Common Reasons for Business Failures
1. Lack of Planning
- Unfounded market or audience analysis
- Nonviable financial forecasts or business allocation
- Insufficient mitigation of unanticipated risks
2. Lack of Funds
- Poor capital of cash flow
- Failure to raise funds for expansion purposes
- Too much debt or high cost of borrowing
3. Effective Competitive Nature
- Saturated market with no market edge
- Competitive price and marketing strategies
- Technology disruptions or changing consumer behavior
4. Management Problems
- Poor leadership and management skills
- Poor communication or accountability
- Unable to adapt to changing market developments
5. Administrative Inefficiency
- High overhead
- Poor inventory control or supply chain problems
- Poor or sluggish customer service
6. The Economy Takes a Nosedive
- The recession pushed economic crises that make consumers spend less
- Interest rates or inflation changes increase the price of goods
- Natural disasters or other international events
7. Changes in the Market
- Changing consumer habits and preferences
- Technology channels disrupting industry
- Government changes in regulations or laws
8. Importance of External Factors
- Natural disasters or extremely bad weather
- Political instability or unrest
- Health calamities or pandemics
- Judicial troubles or laws specific to that industry
Some Business Failures and Their Cases
1. Kodak (Photography)
- Slow adoption of digital technology
- Overdependency on the declining film market
- Severe competition against up and coming digital camera manufacturers
2. Blockbuster (Movie Rental)
- Unable to compete with online streaming
- High debt and old-fashioned business model
- No innovation or an expansion of offerings
3. Toys “R” Us (Retail)
- Burdened by a large debt load
- Increased competition from online retailers such as Amazon
- Changes in how consumers shop-don’t want to spend on goods
4. Borders (Bookstores)
- Emergence of e-commerce such as Amazon
- Changing market with letter demand for books
- Very poor management of inventories
5. Lehman Brothers (Investment Banking)
- Extremely high-risk subprime mortgage-taking activities
- Financial crisis and the housing market collapse
- Sell-off of troubled bank assets and regulatory shortcomings