The Real Cause of Business Failure…

… doesn’t turn up in research. At least, not any research I’ve ever seen or heard of.  Consider these problems with the research studies:

  1. To get valid data, you have to start with a random list. And where do you get a random list of businesses that failed? There’s no source I know of. You might be able to find businesses that were registered as legal entities, then disappeared … but if they disappeared, then what good is the contact information? And how do you know whether they disappeared because they changed names, or got bought by a larger company, or simple lapsed because the owners decided to do something else? You don’t.
  2. Businesses rarely fail for single causes. What looks to one analyst like lack of working capital will look to another like failure to collect outstanding bills, and to a third like weak marketing, and to a fourth like failing to offer value to customers.
  3. Business owners rarely know the real causes. We business owners don’t always see the real causes. We focus on one thing instead of another. If we were looking at the business and seeing the causes of failure accurately, then we might have been able to avoid the failure.
  4. And if they do, they might not share it with a survey. Survey respondents don’t always tell the truth. You can ask owners of failed businesses why they failed, and most are going to say what feels good to them when they say it.

So what? So don’t worry about research results that make conclusions of business failure. Run your own business carefully. Plan, set goals, find ways to track and measure progress against goals, and revise the plan frequently.


  • Greig says:

    At the risk of over-simplifying the matter, I’ve always believed that sustainable business growth hinges almost entirely on good owner decision-making. Enterprises fail becauses their owners make too many, or too severe, mistakes. They do so because most of us don’t come from ownership backgrounds. We understand our product or service but good management is something we tend to be:

    1. Unfamiliar with,
    2. Not particularly good at, and
    3. Unmotivated to prioritise since the payoff is long-term (and often hidden) compared to the short-term (and obvious) payoff of making more sales.

    Asking a business owner why they failed is, as you observe, rather pointless. We rarely know what we don’t know. And when we do know what we don’t know, we don’t always know what to do about it.

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