5 Reasons Your Business Will Fail.

Learn the 5 reasons your businesses will fail and how to avoid them.

Most small businesses don’t fail because of bad luck – they fail because of predictable and avoidable mistakes. On this episode of The How of Business podcast, Henry Lopez shares the top five reasons small businesses fail, drawing on decades of experience coaching entrepreneurs and running his own small business ventures.

Henry Lopez explores the most common traps: launching with a broken business model, mismanaging cash flow, struggling to attract customers, doing everything yourself, and refusing to adapt when things aren’t working.

Whether you’re just starting or already in business, this episode will help you evaluate your strategy, spot early warning signs, and build a more resilient business.

“These are common mistakes—and completely avoidable if you’re willing to be honest, stay flexible, and ask for help.” — Henry Lopez

5 Reasons Your Small Business Will Fail:

1. Lack of a Clear Business Model
   You never clearly defined how your business will consistently make money.

2. Poor Cash Flow Management
   You didn’t build realistic financial projections or underestimated how much working capital you would need.

3. Not Enough Customers (Weak Marketing & Sales)
   You failed to attract a steady flow of ideal clients by trying to serve everyone instead of focusing on a niche.

4. Trying to Do Everything Yourself
   You became the bottleneck by refusing to delegate or outsource essential tasks.

5. No Adaptability or Stubbornness
   You stuck with a failing idea or strategy instead of pivoting based on feedback and performance.

5 Reasons Your Business Will Fail – Q&A:

Question: What are the most common reasons small businesses fail?
Answer: Five top reasons include: having a broken or unclear business model, mismanaging cash flow, failing to attract enough customers, trying to do everything yourself, and refusing to pivot or quit when necessary.

Question: How can I avoid failing as a small business owner?
Answer: Start with a clear and tested business model, create realistic financial projections, focus your marketing on a niche audience, learn to delegate early, and stay flexible to adapt or pivot based on feedback and results.

Episode 532: Is Your Business Model Broken?

Episode 439: Cash Flow Management

Episode R351: Niche Down to Scale Up

Episode 355: Four Reasons to Delegate

Episode 554: When to Quit

Transcript:

The following is a full transcript of this episode. This transcript was produced by an automated system and may contain some typos.

Henry Lopez (00:12):

Welcome to this episode of the How of Business Podcast. This is Henry Lopez, and this episode is about the five reasons your small business will fail if you’re thinking about starting a small business or are already running a small business. This episode is going to walk you through five common reasons that small businesses fail, and it’s based on what I’ve seen over the years of coaching small business owners and my own experiences as a small business owner. More importantly, I’ll share how to avoid these mistakes and give your business the best chance to succeed. You can find all the How of Business resources, including the show notes page for this episode and learn more about my one-on-one and group coaching programs @thehowabusiness.com. I also invite you to consider supporting this podcast on Patreon, and please subscribe wherever you might be listening so you don’t miss any new episodes.

Henry Lopez (00:58):

Here are the five reasons your small business will fail. These are not in any particular order, although I think number one is probably most critical, and that is a lack of a clear business model. Many founders confuse a good idea or something they’re passionate about with a business model, and so they have the tendency to jump in without knowing if it’ll make any consistent money. So the mistake is skipping the process of defining exactly how you will create, deliver, and capture value. So to have a chance to be successful, a business model must allow for sufficient profitability and it must be scalable. So that lack of a clear and to some extent proven business model is one of the primary reasons your small business will fail. I dive into this deeply in episode 5 32. Episode 5 32 is Your Business Model broken, and in this episode I explain how to spot when your model is broken and how to avoid getting there and what you can do to fix it, including real world signs, like consistently low margins and customer confusion about what it is that you offer.

