went wrong.

Most Business Owners are Lacking in the Basics

Last month I wrote a post about some fundamental mistakes that many small business owners are making on social media. My point was that all those social media buzzwords: the tribes, the klout, the online authority, the crowdsourcing, the social proof, etc are creating a whole lot of confusion about what it takes to succeed as a small business owner these days. While these concepts can’t be ignored, business owners have to realize that the fundamental rules of doing business have not changed at all, and they never will change, either. If you are unfamiliar with the fundamentals of market research, product positioning, branding, marketing, networking, and building customer loyalty, and you make no effort to learn them in some way, or at least align yourself with people who already know, then chances are good that you won’t get very far with your business.

This, and this alone, is the cause of many a small business failure. Realize, that you could really have a great product or service, but if your fundamental business model is off, then you will lose your ability to adapt, you lose the template that can be applied across mediums and changing trends. If you are not in touch with your customers, if you fail to adequately familiarize yourself with a given medium and how your target market relates to it, then you’ll quickly lose relevance in this fast-paced world.

Small Business Is Not Dying

Is small business dying? Absolutely NOT! But, I do believe that many small businesses have to go through a bit of a transition. Judging by the sheer numbers of businesses and self-employed professionals who are online trying to market their products and services, it seems that many realize this. But at the same time, I’m seeing a kind of collective confusion.

Here’s an example: Would you attend a live networking event and just randomly hand out business cards in the hopes that the right people will read them? You wouldn’t necessarily try to speak to everyone either, at least not if you want to succeed in networking… and keep your sanity! But many small business owners believe that the way to use social media is to blast their expert opinion all over the place in the hopes that the right people will take notice. Even if it’s done in the most congenial way, and the person is truly an expert, he or she may not have much to show for all the effort.

Can You Answer These Questions?

Before you start any kind of social media campaign, before you take on a new off-line marketing initiative, hire a new worker, or invest in any kind of major asset, try to answer the following questions:

  • Who is your target market? What are the demographics? What are their passions and struggles?
  • How can potential customers find out about your product/service?
  • What is your marketing niche? What are the main defining features of your product/service?
  • What does your target market like/dislike about your product/service or those of your competitors?
  • What marketing mediums will have the most impact on your target audience?
  • How are you measuring the effectiveness of all marketing campaigns?
  • What are your major expenses?
  • How much money do you need to be making to sustain the business?

If you can’t answer these questions off the top of your head, or if you are not at least on a path to getting the answers, then chances are that something is off with your business model, and that’s a problem that even the best product or services, the slickest social media campaign, and the flashiest website can’t ever fix.