Starting a Business - 10 Reasons Why Small Businesses Fail to Thrive


Kathy, a skilled massage therapist, called me to discuss what she needed to know to start her own massage therapy clinic. She had been in the industry for over ten years, and was very skilled at working with her clients.

She worked for another clinic and felt she was ready to start a business of her own. However, like many want-to-be entrepreneurs, she possessed the technical skills—massage therapy—but possessed little business management experience, and no self-employment experience.


For many want-to-be entrepreneurs, discovering why businesses fail is a smart research project. It helps to uncover personal weaknesses, as well as begin to build up inherent strengths before investing in becoming self-employed.


It also helps them better understand the dynamics of the industry they will be competing. For example, if competition is intense because of a large number of massage therapists in a geographic area, we can expect that there will be less market share per clinic, downward price pressure, and lower profit potential; this makes for difficult going, especially in the start-up phase of the business.

Following are 10 reasons why small businesses fail to thrive. If you have an existing business, it might help to determine why your business is not growing.

1. Mistaking a business for a hobby. Just because you love something does not mean you can successfully convert it into a business. Too often we feel others share our passion, and we bank starting a new business on it. Research your business idea and make sure it is viable.

2. Poor planning. Yes, you must have a business plan. It can be a 3-page plan for the simplest of businesses or a 40+-page plan for a more complex business opportunity. The point is you are prepared to focus on your business' goals and vision, and you have a good idea of what you need to do to put your plan into action. By going through a business planning exercise, you also may have unearthed what problems may arise, and how you are going to handle them, if they do. In addition, financially can you launch the business? It takes a lot of time to build a business; 60% of business start-ups fail within six months after opening. Lack of cash flow and undercapitalization is the culprit.

3. Entrepreneurial excitement. Entrepreneurs often get excited about new ideas, but are unable to determine if they have a "true opportunity". Part of an effective business strategy (here is the business plan, again) is determining which markets you will and will not serve, as well as what products you will or will not offer. Before deciding to undertake a new business activity ask yourself, "Do I have the time and skill to implement this?"

4. Risking everything on one endeavor. Too often, small business owners will have just one product, one service, or one big client. However, what if this one thing disappears? Diversification will allow you to ride the flow of ebbs and tides in business.

5. Poor record keeping and financial controls. You must review your revenue and expense records each month—, and understand what they mean! Accounting is the language of business. If you do not know how to speak it, get help from someone who does.

6. Poor cash management. A good rule of thumb is that you can live for one to two years without income when getting started because new businesses are usually slow to get off the ground. If you have created a business plan with a realistic budget, you will already have determined what I have just written!

If your plan shows you earning a high income in the first six months, it may be a good idea to go back and review your budgets.

7. Poor time management. Putting off tasks you do not enjoy will sink your business fast! We get into a business because we love massage therapy. However, have we thought about all the other things that go along with running a business, like bookkeeping, banking, sales, and marketing activities, talking with accountants, attorneys, dealing with customer problems, collecting receivables, and slow cash flow? Getting help with administrative tasks that eat up your time is a sure-fire way to spend time doing what you do best—developing new ideas and revenue for your business.

8. Ineffective marketing. Learn the basics of marketing and track the success or failure of each technique you use. Dump ones that are not working for you in three months time.

9. Ineffective sales techniques. Once you have generated interest in a client, how are you going to convert them into a sale? Understand the basics of selling; take a class, read a book; get some professional help.

10. Entrepreneurial burnout. Owning your own business requires a huge investment of time, money, energy, and emotion. Are you ready to ride the rollercoaster of the highs and lows associated with each of these items? I can guarantee you, it will happen! Motivation and creativity can suffer in the most challenging times, and a pessimistic attitude may prevail.

Be sure to schedule time for yourself. Take time off from your business. It will help you manage the ups and downs of entrepreneurship, and give you fresh perspectives.

As Kathy and I ended our counseling session, she made a list of areas where she needed to grow, and created a task plan. With planning and an objective look at both your personal and your business' strengths and weaknesses, you can be successful.

© 2006, 2008. Bonita Richter and Profit Strategies. All rights reserved.





Bonita L. Richter, MBA, founder of Profit Strategies, teaches entrepreneurs and business owners how to start and grow businesses, attract more clients, and market their businesses to increase sales, business success, and generate wealth. For FREE tips on how to craft the successful business you desire, visit Profit Strategies.