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I am a life-long entrepreneur and startup expert living in Sisters, Oregon and I am the Founder and CEO of Mighty Wise Academy: A Virtual Academy For Entrepreneurship. I am also a mentor and advisor for multiple startup companies. If you'd like to learn what it really takes to become a successful entrepreneur, you can connect with me here >>.

Contact Eric T. Wagner

The author is a Forbes contributor. The opinions expressed are those of the writer.

Entrepreneurs 197,067 views

Five Reasons 8 Out Of 10 Businesses Fail

Breaks my heart.

According to Bloomberg, 8 out of 10 entrepreneurs who start businesses fail within the first 18 months. A whopping 80% crash and burn.

But why? What can we learn from the colossal amount of failure with small business that we can apply to our own business aspirations?

In my 30 plus years as a serial (yes – hate that word too) entrepreneur, and through my exposure to thousands of entrepreneurs via my company Mighty Wise Media, I have seen plenty.

And yes, at surface level the primary reason businesses fail is they simply run out of cash.

But trust me — the cracks in the foundation start well before the brutal day of financial collapse.

Thus I give you 5 reasons for failure and more importantly, what you can do to avoid it happening to you:

Reason #1: Not really in touch with customers through deep dialogue.

An amazing thing happens when an entrepreneur sees a potential opportunity in the market, or dreams up a new idea for a product/service: they retreat to a cave.

In my experience, this is the worst move an entrepreneur can make because complete understanding of your customer is imperative to your success. Listen — in my mind entrepreneurs must walk 1,000 miles in the shoes of their customers. Not 10. Not 100. One thousand.

Your customer holds the key to your success deep in their pain, behavior, dreams, values and the jobs they are trying to accomplish.

Your Solution: In 1999, four smart guys wrote a book called The Cluetrain Manifesto. Although the book is a tough read in my opinion, there is one silver bullet piece of wisdom shouting from the pages.

Markets are conversations.

Dialogue is key. And 140 character tweets don’t count. Real dialogue with real customers (via whatever channel is best for them).

Nathan Furr and Paul Ahlstrom, co-authors of the book Nail It, Then Scale It, said it best:

Which would you rather do — talk to customers now and find out you were wrong or talk to customers a year and thousands of dollars down the road and still find out you were wrong?”

Reason #2: No real differentiation in the market (read: lack of unique value propositions)

Entrepreneur.com just put out a story entitled “Why Everyone Will Have To Become An Entrepreneur”. If this holds true (and I think it will), instead of your competition being 5,000 other Tom, Dick and Harrys, it will soon be 50,000 of these guys.

Meaning? Plenty of noise and chaos for those without uniqueness fighting for the bottom scraps. Most times this is a slow killer of businesses. Barely hanging on, entrepreneurs with some customers and some revenue skimp along for months or even years. Every painful inch wondering to themselves if this is all there really is.

Your Solution: First, agree with me right now this is a core element which must be addressed. Entrepreneurs who take this lightly end up in trouble. Grab a tool like Alex Osterwalder’s Value Proposition Canvas, stick it on your wall and work it. Dig in. Figure out the true value you bring to the table which is unique and different than others in the marketplace.

For example, if you read my stuff you’ll immediately notice I write different than others. It’s not the same. You may or may not like the writing style, but it is unique. It sets me apart from other writers on Forbes and thus, it’s one of my personal UVPs.

Now go uncover yours.

Reason #3: Failure to communicate value propositions in clear, concise and compelling fashion.

Next up is the debilitating disease called ‘failure to communicate’. For those old enough to remember the classic 1967 Paul Newman movie Cool Hand Luke, seared on the brain is a key line spoken by the prison warden to Newman who plays the maddeningly defiant inmate named Luke. “What we have here is a failure to communicate…”, upon which Newman is shot in the neck and on his way to exsanguination (aka bleeding to death).

Many entrepreneurs work hard to discover a point of differentiation then blow it because they do not communicate their message in a clear, concise and compelling manner. I watch many entrepreneurs bleed to death through their failure to communicate.

