Why 50% of Small Businesses Fail in the first five years (and How to Avoid them)

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Small businesses are the backbone of the American economy. As a matter of fact, they account for more than 50% of all private-sector jobs in the United States. Surprisingly, however, less than half of all small businesses are actually profitable. Also, as reported by Fundera, at least 50% of small businesses fail in the first five years.

There are many reasons for this. Well, first and foremost, running a business is expensive. There are a lot of fixed costs that have to be covered, regardless of how well the business is doing. Things like rent, insurance, and employee salaries all need to be paid, no matter what.

Second, most small businesses don't have the same resources as their larger counterparts. They can't afford to hire expensive consultants or buy state-of-the-art equipment. It often leaves them at a disadvantage when competing against bigger businesses.

Lastly, many small businesses are run by people who don't have any business experience. They may be great at making products or providing services, but they don't know how to run a business effectively, leading to poor decision-making and financial troubles.

So, why do 50% of small businesses fail in the first five years, and what can be done to avoid becoming one of them?

14% failed because of poor marketing.

One of the most common reasons why businesses fail is poor marketing. Most small business owners tend to put all of their eggs in one basket and focus on the product or service they are offering rather than marketing it. It's a huge mistake because even the best product or service can fail if it's not marketed correctly.

Take note that marketing is essential for every business. It helps you reach your target market and sell your products or services. If you don't have a good marketing strategy, you will likely struggle to succeed.

There are many different aspects of marketing that you need to focus on if you want to be successful, such as:

  • A strong branding strategy that can help you differentiate your business from the competition.
  • Developing a good marketing lead acquisition system to capture, nature and close more sales effectively.
  • Creating effective marketing materials such as a website, brochures, and social media profiles
  • A sales funnel and process to help you generate leads and close sales.
  • Taking advantage of different marketing channels such as paid advertising, public relations, and content marketing.
  • Managing your online and social media presence to build trust and credibility with your target market.
  • Measuring and analyzing your results to fine-tune your marketing strategy.

If you're not good at marketing, consider hiring someone who is. A good marketer can make all the difference in whether or not your business succeeds. Just make sure that you hire reputable and have a proven track record. Otherwise, you could end up wasting your money on someone who doesn't know what they're doing.

23% failed because they didn't have the right team running the business.

Another reason why most small businesses fail in their first five years is because they don't have the right team running the business. It's often due to the fact that the owner of the business is trying to do everything themselves and not delegate tasks to others. As a result, things fall through the cracks, and the business begins to unravel.

If you want your small business to succeed, you must build a strong team of passionate employees about what they do. Delegate tasks and responsibilities so that everyone has a role to play in keeping the business running smoothly.

While every person in your business  has responsibilities like Marketing, Operations and the Finance each have their own specific accountabilities, they share one common purpose—to make a promise their customer wants to hear, and to deliver on that promise better than anyone else on the block!

“And the place where they join each other is at the position

Building a solid team is one of the most important things you can do for your small business. So don't try to do everything yourself. Delegate tasks to others and focus on what you're good at. It's the best way to ensure that your business will be successful in the long run.

19% were outcompeted.

The competition is tight in the business world, and only the fittest survive. If a business is not constantly innovating and adapting, it'll be left behind and will be forced to close its doors.

In a study of failed businesses, it was found that 19% were outcompeted by their rivals. It means that they simply couldn't keep up with the competition and were forced to shut down.

If you want your business to succeed, you must always be on the lookout for ways to improve. So what can you do to make sure your business doesn't become a statistic? For starters, you need to have a clear understanding of your competitors and what they're doing. You can do this by studying their websites, reading their press releases, and following them on social media.

You also need to be willing to invest in your business and make the necessary changes to stay ahead of the curve. For example, if your competitors are using cutting-edge technology, you may need to invest in new software or hardware.

And most importantly, you need to have a strong work ethic and never give up on your dreams.

18% failed because of pricing and cost issues.

Pricing and cost are two of the most important factors to consider when launching a new product or service. They are also two of the most difficult to control. In a recent study, 18% of new products failed because of pricing and cost issues.

There are a number of ways to price your product or service, and there is no one right answer. You need to find the pricing that allows you to make a profit while still attracting customers. There are a few things to keep in mind when setting prices:

  • What is the cost of producing and delivering your product or service?
  • How much do you want to make per sale?
  • What are your competitors charging?
  • Are there any discounts or promotions you can offer?

If your pricing is higher than your competitors, you need to be able to justify it with a higher quality product or service, better customer service, or some other value-added benefit.

The cost of producing and delivering your product or service is also important to consider. You need to ensure that you are making a profit on each sale. It includes the cost of goods sold, shipping, labor, and any other associated costs.

It's also important to keep your prices in line with your competitors. If they are charging significantly less than you, it won't be easy to attract customers. However, if you charge too much, you may lose business to cheaper alternatives.

Offering discounts and promotions can help attract customers, but make sure that the discounts don't eat into your profits too much.

17% failed because of a poor product offering.

Product offerings are critical areas that can make or break a business. That's why businesses need to evaluate and improve their product offerings constantly.

But how do you figure out what exactly needs to be improved? One way to do this is by using the "Five Whys" technique. It involves asking why a problem exists and then asking the question until you reach a root cause.

Suppose, for example, that your business is experiencing a staggering 50% failure rate. Questions like:

  1. Why is our failure rate so high?
  2. What's causing our product to fail?
  3. Where are our products falling short?
  4. What can we do to improve our product offering?
  5. Why did our customers choose our competitor's product?

By asking yourself these questions, you can come up with the following possible root causes:

  • Lack of customer research
  • Poor product design
  • Ineffective marketing
  • Unclear value proposition

Once you've identified the root cause of your problem, you can start working on a solution. For example, if you lack customer research, you can conduct surveys and focus groups. If your product design is poor, you can make it more user-friendly. And if your marketing is ineffective, you can create a new marketing strategy.

The "Five Whys" technique may seem simple, but it's a powerful tool that can help you improve your business. So the next time you're trying to figure out why something went wrong, give it a try. You may be surprised by what you find.

14% failed because they ignored their customers.

Your customers are the lifeblood of your business. If you don't know who they are or what they want, you're going to have a tough time succeeding in business.

So how do you go about finding out who your customers are and what they want? The first step is to create customer profiles. It involves gathering as much information as possible about your typical customer: demographics, interests, needs, etc.

Once you have this information, you can create marketing campaigns that speak directly to your target customer. You can also use this information to create products and services that they will love.

The second step is actually to talk to your customers. You can do this through surveys, interviews, or even casual conversations. You need to find out their needs and how you can help them. Only then can you start creating a product or service that they'll want to buy.

It's also important to keep track of your customer's feedback. If they're not happy with something, you need to know so you can fix it. Make sure that you are constantly gathering customer feedback, whether it's through surveys, social media, or simply talking to them one-on-one. Doing so will help ensure that you provide the best possible experience for your customers and increase their likelihood of returning customers.

If you want to succeed in business, you need to ensure that you are taking care of your customers. That means knowing who they are, what they want, and making sure that you are always providing the best possible experience for them. Do this, and you'll be well on your way to a thriving business.


While there are many reasons a small business might fail, the most common ones can be avoided by taking some simple precautions. By planning and arming yourself with the proper knowledge, you can set your small business up for success.

If you're feeling overwhelmed or have any questions about how to get your business visible to your target audience, ranking high in the search engine results pages, or just about search engine optimization, give us a call. We're a local marketing consultant that loves helping small businesses grow.