Henry Lopez (02:01):

So the key here is to use a plan, even if it’s a simple one page business model canvas, so that you can launch ideally as niche down or scale down as possible. Test it, get some validation on that MVP and then grow from there. I know that’s not possible for every business type, but if possible you want to start small, prove the business model and then grow over time. And then most critically be willing to adjust, pivot, or perhaps completely abandon a bad business model. And I’ll talk more about this in point number five or reason number five, why your small business will fail. Reason number two, why your small business will fail has all to do with cashflow management. So poor cashflow management will kill your business. Cash is the lifeblood of your small business, and most small businesses don’t die from a lack of profit necessarily.

Henry Lopez (02:53):

They die from a lack of cash, although the two are combined, of course, you either didn’t create a realistic financial projection or maybe were overly optimistic on how fast you’d get to break even. And then that leads to a surprise in your capital needs. You don’t have enough working capital and the number one thing that kills a small business is running out of cash. So you might see businesses, for example, that seem very busy, but busy doesn’t always translate to profitable. Busy doesn’t always translate to a type of business that requires, let’s say, upfront investments in inventory or a type of business model where you deliver a service and get paid later. So those things tend to exacerbate cashflow issues that combined again with poor planning or being overly optimistic as to how much working capital you need to get to break even, and that leads to the crisis of running out of cash or always being strapped for cash because of those peaks and valleys, and then you can never grow from there.

Henry Lopez (03:55):

You get stuck there. So in episode 439, I talk about this point of cashflow management and I walk you through how to create and manage a simple cashflow forecast to keep you on top of what your forecast is for cash and give you enough time hopefully to respond and plan that runway initially that you have that needs to get you to break even. And then even beyond that to get you to where you are making enough profits to compensate yourself. That is what gets severely underestimated. We run out of cash and that will kill your business. So build a conservative and tested and validated business model, including the financial projections and plan for at least 50% more than you think you need in the way of working capital or where that additional capital will come from in case the business needs it in case it takes a little longer than you anticipated to get to profitability.

Henry Lopez (04:50):

Reason number three, your small business will fail, is not enough customers. That’s pretty obvious, but weak demand for your product, which usually is tied to weak marketing and sales. So a great product or service is worthless if nobody knows about it. So we’ve got to get the word out. We’ve got to go find those buyers typically with most business models, and I have found that sometimes people are delusional in thinking, well, we’ll just put up a website and people will find us, but that’s rarely the case. We’re a needle in the haystack. We must invest in marketing and sales depending on the type of business that you’re in to get people to know about and see the value in what we have to offer. If you’re relying exclusively on word of mouth or hoping that somebody will find you online, your business is likely going to fail.

Henry Lopez (05:38):

The other thing is to niche down. Don’t try to be all things to all people. Focus on a narrow niche, which is your ideal target client and refine your offer and your selling messages for that particular segment or person or avatar. You’ll expand beyond that later once you’ve established that clientele. I talk more about this in episode 351, niche down to scale up and I share why focusing on a specific target market helps you build momentum so that then you can continue to refine that messaging and scale by being focused. You’re not going to Walmart or out Amazon those businesses. We simply don’t have the resources. We must stay narrowly focused. Even if we think of Amazon as an example, what did they start with? They started with books exclusively and then grew to offer everything now. So that’s the idea. Niche down to scale up, and we must get the word out through marketing and sales, as I always like to say, except for perhaps in an online true e-commerce online business, the businesses out there not in here.

Henry Lopez (06:46):

We’ve got to get out there into that community to sell and promote and let people know that we are here. So start small niche down one or two marketing channels at most with a clear targeted ideal client or avatar. Reason number four, why your small business will fail is you’re trying to do everything yourself. So you’re wearing all of the hats, which of course is very common and necessary for a lot of us if we’re starting a very small business with limited resources. And in fact, there’s goodness to that, to understanding exactly how every part of your business works and it’s going to work for you initially, perhaps depending on the scale of your business. But not only are you going to reach burnout, you’re also going to hit a ceiling as far as ability to scale, and you’re going to hit that ceiling pretty quickly.