Your Solution: It’s pretty simple. Learn how to communicate better. Again, I reference point #1 above. If an entrepreneur is truly engaged in conversation (read: dialogue, not monologue), then you’ll learn the language of your customer. If they speak Russian, then please stop trying to speak French to them. Listen to the words they use and then use them right back at them. Do so through focus on these 3 points:

  • Be clear (are your customers unclear about who you are and what value you bring to them?).

  • Be concise (are you somewhat clear but go on and on and on in your messaging?).

  • Be compelling (do the words you use persuade your customers to take the action you want them to?)

Reason #4: Leadership breakdown at the top (yes — founder dysfunction).

You see it all the time in the media. Right off the deep end goes another athlete with unbelievable talent. Painful to watch the self-sabotage of the likes of a Lance Armstrong, Mike Tyson or Aaron Hernandez, all of which fell short from truly remarkable success because of their poor decisions.

Now startup entrepreneurs who go down hard might not have their names splashed across the headlines of tomorrow’s New York Post, but I submit to you their reason for failure is sometimes the same. Self-sabotage through extremely poor decision making and weak leadership skills.

Your Solution: Wake up to realize it’s your baby. You’re the founder. Which makes you the leader. Matters not if you’re a business of one, or 1,000. Lack the ability to strongly relate with people? Gain the skills necessary to do so. Struggle with anger issues? Solve it with anger management. Entrepreneurs who succeed spend time with personal development. I have never once met an angel or venture capital investor who doesn’t investigate the character of a founder and his/her team before whipping out their checkbook. It still amazes me how many business owners who actually have good ideas with the ability to execute them — crash and burn because of their own dysfunction.

Please don’t be one of them.

Reason #5: Inability to nail a profitable business model with proven revenue streams.

In the end, this is the sum total. Fail to accurately achieve product/market fit where money gets made, and you’re sunk. Entrepreneurs can actually have each of the four above reasons solved, but still miss the business model boat. Twitter is a perfect example of this (although 2013 may be the year they finally turn black in the profit/loss column).

Your Solution: Startups need to move swiftly without spending tons of cash to figure out their secret sauce. Using tools and methodologies such as Minimum Viable Products, Lean Marketing and Experimentation is critical.

A perfect example of this comes from Tony Hsieh’s book Delivering Happiness, wherein he describes the early days of Zappos. He and his co-founders weren’t even sure back in the late 90’s that people would dare order shoes over the Internet. So they ran a quick test: Up goes a website with shoe images taken from manufacturers’ websites, some buy now buttons and watch to see what happens.

Cha-ching. Order comes through, one of the guys sprints to the local shoe store, buys the requested shoes at full retail, and then scurries home to ship them out. Did they lose money on every pair of shoes shipped? Yes they did. But did they quickly ascertain whether they had a potentially viable business idea? Yes again. All with zero inventory or fulfillment capabilities.

Think and move quickly, ‘fail fast’ if you’re going to fail at all, and nail your business model.

Otherwise, you’re in the 80% bracket my friend.

NOTE: If you don’t know me, I’m Eric. Husband, father & life-long entrepreneur.

If you’re an entrepreneur — let’s connect right here — right now.

Seriously. Here’s a proven formula:

Your Wisdom + My Wisdom = More Success

See you there.

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  • Cheryl Conner Cheryl Conner, Contributor 1 year ago

    Love this, Eric and agree with you on all points, but especially #3 – failure to communicate being the reason that most pains and aggravates me, of course. Great article.

  • Eric T. Wagner Eric T. Wagner, Contributor 1 year ago

    Thank you Cheryl.

    And yes — if #3 drives me nuts, it must be double crazy for you with your background and expertise.

    Talk soon…

  • Points 1 and 3 (not really in touch with customers, failure to sell) are a failure of salesmanship. Points 2 and 5 (no real differentiation in the market, inability to nail a profitable business) are a failure of design, product and operational.

    Only Point 4 (leadership breakdown, poor deciding) stands alone and reflects false beliefs and maybe weak intellect. It is owing to 4 that 1 and 3 as well as 2 and 5 come about.

    All of what you claim can be condensed to something far simpler:


    And business is:


    Any undertaking fails owing this:


    That is economics. Costs determine profitibility. Prices determine the sum of sales.

