According to statistics, 20% of businesses will fail in their first year and 60% will kick the bucket within three years. Ouch. That’s not a very encouraging statistic. What causes so many small businesses to fail within those first few years? And is there any way to avoid those failures and make sure that your small business ends up on the happier side of those statistics?

Looking through the data we were able to determine the top 10 reasons why small businesses fail. By reading through these reasons, you can have a better understanding of what to do (and what not to do) to ensure that your business is successful.

They Didn’t Look To See If There Was A Need

Sometimes, people are so passionate about an idea for a business that they don’t research to make sure that there is a need for the product or service that they’re offering. If there isn’t a market for your product or service, it doesn’t matter how much time and energy you sink into the business, it won’t take off.

They Didn’t Have A Business Plan

One of the most important things you can do before you start your business is to create a strategy for success. Your business plan will include your target demographic, marketing plan, financial and growth projections, current and future staffing needs, competitor analysis, and a clear understanding of your financial needs. Make sure that you put a lot of research and effort into your business plan. It will be your compass that will guide you through the stormy seas of small business startups.

They Didn’t Seek Reviews

Reviews are crucial to every small business. Customers’ habits have evolved with technology. Research shows that 91% of people regularly read online reviews. Online reviews are becoming equally important as word-of-mouth as studies show that 85% of people trust online reviews just as much as they trust personal recommendations. Consumers are taking to the internet to research businesses before hiring or buying.

It’s important to connect with your clients/customers and ask them to write a review. Many won’t even think about writing a review without a prompt but would be happy to do so. You can send out reminder emails, have cards with a QR code that get slipped in with the final bill, or become part of your goodbye.

Not only this, but reviews will help you understand where you can improve. If your customers are giving real feedback about areas that you can improve, don’t be offended. Instead, get inspired! Listen to your customers and make changes. Customers will appreciate being heard and are likely to give you another chance.

On Locorum, all reviews come from verified customers who have actually worked with you. Leaving reviews is built into the process, so customers are encouraged to leave thoughtful reviews every time that they work with you.

They Were Not Consistent

When it comes to starting up a business, consistency is such an important habit to build. It takes time for social media, marketing, and customer acquisition to take off. You need to be consistent in your efforts to see any real growth.

Consistently doing those little things (like posting on social media, following up with reviews from clients, social listening, and exploring your analytics) will have a snowball effect. While it might feel like you’re not making a dent at the beginning, don’t give up and keep on with the consistency. It will be worth it in the long haul.

They Didn’t Hire The Right People

Your staff will make or break your business. You need the right captain at the helm to steer the ship and you need a crew that can do the tasks that they’re delegated and do them well. Many small businesses make the mistake of trying to find the cheapest labour possible. If your employees don’t feel appreciated and valued it will be reflected in how they do their job. By investing in hiring the right people with the skills for the job, you’ll be investing in the success of your business.

They Thought They Already Knew Everything

One of the most undervalued skills in entrepreneurs is the ability to know that you don’t know everything. Learn from others. Ask questions. Seek advice. By being a networking sponge, you can learn all about pitfalls, mistakes, and stumbling blocks that blocked others in the industry. This will help you to avoid them yourself, saving you time and money which could make or break your startup.

Make sure to network and connect with other small businesses in your city and your industry. You’ll find that the community of small business owners is one of the most important building blocks of being an entrepreneur.

Locorum’s blog offers fantastic resources for small business owners, so make sure to check it out and subscribe if you haven’t already.

They’re Not On Top Of The Finances

Many small businesses blow through their start-up capital too fast. You want to try and plan out your spending so that it lasts until you become cash-flow positive. Taking on too much debt up front is a sure-fire way to find your business floundering. In order to avoid this mistake, make sure to track every dollar coming in and going out carefully from the beginning and stick to your business plan.

They Tried To Undercut The Competition

In saturated markets, many businesses figure that if they offer their products or services at a much lower rate than the competition, they’ll drive up enough business. Unfortunately, this can actually work against them and cause their business to fail.

There are plenty of costs that you need to take into account when you’re deciding on the pricing for your products or services: production, marketing, delivery, overhead, and payroll to name a few. Remember as well that your prices should be set for scalability as well. While you might be able to be lean when it’s just you doing all of the work yourself, eventually you’re going to need to hire others and your prices shouldn’t need to increase for that to happen.

They Grew Too Fast

There is a delicate balance of growth that needs to happen within the first few years. You’re going to need to hire employees and your business will expand, but taking on too much at once will have you burning through your capital in no time and can often lead to quality taking a hit. While expanding can be exciting, make sure to go slow and steady and run the numbers as you grow.

They Threw Their Money At Ineffective Marketing

It doesn’t matter how great your product is, or how top-quality your services are if no one knows about your business. Marketing is key for gaining new customers/clients. Too often small businesses pour their money into marketing efforts with terrible conversion rates, sometimes paying costly monthly service fees that result in zero leads.

Finding out who your audience is, and then marketing on platforms that make sense for that demographic is a great place to start. For lead generation, look for risk-free platforms like Locorum that offer free tiers where you don’t have to pay for your leads. You can start advertising for free and have the flexibility to set your own marketing fees, so you can control your ROI.