Why do Entrepreneurs Fail


Social media icons

There is a common saying that an entrepreneur never fails but only learns. People view failure in entrepreneurship as part of the learning curve, and that all entrepreneurs emerge stronger from failure. But the statistics paint a different picture.

Many small business owners and startups often face crippling failure within a few months of getting their business running. According to data from the BLS (the US Bureau of Labor Statistics), approximately 45% of businesses fail within the first 5 years of being open. This statistic could be valid in other countries as well, not only the US.

So why do many entrepreneurs fail? And, what constitutes failure? Read on as we explore the major reasons many start-up ships sink, and what you can do for yours to remain afloat.


What is Entrepreneurship Failure?

You have probably heard of sayings such as “The Only Place Where Success Comes Before Work is in The Dictionary” or “Failure is Not Fatal, Success is Not Final.” Such motivational quotes are commonplace in the entrepreneurship space. There is nothing inherently wrong with such quotes, and they are really practical.

Even so, failure may mean different things to different people. For purposes of clarity, we need to define what constitutes entrepreneurship failure. To do this, we will need to first define how success is measured.

Some of the metrics used in assessing the success of a business are its financial reward, the potential for growth and distribution of skill or knowledge. If any of these metrics are not met, then that business has failed. While some of these parameters are abstract, the most convenient and measurable is financial reward. If a business is not breaking even, or returning any reward, then for all intents and purposes this business can be said to have failed.

Having outlined that, let us delve into 5 of the most common reasons why entrepreneurs fail.

Not having Enough Funds

Not having enough money is perhaps the most obvious reason. As we have established, success will often be measured financially.

It is a known fact that the first few years of any start-up hardly ever have a financial reward. As an entrepreneur, if you do not have enough starting capital and funds to keep going in the early stages, you will likely go under.

Daymond John’s world-famous apparel brand, FUBU, is a case study. Daymond founded the company in 1989 at his mother’s house and started small by selling hand-sewn hats with the now-famous “FUBU” insignia. However, he could not keep up with the market demand nor the cost of production. For the next six years, the company was financed mainly through credit cards and savings. Daymond’s mom took two mortgages on the house she owned, just to stay afloat. Daymond speaks of having been turned down by 26 banks, where he had gone to look for business funding.

FUBU’s real success came after almost a decade of financial hardship and resilience. FUBU’s success is an outlier in a pool of many similar businesses which could not survive the first few years.

Not Doing Proper Market Research

Entrepreneurs are often known to be driven by passion. While this is a good thing, it has its downsides. Before getting into any market, it is essential to do detailed market research. Do a proper SWOT analysis, dot the i’s and cross the t’s. Passion may be the main driver, but nothing beats facts and figures.

Taking a look at the financial history of Amazon, we can see that its founder Jeff Bezos crunched his numbers before diving in. It is said that after Bezos quit his job at D.E Shaw & Co., he went back home and made a list of 20 promising products that could be sold online, including computer hardware, books, music tapes and videos. He looked at reports which projected internet usage will grow at 2000% within the next decade. This was in July 1994. Amazon did not start operations until July 1995, almost a year later, when the first book was sold. Within two months, the revenues were in the region of $20,000 per week. Today, we see Amazon as the poster child of online shopping.

This is evidence that market research is important. Many entrepreneurs fail because they do not do market research.

Failure to Innovate

The world is dynamic. More so, the past few decades have been evolving rapidly. Society, cultures and the technology that drives them are all hurtling forward at breakneck speeds. Granted, it could be difficult for anyone to keep up. For new businesses especially, it is important to constantly innovate to remain successful.

The example of Kodak comes to mind. Having been founded in 1892, Kodak dominated the photographic film industry. At the height of its dominance in 1997, Kodak held an 80.1% market share in the United States. However, the world’s largest film company could not keep up with the pace of the digital revolution. When the wave of digital imaging and processing started in the early- to mid-2000s, Kodak failed to keep up. Sadly, Kodak filed for Bankruptcy in 2012. It recently emerged from bankruptcy, but it would be difficult to imagine Kodak ever resurfacing to the dominance it held two decades ago.