Henry Lopez (07:29):

Now, if all you want to do is be a solopreneur and that works for you and that’s what you’re aspiring to, great, no worries there. But if you want to scale beyond yourself, if you want really a business, not just your own job, then you must learn to scale beyond yourself. The challenges that many of us, including myself, we get to that point of starting our business by being the person that gets it all done. You’re a task master, you get it all done even if you just have to put in more hours. But that approach, that mindset then becomes a bottleneck for us when we start a business, at least after that initial startup phase because you cannot scale if you’re the only one who knows how to do everything. I explore this more in episode 355 on delegation where I talk about how to begin letting go.

Henry Lopez (08:16):

That mindset of shifting away from only I can do it best to understanding the value of teaching and developing systems so that others can do it well. And that is the only way to scale. You want to identify what your highest value activities are, what is it that you’re best at and that you enjoy doing. Those things usually go hand in hand and then begin enabling others, documenting, automating, outsourcing so that you’re not bogged down trying to do everything. If you do that, if you stay there, then you will not grow beyond perhaps yourself and your business will not scale, and that can lead to the failure of your business. And reason number five, why your small business will fail is lack of adaptability, refusing to quit or pivot when it’s necessary. You’re stubbornly sticking to a failing product or market or strategy or segment, or more importantly, a business model that simply won’t produce consistent profits and doesn’t allow you to scale.

Henry Lopez (09:16):

Now, this is hard. This is perhaps the hardest thing to do. We put a lot into developing an idea, a concept, bringing it to market, starting our business, and then to admit that it’s not working well, that’s hard on the ego, that’s hard on our pride. And so often we dig in deeper. There’s the whole sunken cost mentality. And so I’m not telling you this is easy. I really think that this is an area where you need to get help from a coach, an advisor, or someone who’s done it before, but if you stubbornly stick to it, your business will fail. Not every business idea is meant to survive and its current form, and it’s not about giving up, which I think is the big thing that holds us back. It’s about knowing when to pivot, when to adjust. I dove into this in episode 554.

Henry Lopez (09:59):

I titled that episode When to Quit, and it’s based on a great book that I recommend on this subject by Seth Godin called The Dip. And in this episode, explore those emotional, the emotional side of quitting or pivoting, and how to perhaps make that decision with some level of confidence. Here’s a great quote on this from Seth Godin from that book, the Dip on This topic, winners quit fast, quit often, and quit without guilt until they commit to beating the right dip for the right reasons. Now, that’ll make a little bit more sense when you understand in either listening to the episode or reading the book about what he means by the dip, and when do we fight through, when do we keep fighting because we’re almost there versus I’m fighting against the brick wall and what I need to do is pivot instead or make a roundabout or change path, or I’m in a cul-de-sac as he explains in the dip.

Henry Lopez (10:53):

So make sure that you are building feedback loops that you’re aware of in listening to what the market is telling you, and not hang on with pride until death on a particular approach or a business model. You have to have the data that tells you that as much as possible. You have to have honest input and you have to be honest with yourself about what’s working and not working, and you have to be willing to adapt or your small business will fail. So those are the five reasons your small business will fail. Number one, no clear business model. Number two, poor cashflow, probably based on unrealistic projections. Number three, weak marketing and sales, and a lack of focus on who it is that you’re going after initially. Number four, trying to do it all yourself and not delegating, not developing a team as your business grows.

Henry Lopez (11:41):

And number five, a stubbornness and a failure to adapt or evolve or pivot your business when you find out, or the market tells you that the business model is broken. So these are common mistakes, but they’re completely avoidable to a big extent if we’re just a aware of them. And B, willing to put in the work to do the work, to get the help perhaps to adjust and avoid these issues. So stay flexible, be honest with yourself, and ask for help. This is Henry Lopez, and thanks for joining me on this episode of The How of Business. I wish you the best as you start and grow your successful and profitable small business. I release new episodes every Monday morning, and you can find a show anywhere you listen to podcasts, including the How of Business YouTube channel, and at my website, the How of business.com. Thanks for listening.