The Business Plan: Why small businesses fail

The Business Plan: Why small businesses fail
Bill Reagan

By Bill Reagan

It’s widely held that small businesses often fail. SBA’s metrics show two-thirds survive at least two years, but only half make it to five years and only one-third last 10 years.

There are institutional deficiencies and flawed personal traits of entrepreneurs that contribute to small business decline, but recognizing and dealing with them can avert failures.

Institutional deficiencies include insufficient capital, inadequate planning and market identification and poor management structure.

Insufficient capital: Entrepreneurs routinely exceed forecasted startup costs and the start date when they can begin generating revenue. With shallow resources, owners have to skimp on startup essentials – infrastructure and personnel. Worse, the business is vulnerable to unforeseen events like market shifts, calamities or lawsuits.

Inadequate planning and market identification: When businesses open without pinpointing a business model, a viable target market or unique value, there’s nothing to distinguish them from the competition. Failure is imminent.

Poor management structure: Sloppy recordkeeping, inattention to detail, incompetent personnel supervision and inadequate structure to deal with succession issues or power struggles are devastating.

Personal traits also foretell success or failure. Entrepreneurs often don’t know what they don’t know. The smart ones ask questions and look for ways to become more informed. Those who are headstrong, don’t want to be bothered and plow ahead despite available sources of help, are dooming their businesses.

Some start their business for the wrong reason. It might be the idea of no longer having a boss. Some pick a business from a magazine list of great ones to start. Unless the entrepreneur has passion for and knowledge about their venture, it will quickly become demoralizing drudgery.

Entrepreneurs must be disciplined and resilient. Many management tasks are unpleasant but must be done. Owners must also take disappointment and setbacks in stride.

It really helps if the entrepreneur is gregarious. They need to inspire employees and fascinate customers. They also need to personably engage with other business owners, community members and civic leaders.

Finally, entrepreneurs must be innovative. Business as usual is a death spiral. Savvy owners scan the horizon to try new approaches or seize opportunities that come with market shifts. Sedentary grumbling is deadly.

If these essential traits are not their strengths or within their comfort zone, entrepreneurs must partner with or hire someone to complement their own skill set.

The Small Business Development Center is Alexandria’s economic development resource for small businesses. Its assistance is confidential and provided without cost to city businesses. Thoughtful and objective startup guidance strengthens fundamental planning, identifies potential pitfalls and establishes connections to professionals and resources.

The center’s feedback on market identification and business structure and assistance with the process of raising capital strengthens the viability and resilience of a venture. Educational resources offer ongoing professional development opportunities.

Annual statewide surveys show that businesses that consistently use the center’s resources create more jobs and grow sales faster than Virginia businesses in general. Their longevity also surpasses SBA’s metrics.

Alexandrians can boost their entrepreneurial efforts by tapping the SBDC’s resources.