Creative Commons cc license

Many companies have gone bankrupt or simply been shoved out of the market because they failed to innovate. Failure to innovate is a leading reason why entrepreneurs fail.

Biting off Too Much, Too Soon

A strategic business is a good business. While vision and ambition are key components of success in entrepreneurship, planning and executing strategic entry into the market space is key to business success.

When MySpace, the social networking site entered the market between 2005 and 2008, it seemed they were here for the long haul. In July 2008 the social network raked in over $800 million in revenue from 115 unique users.

Its rapid growth saw the owners behind it reach for an advertising deal with $900 million from Google. However, the ads were heavy on the space, which caused the site to be slow, difficult to use and not flexible.” This meant that MySpace could not focus on its site without letting go of the assured revenue.

Instead of focusing on value provision, the product owners sought expansion too soon after their entry. This made other competitors like Facebook gain an edge over MySpace in the early years and eventually outmuscle it. Since 2009, MySpace has been on a financial plummet. Its revenues have been constantly declining, has changed ownership multiple times and has been put on sale.

Just like was the case for MySpace, many businesses and start-ups fail because the business owners bite off too much, too soon.

“I think we have replaced MTV. MySpace is more convenient. You can search for things, while MTV is just delivering things to you. On MySpace, you can pick your channel and go where you want.”

~ Tom Anderson, MySpace Founder.

Bad Luck

What has luck got to do with it? Sometimes, an entrepreneur might have it all figured out. The business model is okay, the market share is just right, and the finances are in order but they still go under.

There are many iconic businesses that either made unlucky business moves, or existed during an unfavorable period, or simply faced an unfortunate event that led to their failure.

Perhaps no other aeroplane painted an iconic picture in the sky more as did the British-French airliner, Aerospatiale/BAC Concorde. Concorde was the world’s first commercial passenger jet that prided itself in travelling faster than the speed of sound.

In an unfortunate stroke of tragedy, safety issues brought the Concorde down. In July 2000, Air France Flight 4590 crashed in France, on a scheduled flight to New York City. The crash led to the loss of 109 lives of passengers and crew on board, and 4 more in a hotel that the plane crashed into. Up until then, the Concorde had made thousands of take-offs and landings with no incident. This one incident led to a drastic safety rating.

A lot of money was invested in upgrading safety standards, but confidence was forever shaken. Concorde aircraft were retired three years after the fatal crash, in 2003.

This was an event of tragic proportions that affected an otherwise profitable business. Sometimes, things just go wrong in a tragic way and even the most resilient of businesses cannot cope with the consequences.

We have used iconic companies to drive the point home, but the facts remain true for reasons that make any entrepreneur, whether big or small, to go under,

We have looked at only five reasons why entrepreneurs fail There are many other reasons why businesses and start-ups do not attain a financial breakthrough. If you are starting a business, you should watch out for these pitfalls, which caused well known and promising businesses to cave in.

Secure your funding, know your market, innovate with the times and do not bite off too much, too soon. And if luck is on your side, then you will succeed!

man buttoning suit

Welcome new entrepreneurs

Business blogger

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Ut elit tellus, luctus nec ullamcorper mattis, pulvinar dapibus leo.

Welcome new entrepreneurs

My personal favorites
Social media icons

Why do Entrepreneurs Fail

Social media icons

How do entrepreneurs identify opportunities in Competitive Business World

testing invention

Are Entrepreneurs Always Inventors?

book shelf

Why Entrepreneurs Read A Lot

Matthew McFarlane

"I'm an enthusiastic blog writer who loves exploring the world of entrepreneurship. I enjoy breaking down complex business ideas into easy-to-understand articles, helping aspiring and experienced entrepreneurs find their way. My goal is to inspire creativity, share practical advice, and connect with fellow business enthusiasts."

Recent Content