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The 3 reasons why businesses fail, and how to avoid them right from startup.


Small businesses are the backbone of many economies worldwide, providing employment opportunities and driving economic growth. However, despite their potential, many small businesses fail within the first few years of operation. According to the Small Business Administration (in the USA), about 20% of small businesses fail in their first year, even in the world’s biggest market.

The stats are similar in Australia. The failure figures tell a different story when you look into it and it depends on your definition of failure. These days the barriers of entry to start your own business are so low, it is more likely that 20% registered an ABN, but just never generated any income from it.

30% Fail in their second year, and nearly 50% by their second year. In this article, we will discuss the three main reasons small businesses fail and how they affect business viability.

This is not a “failure” these days as more and more businesses are set up for purpose rather than profit. Even not-for-profits need to generate income, and Social Traders say 72% of social enterprises give 100% of their profits to the causes they support. For many, just creating a business is a way to bring their dream to reality. So if that’s your goal, and definition of success, who says it’s not a real business?

And who says it’s not a real business if you don’t employ staff? It’s OK to create a job for yourself! in fact, 60% of all businesses registered in Queensland are contractors that don’t employ any staff. Another 25% employ less than 5 staff.

If you turn the percentages around, it means that 4 out of every 5 people that intend to start a business successfully do that for the first year. It’s when they try to run it and grow it over the next 5 years that they tend to stuff thing up.

As a well-known business coach, Dale Beaumont would say,

“you are not in the business of what you do. You are in the business of marketing what you do.”

Let’s investigate that…

Business development and marketing

The marketing mix is a concept used by marketers to describe the four main elements that make up a company’s marketing strategy. These four elements are often referred to as the 4 Ps of marketing. They are critical to business success, and if you have a weakness in any one of the 4 Ps as a business will fail 100% of the time if you can’t overcome it.

You may have strength in the other 3 Ps, but this will just drag out the impending doom. Systematically causing a drain on resources and creating weaknesses in other Ps. Accelerating the downward spiral that is obvious to outsiders, including customers.

The marketing mix elements are:

Product (or service)

This refers to the actual product or service being offered to customers. Companies must carefully consider the design, features, quality, and packaging of their products to meet the needs and preferences of their target customers.


This is the biggest challenge for startups. It refers to the price at which the product or service is sold. Companies must set prices that are competitive and reflect the value of the product to the customer. Value is what a customer is willing to pay. The price is what you want customers to pay, usually based of the costs involved with providing the product to make a profit. Demand, from market research, can only be confirmed when people are willing to pay you to supply their demand.

However, “the customer rarely buys what the company thinks it’s selling, and they never buy products” – Peter Drucker. They are buying the experience of using you product, and how well it satisfies your customer’s needed and wants increases the value for money invested by customers. Money is just a consequence of providing value.

Place (or position in the market)

This refers to the distribution channels through which the product or service is sold, such as online stores, physical retail stores, or wholesalers. Companies must choose the right distribution channels to ensure that their products are available to customers where and when they want them.


This refers to the marketing and advertising activities used to promote the product or service to customers. Companies must create effective advertising campaigns and promotional materials to create awareness and interest in their products among their target audience. If you don’t have any obvious weaknesses in the above 3 Ps, you have “developed” a business that you can now promote. But if this P is your weakness, your business will still fail. What is the point of having the best product in the world if people don’t know how to get it?

By carefully considering and managing these four elements of the marketing mix, companies can develop a successful marketing strategy that meets the needs of their target customers and helps them achieve their business goals.

How to avoid weaknesses in your 4 Ps from startup

To come up with solutions to problems caused by weaknesses, you first have to define the problem, and in fact if it is a problem for you. If the whole industry has the same problem, it creates an opportunity for you to get a competitive advantage if you can overcome it. This is known as you Unique Selling Point, or USP.