    Prices get set by the winning bidders of demand in the face of supply. This is the great, invariant Law of Prices. A producer can remain producing only if the sum of sales gained at least equal the cost of production, otherwise the producer goes to ruin. This is the Axiom of Profit.

    Would be entrepreneurs fail to discover if winning bidders have sufficient economic quantities of purchasing — cash, credit — and are willing to bid high enough so the sum of sales at least equal the costs; and then would be entrepreneurs fail to produce efficiently.

    All other explanation as to why eight of 10 entrepreneurs who start businesses fail within the first 18 months is mere storytelling, the stuff of fiction.

  • *edit


  • Jay Ahuja Jay Ahuja 1 year ago

    Great stuff Eric. I have been in media sales in a top 25 market since 1988, so I’ve worked with everyone from Mom & Pop shops to Nike. In my experience, which is very much aligned with several of the points you made, the single biggest reason businesses fail is that they do not include sufficient advertising in their business plan. The less differentiation there is between you and your competitors, the more you need to advertise. It’s really that simple.

    Entrepreneurs, be they men or women, franchise owners or one-off start-ups, too often have the “If I build it, they will come” mindset. Secondly, they all believe, that they will provide “better customer service and greater value” than the competition and that is all it takes to be a success. Of course, so does the other guy. Lastly, if/when they do decide to advertise it’s often too little too late or they try to spread themselves too thin and be everywhere and anywhere.

    Here’s the key to advertising your business; find two or three advertising vehicles that reach your target market and that are not already over run with your competition. Then, invest just enough to become the dominant player in that market. You can start with one medium and branch out into a second or third as you begin to see some profit. It can be newspaper, magazine, TV, radio, online, billboards, etc. It really doesn’t matter, as long as they reach your target audience cost-effectively and the competition does not already “own that space.” Plan to invest a percentage of revenue in advertising every year, for as long as you plan to be in business. It’s also important to pay attention and plan for changes in the marketplace, because if you last long enough, you can always count on significant changes coming down the pike.

  • Eric T. Wagner Eric T. Wagner, Contributor 1 year ago

    Thanks Jay. Appreciate your insight. Agree with your take — as long as the entrepreneur has ‘nailed’ their secret sauce first. Otherwise, they have no idea if their value propositions solve pain in the market and whether they are communicating via their messaging (advertising) in an effective manner.

    Once they figure that out, then scale and advertise to the maximum.

    Good stuff Jay…

  • Joshua Hines Joshua Hines 1 year ago

    I always enjoy reading your articles Eric. I would wholeheartedly agree with your 5 reasons. In my opinion (and experience), #1 and #5 are most common.

  • jameschan6 jameschan6 1 year ago

    I agree with Mr. Eric Wagner’s points of view. I’ve been in business as a solo practitioner in the same specialty for thirty years. What makes a business succeed is still a mystery to me. This is why I believe constant self-education and self-invention are critical. James Chan, Ph.D., Spare Room Tycoon, Philadelphia, PA.

  • Thanks for the article. I wonder if you could give me the link to the Bloomberg quote. I can’t seem to find it anywhere. I assume it is just my own search error but I would love to see the original article.


  • George Vodin George Vodin 1 year ago

    From one serial entrepreneur to another, “Good Job”, the article was interesting and easy to read. We are an emerging franchise and last year put out a white paper, “The Five Essentials for Business Success”, which made many points similar to yours; if you would care to take a look at it, it is at www.4success.info

  • Eric T. Wagner Eric T. Wagner, Contributor 1 year ago

    Thank you George…

  • NinaB NinaB 1 year ago

    How about:
    Failure to have a competent accounting person or failure to LISTEN to their accounting person. And not understanding a profit and loss statement…
    Failure to understand the importance of paying payroll taxes “because our cash flow is bad, we’ll do these other things first…”
    My husband and I easily counted 12 small businesses–many with lots of potential– that failed because people we knew did not understand this.

  • Eric T. Wagner Eric T. Wagner, Contributor 1 year ago

    Totally agree Nina. Understanding the numbers is a key factor between success and failure in business. Thanks for sharing.

  • Very well written article, thank you for the information!

    I’d say that ‘nailing a profitable business model’ would also include cash flow management, which leads back to “founder dysfunction”. They may have great sales, but if cash keeps flowing out of the expense column they have no hope.

