Why Small Businesses fail to Survive

Why small businesses fail to survive is a question that I am asked time and again. If not why do they fail, then how do I make my small business a success? Ultimately it’s the same question.


Now 12 years into owning, building, selling and losing various businesses, I know that there is no magical solution. No one size fits all process, no guarantees. There are, however, a number of activities that you can undertake to mitigate the risk of your business failing. But understand that even if you undertake these activities, you’re still not guaranteed success. 


Market forces can always go against you however they present themselves. You cannot guard against those so early in your journey.


As an entrepreneur and business owner, I am completely aware of the issues that newly found business owners face. So this is a story of my own journey and experiences and also answers to the daily questions small business owners ask.


By sharing my advice and education, I can help you better prepare for success giving context for my reason of choice.


Planning your new business or startup


This is my very first tip. All businesses will fail if there is no planning. And I don’t mean just planning how to get started, but by constantly planning each and every careful step of the way. Business planning is a key ingredient in governing your success in running a business.


My first viable business was born from a passion to write stories, poetry and copy. I wrote stories of escape, travel, intrigue and fear. Using my life experiences from a very young age to drive these stories forward. So in part, I was a dreamer with a vivid imagination, but also with a strict desire to succeed and be first with everything.


In fact, one of my earliest school reports from way back in 1981 told my mother to buy me a computer as I was that far ahead of the rest of my class. I still have that report and I look back at it from time to time.


Using your business acumen and skills


I used my experiences at home to write poetry. I had a great way with words from a very young age. Developed from spending time with my grandfather doing crosswords. This gave me the opportunity to learn bigger more expansive words and develop my vocabulary. But during my teen years, my poetry became darker, full of pain and reflected my parents' divorce which I had taken very badly.


But what relevance does this have with planning a business?


Well whilst planning your new venture, you always do something that enables you to trade on your skill or your passion. These two things will best support you when times get difficult and give you the best chance to win through.




DISTINCT magazine was my first foray into a creative business. After 12 years of management consulting and being employed within financial services, I decided to change track. I realised early on that I am not one to work and flourish within processes. I am a person that creates processes for others to work within. 


So consulting really suited my skill set and my passion.


And after so many years of helping put processes right, updating workflows and systems with newer technologies. I had to do something for myself. So I combined all of my knowledge and my passion for writing to create the magazine.


But that wasn’t all of the beginning. In the area that I lived at the time, it was classed as ABC1. This means the general population are above the national average for earnings, property value and lack of debt. The people also have more free cash to spend than others. 


Know the competition


I know this as I already knew at least two other magazines that were already published, but were missing out on further business opportunities.


Both magazines focused on selling advertising space or advertorial space to fund their business model which was great in the heyday of the pre-global economy meltdown (market force). One was called IN Magazine and funnily enough the other OUT Magazine. And yes there is a story behind that which I will not dive into.


Anyway, having seen what the opportunities were, I decided that I would and could do better than the incumbents and so I set out my stall. I created DISTINCT MAGAZINE and immediately made sure I covered the first of the perceived failings of the two incumbents.


Both IN and OUT were A4 magazines and I had noticed that whilst everybody liked reading them, nobody ever carried them away. I had seen that Cosmopolitan had just released a handbag-sized edition and I went straight it at A5. In my mind, distinct by name, distinct by stature.


What else helped my small business


I am well known in my local area. I had spent some time running club nights in local clubs. My company often included footballers, actors and pop stars, but that is normal to me, I didn’t see the hype that went with that.


However, I soon learned to use that to my advantage. As often happens when an area has a lot of wealth, it’s not your bank balance that matters, but your social circle. And I am sure you’ve all been told that your net worth is your network. This is fundamentally so true.


Having built my corporate network over 12 years I had also built a social network over the same period. The relevance here is that by being well-liked and respected, I had trust in my new business from the outset.


There were people that literally got me into their cars, took me to other business owners that they knew and introduced me and my business to them. Do you have anyone in your network prepared to do that for you?


If you do, buy them dinner, explain you want to explain your new business product or service and do so with all the passion in your being. If they like what they hear and are happy to introduce you to their network, give them something out of it. 


Don’t expect anything for nothing!  


It’s the easiest way to undervalue their knowledge, expertise and faith in your friendship.


