Why Businesses Fail

Businesses fail all the time. The global marketplace is competitive, especially in retail and e-commerce. Smaller companies have to work twice as hard to compete against deep-pocketed rivals that can afford occasional failure. Let’s take a look at some of the most common reasons why businesses fail.

1. Failure To Innovate

One of the easiest ways businesses fade into obscurity is because they fail to innovate. They might develop a new technology or carve out a portion of a market but just coast for years, even decades. Think about Kodak. Kodak practically invented the personal camera market and established itself as the dominant company in that industry. Do you know what Kodak did next? Not much. The company just coasted on that early success and failed to embrace the shift to digital camera technology. Kodak was once a success story and is now a cautionary tale of why companies always need to innovate.

2. Lack Of Capital/Cash Flow

Capitalization and cash flow problems are other common ways for businesses to fail. Capitalization and cash flow are two different but connected ideas. A company that’s not capitalized properly might have too much debt on its books relative to equity and could face higher borrowing costs. High borrowing costs on small business loans or merchant cash advances are fine for a short period but over time make it hard to reinvest capital into the business. High borrowing costs can also hurt cash flow and make it difficult to cover day to day expenses. In the end, poor cash flow may force a business to sell off assets to raise cash or go bankrupt entirely.

3. Entrenched Competition

Businesses fail because entrenched competition can make it difficult to grow. That competition might enjoy better scale, better technology, or simply a more valuable brand in the eyes of consumers. That doesn’t have to be a death sentence because the competitive landscape isn’t stagnant; businesses always need to find a new competitive advantage. Your competition likely were in the same position once before they found their niche.

Your company can’t stand still because your competitors won’t either. Businesses must always be willing to innovate and figure out how to make the better mousetrap. Along with the way, it’s critical to manage finances to ensure each project provides the best return on small business loans. Your competitors might have a head start but with some elbow grease and some luck, your business won’t be the next Kodak.

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