Reasons Why Businesses Fail in the First 5 Years

Reasons Why Businesses Fail in the First 5 Years

Nothing is as exhilarating as running and owning your own business. Many of us would-be Entrepreneurs dream of being the next big success story like Facebook or Amazon. Without a doubt business is a very rewarding endeavour with high rewards. However, like everything in life, high rewards come with high risks. According to data from the Small Business Administration (SBA) Office of Advocacy as reported by Forbes, only about half of the small businesses ranging from 45.4% to 51% survive five years or longer. By the 10th year, only 1/4th of the businesses still remain standing. It is then safe to say that the majority of players that enter any industry don’t last long. What is at the root cause of this phenomenon? Turns out the reasons are varied and all feed into each other. More importantly the mistakes made are entirely avoidable, if only the right research is done and the right measures taken. SO if you’re wondering why businesses fail in the first five years, read on to find out.

Why Businesses Fail in the First 5 Years: The 3 Sins of Running a Business

Why Businesses Fail in the First 5 Years: The 3 Sins of Running a Business

Although the list of mistakes why businesses fail in the first 5 years is endless and many errors can be pointed out, for broad stroke purposes these mistakes can be categorized under three ‘sins’. These sins are:


One of the biggest rookie mistakes why businesses fail in the first 5 years are inadequate management of finances. Traditionally, this entails issues that have to do with movement of money and other forms of capital. Cash flow being at the core of this issue. However, more recently, business owners are more aware of what entails cash flow. So what’s the issue? In contemporary times, due to an increase in complexity of business functions, it is hard to maintain a hold on how much revenue is being generated and how effectively are sales/services being monetized. This leads to further mistakes in setting budgets and making key financial decisions. 


Here are some interesting statistics to introduce this point; 90% of Americans (part of the biggest consumer market of the world) factor in customer service when making important consumer decisions, 78% back out of repeat consumption at a business that they felt provided poor customer service and 40% of customers expect speed and precision in customer service. These stats do not lie! Bottom line is, bad customer service is more damaging to a business than usually given the credit for. Both younger as well as older business are equally susceptible to this. 


Even if businesses have their customer interaction and finances down, they fail in creating an integrated system. An integrated system is required in every business model to achieve economies of scale and other benefits that help a business sustain itself as it grows larger. In the modern era, this usually means a successful integration of Information Technology and business functions. For many small to medium businesses this means implementing useful IT software to optimize business function. Unfortunately, for many new businesses, this realization comes a little too late. This often results in mismanagement and being outcompeted by the competition. 

How to Keep UP?

How to Keep UP?

In 2020, specifically after the effects of Covid – 19, one of the best ways small to medium businesses can keep up is through technology. Up until the last decade, this gap was hard to traverse for businesses that lacked the scale and resources of the larger corporations. However, with how IT has evolved and developed, this gap is now very easy to jump! The problem arrives in the awareness about this option. Along with awareness is the willingness to implement IT. Many businesses still believe IT is still an ‘option’ that can be bypassed in their individual industries. This couldn’t be further from the truth. 

A good example of an IT software that successfully helps deal with the aforementioned ‘sins’ is CRM (Customer Relationship Management). 

According to expert analysis 91% of businesses that have over 10 employees now use CRM.  This shows that businesses have begun identifying its inevitable utility and competitive advantage. CRM is basically a streamlined system that helps businesses have an integrated platform to deal with customer relations, sales all the way to feedback. All in one stop system. The benefits of CRM include:

  • Streamlined Sales system:

    Due to having a centralized data bank of substantiated leads and potential customers, the business tends to undertake fewer initiatives that would lose money.

  • Effective Communication:

    Having a data based system, enables the business to maintain customer relations by establishing a system. This ensures that customer grievances are better catered to and the business remains relevant within their social sphere. This also ensures that the business targets potential customers that are systematically tested to be sure shots. 

  • Increasing Employee Productivity:

    One of the most important benefits that is often overlooked is the effect it has within the business. Due to an integrated system, the employees are able to carry out their jobs better. They get to utilize data based decision making and modelling to make imperative judgement calls (instead of solely relying on their ‘gut feeling’). Also it makes technical and professional competencies available to the employees that they otherwise wouldn’t have access to.


Key Takeaway: Why Businesses Fail in the First 5 Years

Key Takeaway: Why Businesses Fail in the First 5 Years

Ultimately, a lack of vision and inability to embrace modern trends, is one of the many reasons why why businesses fail in the first 5 years, killing many promising ventures before their prime. In a post Covid world, it is evermore necessary to keep an open mind and embrace innovation and technology. It has been a liberating force for businesses world over, even the ones who were on their last footing. 

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