7 Causes of Business Failure (and how to avoid them)

Over the years, at Lockwood & Ward we’ve seen many businesses come and go. Whilst we would like to profess that all of our business clients stay afloat in the long run, there are certainly a few reasons why businesses go bust. We’ve listed a few here to keep any business owner well informed of the pitfalls they need to avoid.


1. You sell a low cost product and you’re not funded

As soon as you hear that a business’ main products sell for $20 – $1000 it’s already a given that their business will be in a “J-curve” and unless the entrepreneur is funded they are unlikely to make it out the other side. The business will often show promising signs in the beginning with people saying they like the product and a few even buying. Later the realisation sets in that the $40K new computer system that you wanted to purchase requires you to make 57 sales per month just to cover the initial costs.


2. You assume people will want to buy your product

Google relies on sales teams, so does Mercedes Benz, so does Louis Vuitton and so will your business. Occasionally someone might come across your business and simply buy from you; but most of the time you will need to go out and make a sale (especially in the start-up phase). Additionally, if you don’t fancy yourself as a ‘salesperson’ per se and refuse to go out and sell your product, then it’s unlikely you will be able to attract, train or retain a salesperson that will do it for you. For your business to work, you will need to be able to convince others to buy from you and sell yourself before the sales start rolling in.


3. You’re delusional

If your business revolves around “Improving upon what YouTube is doing wrong” or “Taking Twitter to the next level” or “Being the next Bill Gates” then there’s a very good chance you won’t… More to the point, there’s a very good chance that you won’t be taken seriously. Before you try to narrate the next rages to riches story, try starting small and getting one thing right, like YouTube, Twitter and Gates did.


4. You aren’t willing to be the face of your brand

Some business owners may feel that they simply want to shrink away into the shadows instead of being the face of their business; however this mindset will probably mean that the business is probably not going to take off. Not unless you have a LOT of money behind the business. When a new business enters the market, people want to know who’s behind it. They want to put a face to the logo. If you won’t front your business, you’ll be beaten by the person who will.


5. Your sales pitch doesn’t work

Every great business begins as a great pitch. If you can’t pitch your business, it’s like having a suitcase full of cash but you can’t open the case; no one knows or cares what’s inside.


6. You’re nonexistence

My belief is “you are who Google says you are” so at a very basic level people who are searching for you should get consistent, accurate and credible information about you. Beyond that, you must reach out to people and let them know you are there. Ads, cold calls, PR, events, etc are all part of a healthy business strategy for getting known; spend the money or go broke waiting for the phone to ring.


7. You’re trying to do too many things

Your business can probably get 1-3 things right over the course of the next 5 years. Even multinational companies can perform hundreds of experiments over numerous years and only turn very few of these into successful money makers. If you aren’t focused on one key thing, you’ll probably be average at quite a few things; which is hazardous. Look at the success of some of the world’s most recognised brands and note that they focussed on one key element and capitalised on just that.


The purpose of this post is not to be negative; it’s to point out some clear issues that we’ve seen over the years after encountering various entrepreneurs. We hope that you’re able to look at these 7 potential issues and avoid them before they cause real strife. And of course - for any further business advice or if you’re looking to start your own, please contact one of our expert business advisors on 02 9299 7044.

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