The Root Cause of Entrepreneurial Failure

Nicholas A. Bibby

At the beginning of this piece I called attention to the commonly accepted reasons for small business failure, and promised to offer alternative thinking.

The two widely acknowledged causes of small business failure are

1) lack of knowledge about the business, and 2) insufficient capital to sustain the venture through break-even and profitability.

A far more powerful and important root cause of failure that I now accept after a lifetime of study and observation is poor fit. Therefore, for me, traditional explanations for business failure are too elementary and not equal to the magnitude of the problem. Insisting that businesses fail due to knowledge and capital is tantamount to insisting that wind and rain cause roofs to leak.

First is the issue of knowledge. I think it’s fair to say that, given proper instruction, most entrepreneurs can learn the basics of running a given business. Information and learning can be obtained through traditional schools, franchisors, books, consultants, or on the job training as an employee. Second is the matter of capital. With a modicum of intelligence and careful planning, a venture can be started with limited means and grown as finances, time and ability permit. For example, if one decides that a fast food operation is the goal, but only $2,000 can be scraped up, one logical starting point is a portable grill and refrigerator that can be hauled to public events on weekends. You keep the day job and save the weekend money until a brighter, bigger day when you put four walls around a permanent grill and refrigerator. Sorry, I can’t buy the lack of knowledge, lack of capital school of thought.

Here are a couple of questions that challenged me to see failure in a different light.

1. How many adults are unhappy with their work? Research tells us that more than two-thirds are unhappy?

2. What is the percentage of small businesses that fail? About two-thirds.

3. Do you find it interesting that those numbers are very close? Yes, of course.

4. In what functions do we tend to do excel? Obviously, we excel in positions that we enjoy and for which we have an aptitude.

It is a struggle to go to work every day and not enjoy our work, but we can tolerate it because we see the paychecks on Friday, we have the perks, we have weekends, and so on. However, that struggle is taken to a whole new level when the person who dislikes his job, also is his own employer. The self-employed don’t necessarily receive a weekly pay check, a weekend off, or any perks whatsoever. When the pressures of ownership are heaped onto a poor job fit, there

exists little stamina to stay the course. Working in a less than joyous job is one thing, but owning a less than joyous job is a whole different world.

The root cause of entrepreneur failure is the non-existence of two things. There is not a passion for the work involved and/or there is not a quality, personal fit with the venture. Given those conditions, the words “failure” are written on the front door of the business.