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The Top 5 Reasons New Businesses Fail (and How to Save Yours)

Have you ever been to a party with a bunch of entrepreneurs or freelancers? Everything is cocktails, vacations and smiles. But if you stay a little later and drink enough, you’ll uncover a reality that most new business owners are too fearful (or embarrassed) to admit – they are failing.

I know, I know, “failure” is sort of a strange concept. One “failure” could actually be the stepping stone to your next “big success” and blah blah blah.

But for the sake of this article, “failure” means that your business isn’t succeeding. It could be that it is swirling slowly down the toilet like that last piece of extra-long tissue…or it could be crumbling FAST like that last Jenga block that sends the whole tower crumbling to the table!

Here is a crash-course in the top 5 mishaps I see small businesses make that lead to their failure. This list comes from research, my own life experience and my experience helping over 150 entrepreneurs launch and grow profitable business. Let’s dive in!

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Small Biz Mishap #1: Overinvesting money or time into something they haven’t tested

Would you buy a new car without testing it? Or a pair of $300 non-refundable pants without trying them on? When you get a great idea for a new service that you want to offer, course you want to create, or gadget that you want to make, how about you give it a try before you go balls to the wall with it?

My recommendation is to do a little bit of testing first. This could help you make sure that you enjoy said thing, that the market is interested in said thing and that you are good enough to provide said thing. Check out my article from last month to get step-by-step guidance on a basic testing plan.

Small Biz Mishap #2: Not realizing that their product or service is a FAD

Sometimes people start businesses and it appears that all the stars have aligned. They have a great idea for a great service or product in a market that is hot and ready for it…and they soar and rake in the dough (for a minute). If your business is super niche and what you are selling is hot right now, chances are high that you are riding a wave that will eventually crash back down (sorry – I know I sound like a Debbie Downer).

Take DONUTS and BAGELS for example. If you’ve live in the United States and you’ve been around a few decades, you’ve probably noticed that about every 5 years there is a surge in new donut shops followed by a slew of closers a few years later and in their place? A new bagel shop!

Granted some shops aren’t as impacted by a fickle market (because they have mastered their craft and built an amazing reputation), but many were only able to stay in business as long as people were “hot” for what they were selling.

My recommendation is to be aware and shift with market demands. Just because you created something that is hot today, it doesn’t mean that it will last. Keep your finger on the pulse of the shifting tides and figure out how your business must shift with the times.

Small Biz Mishap #3: Over-reliance on one customer or referral source.

Have you ever met those business owners who seem like they never have to market and you sort of want to slap them because they found the EASY button that you seemed to have missed?

Well I’ve met these guys too after some sleuthing what I usually discover is that 90% of their business is coming from 1 customer or they have 1 referral source that is feeding them all their business. And while this seems like a dreamy scenario, it’s actually a trap because they end up getting extremely lazy with their marketing and then BAM something happens with that one customer or that one referral source and they quite literally don’t have a business anymore.

And it is very hard to make up for months or years of no marketing.

My recommendation is to treat your best customers and referrals sources like gold, but to set aside a certain amount of time in your schedule to nurture NEW client relationships. You can’t ditch your friends when you hook up with a new girl or guy and business is the same! Keep nurturing your relationships and keep marketing or else you may very well find yourself taken totally aback when what seemed so secure falls through.

Small Biz Mishap #4: Spending money on things that won’t make you money.

Businesses have life cycles and will go through various stages while moving from startup to steady. A big mistake new businesses make is spending money on too many things (or services or courses) that won’t help them to make money.

When I had my first skincare studio in Portland years ago, I had to learn the hard way that spending money was easier than making money. I often got into the habit of buying more products for the back bar or cute little decorations or way more inventory than I needed because I wanted to…not because I needed to. At the time, I should have been focusing almost exclusively on things that would help me get new clients and retain the ones I had.

I recommend never impulse buying and being realistic about turnaround time between purchase and results. Yes – most things that better your business might help you make more money…but how fast and is it worth eating into your cashflow? While differentiating between what is needed and what isn’t can be hard, sometimes simply taking a day to reflect will help you get clear about whether the purchase is truly what you need right now to make more money.

Small Biz Mishap #5: Not hiring others to do things they suck at.

There is a tendency to want to do it all yourself when you first get started, I mean “why should I hire x,y,z out if I *can* do it myself”? And you might be thinking “but Anna, I thought I was only supposed to spend money on things that make me money?”, but hear me out! There are times when you must hire out in order to make money and stay on top of your game.

I’ve seen too many entrepreneurs be their own stopgap to success by not hiring out basic things like virtual administrative support or bookkeeping. The result is diminished success because the time they spend in their zone of genius is minimal since they are hustling to “do it all” and figure out every single little thing from creating newsletters to designing their own sites.

It’s tempting to take a course in everything and teach ourselves, but don’t forget that there is always a tradeoff when you choose not to prioritize doing the very thing that makes you money.

I recommend calculating how much time you spend daily, weekly and monthly on various time-sucking categories (such as “website techy stuff”, “bookkeeping and accounting”, “setting up blogs and newsletters”, “managing social media”) and then calculating how much you could have made selling what you sell.

At the end of the month you’ll have a good breakdown of things that are taking up a bunch of your time and you can research affordable alternatives to take these things off your plate.

For instance, I now pay about $100 to get all my S-corp payroll, reports and bookkeeping needs taken care of each month. Had I tried to do all this myself it would take up about 5 hours a month for me (since this isn’t my zone of genius) and I would spend even more time dreading it and likely not even doing it!

Now I get to take those 5 extra hours each month and spend them doing things that directly bring in money for my business (seeing clients and marketing to new clients). All of a sudden, hiring out seems quite logical, right?

If you are currently making one or more of the mistakes above in your business, don’t sweat it!

Simply: Make a note of which mistake(s) you know you are making.

If you ticked a few of the boxes, then decide which one is most pressing for you to solve sooner (hint hint: probably the one that is directly standing in the way of you and more money).

Jot down 5 things you can do in the next week or month to begin to correct this mistake.

Confused about where to start? Tell me what’s up in the comments section and I’ll help you figure out where to start first!

Anna Long-Stokes Anna Long-Stokes is a travel addict and a Profit Strategist (with an intuitive flair). She has helped over 150 entrepreneurs grow and profit in their online and brick and mortar businesses using her signature Pivot to Profit™ system. She is a huge fan of beta testing your ideas for success and has created a popular self-paced course and community for entrepreneurs looking to create and test their ideas. When she’s not consulting or growing her brick and mortar skincare studio; you can find her being a complete and total hedonist enjoying Portland’s yummy cuisine, occasional sunshine and salsa clubs. Find her on Twitter and Facebook.

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{ 1 comment… add one }
  • This is a great post! Some really good points that aren’t always fun to focus on, but that we all need to hear from time to time. Thanks for the wake up call and the inspiration to keep my marketing!

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