This is not just what you do that no one else does. That’s about your ego and wanting to be different. But if people don’t want to pay extra for it, it’s not a selling point. And it can be a root cause of the problems in your business defined below:

Poor Cash Flow – Price

Poor cash flow is one of the primary reasons why small businesses fail. Cash flow is the amount of money coming in and going out of a business. A negative cash flow occurs when a business spends more money than it earns, leading to a shortage of funds to cover expenses. When a business is not generating enough revenue to meet its expenses, it may have to resort to borrowing money, which can be challenging for small businesses that lack collateral or a strong credit history.

Poor cash flow can arise from several factors, such as low sales, high expenses, slow-paying customers, or poor inventory management. In many cases, small businesses struggle to manage their cash flow because they don’t have adequate financial management skills or tools to track their cash flow. As a result, they are unable to anticipate and mitigate cash flow problems, leading to a cycle of financial difficulties that eventually lead to the business’s failure.

Poor Strategy – Place

Another significant reason why small businesses fail is poor strategy. Strategy is a plan of action designed to achieve a long-term goal. A good strategy outlines the business’s direction, goals, and how it intends to achieve them. Without a clear strategy, a business may struggle to attract customers, generate revenue, or remain competitive in the market.

A poor strategy can manifest in several ways, such as lack of market research, poor product positioning, or an inadequate marketing plan. For instance, a business that fails to research its target market may create a product that does not meet its customers’ needs or fails to identify its customers’ pain points. Similarly, a business that does not have a clear marketing plan may struggle to reach its target audience or generate sales.

Poor Products – Product

A third reason why small businesses fail is poor products. A business’s product or service is its main offering to customers. Poor products can lead to low sales, customer dissatisfaction, and loss of market share. Customers expect quality products that meet their needs and provide value for their money. If a business fails to meet these expectations, customers may switch to competitors, leading to a decline in revenue.

Poor products can arise from several factors, such as a lack of product development skills, insufficient quality control measures, or failure to adapt to changing market demands. For instance, a business that does not have a rigorous quality control process may produce defective products that fail to meet customer expectations. Similarly, a business that fails to adapt to new market trends may lose its competitive edge and fail to attract new customers.

Feel like this?

Early intervention is the key to success.

Small businesses are vital to many economies worldwide. However, they face several challenges that can lead to their failure. Poor cash flow, poor strategy, and poor products are the three main reasons why small businesses fail. To avoid these pitfalls, small businesses must have adequate financial management skills, a clear strategy, and a commitment to producing quality products that meet customer needs. With these measures in place, small businesses can thrive and contribute to the growth of the economy.

The core sensitivities refer to three prototypes of core emotional experiences that individuals may have in response to challenging situations. These three prototypes are esteem sensitivity, separation sensitivity, and physiological safety sensitivity.

Each of these sensitivities is associated with specific behaviours that individuals may exhibit in response to challenges or stressors. Having kindness and empathy for people in this situation is essential to building long-lasting, trusting, productive relationships in business.

So to put humanity back into business, without getting too personal and crossing boundaries, here are 3 emotional triggers that can cause weaknesses in each of the 4 Ps

Esteem Sensitivity – Poor Product

Esteem sensitivity refers to the emotional experience of feeling insecure or uncertain about one’s worth or value in a social context. Individuals with esteem sensitivity may exhibit behaviours such as:

  • A strong need for recognition, approval, and praise from others
  • A fear of rejection, criticism, or failure that may lead to avoidance of challenging situations
  • A tendency to overreact to perceived threats to their self-esteem, such as perceived slights or insults
  • A focus on external validation, such as material possessions or status symbols, as a way to boost self-esteem
  • A tendency to compare themselves to others and feel inferior or superior based on these comparisons

Separation Sensitivity – Poor Cashflow

Separation sensitivity refers to the emotional experience of feeling anxious or distressed when separated from attachment figures, such as parents or close friends. Individuals with separation sensitivity may exhibit behaviours such as:

  • A strong need for closeness and intimacy with attachment figures
  • A fear of abandonment or rejection that may lead to clingy or dependent behaviours
  • A tendency to seek reassurance and validation from attachment figures, especially in stressful situations
  • Difficulty tolerating alone time or being in unfamiliar environments
  • A tendency to over-analyze social situations and interpret neutral or ambiguous behaviour as a sign of rejection or abandonment

