Industry Insights 5 Decoding Small Business Failures: Top Four Contributing Factors

Industry Insights


Decoding Small Business Failures: Top Four Contributing Factors

by | Mar 8, 2024 | All, Featured, Leadership, Nearshoring

About The Author Steve Taplin

Steve Taplin, CEO of Sonatafy Technology, is a serial entrepreneur with extensive expertise in software development, MVP product development and the management of staff augmentation services.

Small businesses stand at the forefront of innovation and economic growth in the dynamic world of entrepreneurship. Yet, the path to success is burdened with challenges. Understanding why many small enterprises fail can provide invaluable insights for aspiring and current business owners.

According to the Bureau of Labor Statistics as reported by Fundera, “20% of small businesses fail in their first year…and 50% of small businesses fail after five years in business.” This reality underscores the importance of recognizing and overcoming common pitfalls.

Based on my experience, here are the top four reasons small businesses falter, offering guidance to navigate the chaotic world of entrepreneurship.

1. Underestimating Sales And Marketing

Sales and marketing are the lifeblood of any business, large or small. Even the most innovative business idea can fail without consistent and growing sales. A common misstep for small companies is underestimating the importance of a solid sales and marketing strategy. This aspect can be particularly daunting for entrepreneurs who are not naturally inclined toward sales. However, developing these skills or bringing in professionals who excel in them is crucial.

Over two decades ago, during my initial foray into entrepreneurship, I found myself in my new office, contemplating a fundamental challenge: I was confident in my sales skills but unsure how to generate leads or market my business effectively. This realization—that while I excelled in sales, I lacked marketing knowledge—sparked my journey into becoming a lifelong student of marketing and lead generation. This dedication to mastering marketing has been a cornerstone of my successful business ventures since then.

Implementing effective sales and marketing strategies involves understanding customer needs, communicating effectively and building lasting relationships. Tools like CRM software can assist in managing sales processes more efficiently. Moreover, sales and marketing should not be seen as a one-time transaction but as a continuous process of engaging with the market and adapting to changing demands.

2. Inadequate Preparation

Inadequate preparation can derail even the most promising of business ventures. It is not just about having a business idea; it is about fully understanding the landscape in which that idea must thrive. This involves comprehensive research into the industry, competitors, target audience and financial requirements.

Financial preparedness is a crucial yet often overlooked aspect of entrepreneurship. It is essential for entrepreneurs to realistically assess the costs involved in launching and operating a business, which includes having sufficient financial cushion to support operations until profitability is achieved.

Early in my entrepreneurial journey, while I had a good grasp of personal and business finances, I realized my understanding of corporate financial statements, such as annual reports, was lacking. To address this gap, I committed to reading and meticulously studying one public company’s annual report each month and taking detailed notes. This practice, sustained over several years, helped me become proficient in interpreting financial literature and transformed a weakness into a strength through persistence and dedication.

To avoid these pitfalls, entrepreneurs should conduct thorough market research and feasibility studies, develop a robust business model, ensure adequate financial reserves and regularly revisit and adjust business plans.

3. Insufficient Effort

The journey of a small business is marked not just by ideas and innovation but by the sheer effort and hard work that goes into making it a success. Insufficient effort is often a critical factor in the failure of small businesses. This includes not just the physical effort but also mental and emotional investment. The willingness to work harder and learn more than others is a crucial differentiator in the world of entrepreneurship.

Throughout my entrepreneurial journey, I have founded more than 30 companies. Among these, two were exceptionally successful, six were quite successful and the others were either failures or never fully launched. Thankfully, the triumphs of my successful ventures have significantly outweighed the shortcomings of the less successful ones. The key trait that has driven my success and that I believe is crucial for any entrepreneur is a combination of relentless persistence and consistent effort.

Successful business leaders often share stories of long hours, continuous learning and persistent effort in facing challenges. Entrepreneurs must set clear goals, maintain a strong work ethic, seek constant learning opportunities, and be ready to adapt and pivot strategies as required.

4. Lack Of Knowledge

A common reason for the failure of small businesses is a lack of knowledge. Intelligence and eagerness to learn are essential traits for entrepreneurs. Understanding digital marketing, online sales channels or the latest industry regulations can give a small business a competitive edge. Entrepreneurs should continuously learn through courses, workshops, business publications and webinars, as well as stay updated with industry trends, network with professionals and embrace technology and innovation.

I have cultivated a daily routine of engaging with various news sources such as the Wall Street Journal, Business Insider and local and national news outlets. Additionally, I use Google News Alerts to stay informed about developments in my industry and updates regarding my current and prospective clients. This dedicated pursuit of knowledge has been instrumental in my professional success.


The road to entrepreneurial victory is indeed steep, rocky and full of potholes. However, the world of financial freedom is attainable with tenacity, the right mindset and sweat. By understanding and overcoming the common reasons for failure, entrepreneurs can set themselves up for success. Are you ready to rise to the challenge and navigate your way to business triumph?