Why Do Most Businesses Fail in the First Few Years?



60% of business fail in the first three years. It’s a disappointing but eye-opening statistic that should serve as both a warning and motivation for any entrepreneur. If you’re planning on starting a new venture, there a few key threats to your success to look out for.


Many businesses fail because the owner jumps headfirst into an industry without proper planning and research. First, you need to identify the viability of your idea. Is there a gap in the market? Have you calculated your initial costs? What challenges will you face? If you think it’s viable, set realistic goals and deadlines to keep track of your progress as you go. Next you need to rigorously plan your operations – cash flow, pricing, sourcing products, managing suppliers and regulations. All of this can be done as part of a business plan which you’ll need to gain funding from banks or investors.


Before you start a business, you should decide how you fit into the market. Is there space for a new offering? How will your services provide something new and beneficial to customers? Finding your niche is important if you want to succeed in a crowded market. However, if your business is too unique, there may simply be no demand for it. Some businesses fail because they wrongly assume their passion or need for a product will be reflected in wider society. This is why market research is vital. To assess the need for a product or service, you should review potential competitors and any failings you can improve upon. Target your audience and pay attention to what they respond well to. Keep your finger on the pulse by monitoring industry trends or technological developments that could piggyback on or use. 


Marketing is the way you promote and sell your products and services – from research to advertising. Without effective marketing, a great product or idea can be easily ignored. If it doesn’t get traction, sales will be low and the business will never be profitable. To combat this, first consider your branding – the name, visual and verbal identity. Align it with your vision, values and audience. Once you’ve presented yourself in the right way, you need to decide on a marketing strategy. To reach your audience, it’s vital you establish the brand and build a strong presence online. That means using different forms of advertising like your website, social media, PR etc. Outsourcing this is an added cost but by using expert knowledge, you’re more likely to increase sales.


Many people underestimate the effort required to run a business. It can be highly stressful, expensive and you’ll have to make significant sacrifices. Dedicating time to setting up and running a start-up means you may be away from both your family and friends. And if your primary reason is to make money, you’ll typically have to wait a few years to turn a profit. Running your own business is not a quick and easy route to success. It helps if you have genuine passion and enthusiasm to drive you through difficult times. Businesses often fail because the entrepreneurs find these mental, physical and financial demands too much to cope with.

Cash flow

In the early stages of starting a business, money is tight. The initial set-up is hugely costly and it takes a significant amount of time for any money to trickle back in. Problems with cashflow often arise due to:

  • High running costs
  • Transport and fuel prices
  • Overspending
  • Poor budgeting
  • Unexpected bills
  • Low sales

It is vital that new businesses create clear, strict budgets and track their spending to the penny. If possible, you should consult a professional when setting up your business to gain a full understanding of your costs and how you can sustain the business before you make a profit. One way to ease transport related cash flow problems is with prepaid fuel cards. When you pay for your fuel up front, you know you won’t be stung by any surprise invoices or hidden charges.


The most successful businesses will have an effective leader or management team. The person or people that make key decisions and set the tone for the company need to have the right skills. Often, entrepreneurs are so close to the business that they can’t be rational or objective. That’s why it’s important to hire a manager to delegate tasks and run the day to day. The ideal leader should be able to:

  • Communicate and empathise
  • Build and maintain relationships
  • Think creatively to solve problems
  • Make informed decisions (often quicky)
  • Adapt to different situations
  • Motivate those around them

To spot poor leadership you can assess the business sales, staff turnover and general atmosphere. If your employees raise concerns about a bad manager, make sure you listen and investigate where appropriate.