Why do so many small businesses fail?

Why do so many small businesses fail?

This topic generated over 50 comments on a LinkedIn forum recently.  This counts as a furore in the restrained atmosphere of LinkedIn Groups.

Comments came from a range of business owners, with perhaps a preponderance of those who advise other businesses. Whilst this skewed the comments made it also ensured that there was considerable experience of the reasons why UK SMEs survive or fail.

I counted up the reasons put forward – a completely unscientific analysis of a self-selecting group but interesting nevertheless. The reasons put forward were:

1. Owner's attitude/mental strength/direction/native ability/intelligence (8 mentions)
2. Business management knowledge and willingness to take advice (7 mentions)
3. Sales ability (6 mentions)
4. Financial understanding and control, particularly of cash flow (6 mentions)
5. USP/great idea or product, effective market research (5 mentions)
6. Business planning (3 mentions)

Also mentioned were: Customer understanding, luck, banks, pricing and contracts.

Not the ranking I would have come up with at the start I must confess. It prompts the question: If this ranking is reflective of anything like the actual reasons, what interventions are actually likely to be most effective?

Postscript:  Whilst preparing this blog I met the owner of a design and branding company who is in his tenth year of business and expecting to turnover £1.5m this year.  He and his partner have been using the latest of a series of advisors for the last 9 months - a series which started with a mentor when they set up the business.  We talked about their plans to take on a shared FD shortly - not to control the finances but to raise their strategic game.

Perhaps businesses that are smart enough to know when they need advice and are willing to invest in it stand a better chance of survival.

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