Safety Sensitivity – Poor Strategy

Safety sensitivity refers to the emotional experience of feeling unsafe or threatened in one’s environment, such as in response to physical danger or social threat. Individuals with physiological safety sensitivity may exhibit behaviours such as:

  • A heightened sensitivity to potential threats or danger in the environment
  • A tendency to avoid situations that are perceived as risky or potentially dangerous
  • Difficulty regulating physiological arousal, such as increased heart rate or sweating, in response to stressors
  • A focus on physical self-preservation, such as avoidance or defensive behaviours, as a response to perceived threats
  • A tendency to experience hypervigilance, or constantly scanning the environment for signs of danger or threat

The core sensitivities describe three prototypes of core emotional experiences that individuals may have in response to challenging situations. These sensitivities are associated with specific behaviours that individuals may exhibit, such as a strong need for external validation in esteem sensitivity, a fear of abandonment or rejection in separation sensitivity, and hypervigilance or defensive behaviours in physiological safety sensitivity. Understanding these sensitivities can help individuals recognize and regulate their emotional responses to stressors and improve their emotional well-being.

A secure attachment strategy – Promotion

If you have confidence in your 3 Ps above, you are less likely to be triggered into creating a weakness leading to a downward spiral in your business.

Fake it till you make it rarely works in an age where people are so exposed to on social media. While you may not believe, consciously, you have a weakness in one of the above 3 Ps, when you start to promote yourself on social media the crack in your Armor will soon appear.

Bartholomew's two-dimensional model of attachment

How you handle the “keyboard warriors” is often the test of if you still have doubts about your 3 Ps. But if you feel secure and have confidence in your business development, you also develop a secure attachment strategy that will prevent you from getting dragged back into discussions that don’t serve your business needs.

A secure attachment strategy refers to a healthy and secure emotional bond that individuals have with their attachment figures, such as parents or caregivers. Individuals with a secure attachment strategy tend to have positive and trusting relationships with others, feel comfortable seeking help and support when needed, and have a positive sense of self-worth.

Behaviours of people who have a secure attachment strategy may include:

Seeking help and support:

Individuals with a secure attachment strategy tend to feel comfortable seeking help and support from others when needed, as they trust that others will be responsive and helpful. It’s not a sign of weakness, and I’ve found this is a surefire indicator that a person has a weakness in one or all of their 4 Ps if they struggle to ask for help or can’t delegate tasks when they do get help.

Feeling comfortable with intimacy:

Individuals with a secure attachment strategy tend to feel comfortable with intimacy and closeness with others, as they trust that their emotional needs will be met in relationships. In a business sense, this relates to having complementary skills. You can’t do everything (see point 1), and people with a secure attachment strategy know if they have Action, Thinking, or Personal skills as their strengths. They generally seek out 2 other people to collaborate with to fill in the gaps.

Being independent:

Individuals with a secure attachment strategy tend to feel confident and secure in their ability to be independent, while also valuing and maintaining close relationships with others. Doing everything yourself does not make you independent, in fact, this can project your own insecurities and break the cycle of trust. Again, see point 1.

Feeling comfortable with the emotional expression:

Individuals with a secure attachment strategy tend to feel comfortable expressing their emotions, as they trust that others will be accepting and supportive. Not showing emotion is a sign of low emotional intelligence in business. Fear can prevent you from doing things, but it can also save your life. If you are not comfortable in expressing your emotions, both positive and negative, look into help to overcome executive dysfunction.

Developing positive self-worth:

Individuals with a secure attachment strategy tend to have a positive sense of self-worth, as they have received consistent and positive feedback from attachment figures throughout their lives.

Overall, individuals with a secure attachment strategy tend to have healthy and positive relationships with others, feel comfortable seeking help and support when needed, and have a positive sense of self-worth. These behaviours reflect a healthy and secure emotional bond with attachment figures and the ability to form positive relationships with others throughout life.

If this blog resonates with you, and you want help or just want to chat, book a call through our website HERE.