Why do businesses fail?

Did you know that in Mexico new companies have a very low percentage of success? About 75% of new businesses do not reach two years. It seems to be too much, doesn’t it? Look at that: 90% do not reach 5 years, and about 97% do not survive 10 years.

So why do so many businesses fail? There are a multitude of reasons, but I found a pattern through my years of experience as an entrepreneur that brings together the most common mistakes.

1- A common offer

Many people open a business because they realize that this product or service is working very well for X company. They have worked in the industry, they have contacts, they know everything about the product/service. But they offer the same thing as company X. When you open a business to offer something existing, remember that it will work if you have a “differentiator”, something that breaks you out of the industry mold, that people didn’t know about, and that they want. Many startups never think about that, and it’s the first step towards failure.

2- Income Management

It is important to have a notion well nailed in your head: the money of your company is not your money. It’s called “Moral Person” for a reason. Many people treat their company account like their own piggy bank. There are a multitude of responsibilities when you have a business, and the first ones are: your suppliers, your employees, investors and the government. Never forget that if you can’t afford one, the others will suffer, and your business will die. This revenue management error is extremely common in businesses that fail, especially in young businesses.

3- Communication

This disease called “lack of communication.” Many entrepreneurs work hard to discover a point of differentiation and then screw it up because they don’t communicate their message clearly, concisely, and compellingly. I see many entrepreneurs who bleed to death for not communicating properly. In the same way, many of them do not pay enough attention to their online reputation.

4- Leadership failures – Self Sabotage

You see it all the time in the media. Another athlete with incredible talent leaves in the background. It is painful to see the self-sabotage of people like Lance Armstrong, Mike Tyson or Aaron Hernandez, who did not achieve a truly remarkable success due to their poor decisions.

Now, you may not see the names of entrepreneurs who fall hard in the New York Post headlines, but the reason for failure is often the same: Self-sabotage through extremely poor decision making, weak leadership skills, and bad strategies, be it sales, marketing, or exit.

5- Innovation

This issue is not only for young companies. It applies to those who are already successful and who can sometimes feel untouched by the position they have achieved with a product/service that has worked wonderfully to date.

If you check the home page of this site, and if you came to an event of mine, I always say: “If you stop growing, you die.” Innovation is part of the growth of a company. Innovation means finding a better way to meet the needs of your customers than anyone else. Anyone can make some money for a certain length of time, but if you want to be successful and maintain that success for years and decades, if you want to build a brand, then you have to find a way to add more value than anyone else in the game. And that comes from constantly innovating.

Very often, a company will fall in love with its product or service and neglect the need for innovation. This is highly problematic as the economy, technology, culture and competition are constantly evolving. It is a different world than the one we live in today, where the only constant is change. And if you don’t stay ahead, you’re falling behind.

Read also: Organic Growth