  • Eric T. Wagner Eric T. Wagner, Contributor 1 year ago

    Good point Scott. Appreciate you sharing your wisdom…

  • roger roger 1 year ago

    Hello Eric can you point me towards the bloomberg article where it said 8 out of 10 businesses failed

  • Adriana Kogelis Adriana Kogelis 10 months ago

    Great article, Eric. May I use some of the points in an upcoming presentation I’m giving on entrepreneurship at Purdue University?

  • Eric T. Wagner Eric T. Wagner, Contributor 10 months ago

    Thanks Adriana. And yes — please do. Attribution is appreciated…

  • Great Article Eric. I wanted to reference your work and the Bloomberg 8 out of 10 failure statistic in a blog post I am writing on http://impacturbanism.org/. I see that you are oft quoted on line, but no one is referencing the Bloomberg source context. Could you share it with me please?
    I am writing about how The Cleantech Open non-profit is providing critical networking and technical support for small companies that are developing important green technologies . . . hopefully avoiding your 5 pitfalls. The argument is that the world cannot afford to have a breakthrough Green/Clean technologies die on the vine for banal reasons like poor management strategy, leadership, or lack of business acumen. Thank you! G (p.s. I’ll hope you enjoy the resulting article)

  • Michael Dixion Michael Dixion 9 months ago

    Bloomberg made no such article you are a you should know better than to make up satistics to support an otherwise informational article

  • Michael Dixion Michael Dixion 9 months ago

    edit you are a liar

  • John Zimmerman John Zimmerman 6 months ago

    Eric, I’ve been in business strategy and brand strategy consulting for the past 19 years. What I’ve seen most often (they don’t call me in when everything’s going great – they are usually at a tipping point) is: Reason #4: Leadership breakdown at the top (yes — founder dysfunction).
    Most don’t even know they do it, but they sabotage their expanded businesses by innocently (they think) assuming they know best and interact recklessly at every level and don’t let people who know what they’re doing do their jobs. Always a hard thing to report after my research, but I do it with at least 4 large companies about to implode every year. The other points to me are why they fail EARLY. It’s the later fail – after significant growth and success that is the most disheartening to staff and confusing to the entrepreneur. Just my 2¢. Extremely well written – I’m foloowing you now brother! John Zimmerman

  • I have checked the statistic you provide of 8 out of 10 businesses failing and it does not seem to match up with government statistics, the SBA, and other sources like Statistic Brain which shows a 36% failure rate for new businesses in the first 2 years. Can you please provide a link to Bloombergs data on failure rates?

  • jwojewidka jwojewidka 4 months ago

    I know I’m a bit late to this party, but the main reason people fail in business is they are not prepared. All of your points are well taken, but could be (mostly) avoided with the right perspective and expectations going in.

    Entrepreneurial training and education is inadequate, regardless of where it comes from. Precious few sources actually understand the process and how it impacts individuals. Schools, including all the big brand names, are still teaching from an academic/research perspective. And they are clearly not effective, and most likely they are contributing heavily to failures.

    Starting and running a business is similar to child birth and war. If you haven’t experienced it yourself, it is nearly impossible to describe. If we continue to accept “help” from government, academics and self-described (but inexperienced) experts, we will continue to experience the ridiculously high failure rates that have been almost exactly the same for more than the 15 years the US has been keeping track.

    Plan, ask and learn. Not many rational people would walk out of the house without at least a) knowing where they are going, b) how they are going to get there, and c) what they might have to deal with along the way. Why on Earth would anyone think it’s a good idea to stake their reputation, relationships, assets and – most of all – precious time on something they have just a vague idea of?

    Starting a business not easy, sometimes it’s not fun, and it will affect the entrepreneur and everyone they get near. Educating oneself before making the journey is not an option; it’s an imperative.

    Good place to start? Try the book, E-Myth Revisited (not the current company).

  • Mike Johnston Mike Johnston 3 months ago

    I would add that in order to connect with your market you have to know your market. This is especially true on the Internet.

  • Stopped reading after the first two sentences. Which Bloomberg study exactly are you quoting? This one seems to be a famous one quoted all over the internet on entrepreneurial blogs, yet somehow the original data is nowhere to be found. Please help me out!