One of the biggest challenges entrepreneurs face when starting a business is ensuring it succeeds. Recent statistics show that as many as 20% of businesses fail within their first year in operation. Understanding the main factors contributing to a business’s downfall can help prevent aspiring entrepreneurs from making the same mistakes.

So then, what are some of the top reasons businesses fail?

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Why businesses fail: Top 10 reasons

According to recent research, the leading reason most businesses fail is a lack of cash. Nearly one in four businesses (38%) fall victim to this. This can be from running out of the initial cash they had when launching their business or failing to raise new capital along the way to support ongoing operations. 

To avoid running into this problem, consider starting businesses that require low financial investments, such as dropshipping or print on demand.

The second biggest reason businesses fail is there’s no need on the market for their product or service, with as many as one-third (35%) of startups failing for this reason. That said, doing adequate market research, including in-depth target audience analysis, can help you better gauge how your product may be received.

Third on the list of the top reasons startups fail is getting outcompeted. One in five businesses is forced to close because of their rival brands. There’s no question that competition within the entrepreneurial world can get fierce. This is why having a unique value proposition is important, as it can help your brand stand out from the pack.

Having a flawed business model is the fourth biggest reason businesses fail, affecting as many as 19% of businesses. The research found that businesses that have no solid infrastructure to stand on often find themselves struggling to scale. 

Rounding out the top five reasons businesses fail is regulatory and legal challenges—18% of businesses close because of this. Bureaucracy can be complicated to deal with, especially for first-time business owners. However, external factors such as trade wars can also lead to a change in regulations that negatively affect business operations. 

Here are some of the other top reasons startups fail:

  1. Pricing/cost issues: 15%
  2. Not the right team: 14%
  3. Product mistimed: 10%
  4. Poor product: 8%
  5. Disharmony among team/investors: 7%

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