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

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

 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.


  1. says

    Nice article, I think it’s confusing for new business owners today, so many choices when it comes to marketing and the internet in general. Small business owners get paralyzed with all of the (mis)information they get on what’s best for their business. One of the things I’ve found in working with small business owners is that marketing their business effectively is one of the most frustrating experiences for them.
    To your point with the questions to ask, a lack of research and planning in the beginning to lead to poor decisions during the startup process.
    I think the best business owners are the one’s who learn “to learn” as they go and are always seeking to improve their business and themselves.

  2. Adam Gottlieb says

    I’ve definitely seen that marketing frustration… Typically because the business owner just jumped in to online marketing without any real plan or preparation or because their model was off… The thing is that a lot of these people *are* trying to learn how to make sense of it all. They’ve just been burnt by a lot of bad advice. Others are just so overwhelmed that they have no idea where to even begin (the paralysis you mentioned), and their efforts are happening on top of having to actually run their business. So, not only are a lot of business owners unclear about their online marketing efforts, but there’s also a time factor…

  3. says

    In my mind one of the primary reasons for small business failure is because the owners try to do everything without focusing on what they are good at. Then they try to fit their customers into their model and products instead of the other way around. They end up throwing their marketing money without having a focused product list and proper target customers.

  4. Adam Gottlieb says

    Lack of focus is definitely a big problem… You do need to primarily focus on what you are good at- especially these days given all the competing noise out there, and you need to have a laser-like focus on your target market. Otherwise, you’re right, you’ll be throwing away those marketing dollars.

  5. says

    Very nice article. It’s my experience that many entrepreneurs ended up in business without determining what it is that sets them apart. I call it their core values. Business culture is the same thing. Without that, they are at the mercy of their Customers and employees and their business becomes a turmoil. Then they turn to the social media “Silver Bullet” that will change their lives but because they don’t what they want, their efforts fall short.

  6. Adam Gottlieb says

    Hi Bill,
    I agree that many people stumble into new businesses with out knowing what they are good at, as well as those qualities that set them apart from the rest. It’s a big problem-especially if the business is in an overcrowded niche.

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