A research published in 2005 by the US Bureau of Labor Statistics showed dispiriting results, where the data collected of start-up businesses across industries showed that the majority of them fail during the first two years of their existence. (Campbell, 2005) In general, the perception of the vulnerability of small businesses, and sometimes Small and Medium Enterprise (SME) as well, is widely recognized in the literature. The variation of the reasons that lie behind the failure also has a contradicting nature, especially considering the difficulty of obtaining the feedback from entrepreneurs who have experienced business failure (Ahmad and Seet, 2009). In that regard, the present paper provides a summary of the findings of a research conducted on the relevant literature available in the internet, which explore the reasons of small business failures.
The research is basically an analysis of the frequency of occurrence of certain failure factors, based on a review of several article in the internet. It should be mentioned that while some of the article were independent researches, the factors mentioned in their literature review factor were also included. Additionally, due to phraseology difference, when possible the factors similar in context were grouped into one.
The most frequent group of occurrence was related to the lack of planning and vision. Under this group were the absence of a business (Ahmad and Seet, 2009) The lack of experience and training, and poor management were equally the second two groups. It should be noted that several factors that differed in context were resulted from the lack of experience and training, and thus were included in this group such factors include wasting “your time and energy with anyone who is uninformed about your business or industry” (Egelhoff, 2002), and “[i]nsufficient relevant and applicable business experience.”(Jordan, 2005)The capital, as a predicted influencing factor, was of influence but there was a division between the lack of capital, the lack of knowledge and skills regarding the cash flow, and “poor capital structure” (2009), which can be related to the field of experience and training. Generally, the financial element can be seen as factor that was affecting in combination with other factors rather than individually.
A group of factors, which has more than one occurrence, was related to the issue of employees. The differentiation between poor human resources, or poor management of human capital, were outlined as factors, however, the method of data collection through interviews with business owners can put to doubt the importance of this reason among other factors, as bias might have occurred in business owners shifting personal responsibilities toward others. Among the single occurrence factors the most interesting were mentioning the absence of website, and bad location (Schaefer, 2006), two factors the importance of which can be doubted, if assuming that the business failed without the involvement of other reasons. Additionally, an overlooked factor can be seen through the concept of risk return combination, where the author argued that, entrepreneurs, usually in search for a higher return, “choose a risk-return combination that may result in the firm being highly failure-prone.” (Cressy, 2006)
It can be seen that the main factors that were revealed through the review were more related to planning, experience, and training. The findings can be explained by the desire of inexperienced people to enter the field of business, without a distinct idea or plan to follow. Considering the scale of some small businesses, people might be relying on luck or cases of fast wealth, omitting the fact that knowledge and experience is a must.
References
(2009) Why Do Many Small Businesses Fail? AllBusiness.com. Web.
AHMAD, N. H. & SEET, P.-S. (2009) Dissecting Behaviours Associated with Business Failure: A Qualitative Study of SME Owners in Malaysia and Australia. Asian Social Science, 5, 98-104.
CAMPBELL, A. (2005) Business Failure Rates Highest in First Two Years. Small Business Trends.
CRESSY, R. (2006) Why do most firms die young? Small Business Economics, 26, 103-116.
EGELHOFF, T. (2002) Small Business Failure: The Three Reasons You’ll Fail And How to Avoid Them. Eagle Marketing. Web.
JORDAN, C. (2005) How to Avoid the Most Common Reasons for Small Business Failure.EzineArticles.com.
SCHAEFER, P. (2006) The Seven Pitfalls of Business Failure and How to Avoid Them. Business Know-How.