If you expect people who have worked hard to get where they are. Those who have paid their dues, to use the equity they’ve built over the years in their network on your new unproven venture for free, then you need to rethink your strategy. 


I was there once, feeling like I haven’t even started, I’ve got low or was self-funding and I needed to earn before I can give anything away. It doesn’t matter, it’s a fundamental mistake. It’s one of the reasons that small businesses fail to survive.


Over the years I came to think about it like this. If of the 100% of sales I make per month, quarter or year, I get 10% on referral. Then I will pay each referrer 10% of the revenue that they generate. Even from a startup, this is like building an affiliate program with real people.


That 10 % of revenue is actually 1% of turnover based on this example. 10% of 10% is 1. Not a bad figure to give away when you put it like that? To gain unemployed but full-time salespeople, willing to promote and suggest you whenever the opportunity arises.


Often we put our own needs first without carefully planning the process and mapping the bigger picture.


What if 50% of your revenue came from your network and you paid 5% out in fees for that business? That would mean half of your turnover you don’t even have to work to get. 


If you value your network, pay for what it generates for you.


Do your due diligence


The other thing that I did was to have coffee with the staff of the other two magazines. In fact, although DISTINCT is now suitably named (as it's out of circulation) I still have connections with their sales teams.


But before I get into that, you have to research the competition. Know the staff, know the culture, find the opportunities. 


And it worked. 


One of the directors of IN came to lunch and I tried to poach her. She did all of the creative for the magazine and I wanted her to bring her contacts and skills across.


It didn’t materialise, but that was only due to the basic salary she wanted which at that point was out of my reach. But I knew that there was an opportunity for that move to happen at a later date.


Always try to learn


Moreover, other than trying to poach staff, I also asked my customers what they thought about the magazine and I got some interesting feedback.


One customer said he liked the title of the magazine but didn’t see what was so distinct about it other than the size. The content was similar, the same shops advertised, it was a barrier for long term investment in advertising for him. He felt as a new magazine people would read it initially but that he rarely saw a return on the investment.


Now that really got the gears going. In an ABC 1 area, nobody tears out discount vouchers and goes shopping, it goes against the very essence of being wealthy. And if no vouchers were returned, how could I prove return on investment (ROI) and this pained me.


So I set up online. I built a WordPress website and used a magazine theme, customised it and had an online and offline version. My ambition to track how many people were on any page, advert etc per month and use that as a metric.


But I soon learned something else.


Although in an ABC 1 area, the only real difference between that and the rest of the country is that it takes longer for downturns in the economy to bite. Obviously, this is hindsight, but looking back, another reason why small businesses fail. A lack of focus on the wider economy.


Not only was the economy slowing down, but Westfield at Stratford had also been built and the access to larger stores bit hard. 


I started to offer e-commerce websites through the magazine as a new revenue stream, mainly because none of the other magazines did and I felt that was the opportunity.



Know when to pivot


After 6 months of trading as DISTINCT, I was doing really well with the websites and not so well with the advertising. My working capital was shrinking and cash flow was drying up. I turned to invoice financing for a while but it put off potential customers. So I closed the magazine and opened an eCommerce web design agency.


We were doing well, selling websites. We soon offered social media support which in turn led to digital marketing and the rest is history. Although the magazine failed, I don’t see it as quite a business failure, most successful companies pivot at least once.


This is another important lesson small business owners need to understand which is when to pivot in business. Pursuing the things that aren’t working will often see your business fail. Poor financial management and poorly managed businesses often come from a lack of focus and planning.


For example, not doing the accounts on a monthly basis to see where your business is at. If you aren’t watching cash flow and capital, how do you know when the lights will go off?


If you don’t figure out how long a typical sales cycle takes, then again you won’t know when to forecast income based on your current deals. So use a CRM. Try HubSpot's free CRM which is a great suggestion and will help you manage a successful business in the business world.


This is part one of why small businesses fail to survive. Whilst it’s not as in-depth as I would have liked it to be, I wanted to relate to the experience. To show that being aware of your situation at all times is integral to starting a business and making it a success,


What's next?


In part two I will talk about sales, marketing and prospecting. And why I don’t believe that social media is necessary for all service providers in the first 3 months. 


Thanks for reading why small businesses fail to survive part 1. If you are about to start a new business or have started a new business and would like advice, marketing and sales or coaching support, please get in touch.



BY Paul Sullivan



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