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Business Failure: How to Handle Failure in Business

Estimated Reading Time: 7 minutes

Business is inherently risky, and you’re likely to hear that from a number of sources if you’re thinking of starting one. You’ll probably hear lots of daunting statistics about the failure rates of small businesses. And yet, if you’re passionate about business and your product/service offerings, you can and should proceed with optimism.

While managed optimism can be an asset, it’s still prudent to consider the possibility of business failure. Doing so can help you minimize risk in the event of failure. If your business has already experienced failure, there are still ways to turn it into a positive experience and a springboard into the future.

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Table of Contents:

  1. Five Causes of Business Failure
  2. Small Business Failure Rate
  3. How to Handle Failure in Business
  4. Famous Business Failures and Comebacks

Five Causes of Business Failure

There are many possible reasons why a business might go under. Some of them might have nothing to do with the business, like war and natural disaster. Others are a bit easier to anticipate. Here we’ll go through five causes of business failure. This will help you shape your business to avoid business failure in the future.

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  1. Poor Leadership, Management, and Strategy

This is a catch-all category for many forms of misguided behavior by company leadership. Whether companies separate strategy, management, and leadership into different roles or whether they’re all overseen by one individual, each function is integral to a business’s success. Sound leadership is required to create a unified vision for the company to move forward. Proper management is required to make sure the company stays on the right path. When either of the three is neglected or done poorly, it often leads to the downfall of a business.

  1. Financial Mismanagement

Whatever the originating causes, most businesses that go under ultimately do so because of an inability to meet expenses. Financial mismanagement might involve a failure to predict and constrain expenses, unsound borrowing and allocation decisions, or failure to properly anticipate revenues.

  1. Failure to Connect with a Market

Many companies are run by passionate people and offer products & services of exceptional quality, yet they still go under. This usually arises from a failure to connect with a market, which translates to insufficient revenues. There are many reasons why a company might fail to connect with a market. They might be in a sub-optimal location, or they might not be advertising properly, or else there might not be a viable market. It’s critically important to fulfill a real unmet customer need with your product or service.

  1. Failure to Offer Real Value

Some companies exist to help deliver the products & services people are passionate about offering to the consumers who value them. Other companies exist purely to make and capture money. This latter kind of company can sometimes succeed by exploiting market inefficiencies and the productivity of others. But odds are, if you aren’t offering something that provides real value to people, you will have a difficult time generating revenue over time.

  1. Failure to Adapt to Market Changes

Many companies operate successfully for some time, but then go under. The problem is, markets are always changing in response to changing world conditions. Even the most well-positioned company must be nimble and strategic enough to adapt to sudden changes in the environment. The coronavirus pandemic is an excellent example of this.

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Small Business Failure Rate

The good news for small businesses is that the small business failure rate does not seem terribly daunting in the early going, with only 20% of businesses with employees going under in the first year. This means businesses often have some time to adjust operations in order to remain afloat or thrive. But with each passing year, the business failure rate increases. By year 5, 50% of businesses have experienced business failure. By the end of year 10, small business failure reaches 70%.

How to Handle Failure in Business

As the rate of business failure indicates, the odds of failure become more likely as the years pass. But that’s not the same as saying that most entrepreneurs fail. By learning how to handle failure in business, you can turn your negative experience into a launching pad to future business success. Below are 5 ways to handle business failure.

  1. Be Prepared

This does not only mean be prepared for what can go wrong so you can avoid business failure at all costs. It also means to be psychologically and financially prepared for the possibility that your business may fail. It’s wise to have a contingency plan in place. If you aren’t prepared for your business going under, it can easily feel like it will take the rest of your life with it.

  1. Don’t Take it Personally

Businesses fail all the time. Your business’s failure does not say anything about your success or failure as a person. It doesn’t even say anything about the success or failure of your product, your service, your overall career in business, or even the failed business itself. Business failure is not personal – it’s just a part of life.

  1. Take Time to Recover

The failure of a business can be difficult and exhausting. If you go through it, you many come out the other side exhausted and psychologically battered. It’s crucial that you take the time to recover emotionally and physically before you make any attempt to resurrect your business career. Use this time to solidify your situation for your next move and even to upskill. And be sure to solidify your support network, since it will be the people who care about you that help you through failure as well as success.

  1. Make Calm Decisions

When a business is failing, it’s easy to become desperate. This can lead to emotional decision-making that often just makes circumstances work. Do what you need to do to come back to a calm place, so you can manage the situation and any future steps you take as reasonably as possible.

  1. Study Past Mistakes

Hopefully this is obvious to you. By evaluating where you went wrong in your previous business failure, you can avoid making that same mistake in the future. This might also provide a roadmap of skills and education you may want to acquire before you launch your next startup. Failures provide tremendously useful data for what to do differently next time.

Famous Business Failures and Comebacks

If your business has failed, you might feel like a pariah with doomed prospects for the future. But the history of the marketplace is rife with examples of successful entrepreneurs who suffered business failure at one point. Ultimately, these entrepreneurs didn’t let failure stop them, and they eventually succeeded. To help make the best next step forward, let’s take a look at some famous business failures and comebacks.

Bill Gates

Everyone knows Bill Gates, the famous Microsoft CEO turned philanthropist. Of course, no one remembers him as the founder of the failed traffic statistics company Traf-O-Data.

Jeff Bezos

One of the richest people in history didn’t start his career by founding Amazon. Before then, he started a failed online marketplace called zShops. While zShops may not be a household name today, many of its principles remain central to the globally dominant Amazon.

Arianna Huffington

This journalism tycoon is famous for changing the way people read news and founding the publication that still bears her name, Huffington Post. Before anyone heard of her, however, she was rejected by almost 40 different publishers.

Steve Jobs

Even in death, Steve Jobs remains one of the most revered entrepreneurs in human history. The Apple products whose development he oversaw are globally ubiquitous. But for much of Apple’s history, the company flirted with business failure. Hugely expensive products like the Apple I and the Lisa were commercial failures and the company almost went under. The board even fired Jobs at one point, ultimately re-hiring him in 1997.

Conclusion

There is no way to have a career in business without incurring some risk of business failure. But this should not deter you. Even the most successful business people in history have all experienced failure. What differentiates failed versus successful entrepreneurs is the ability to learn and grow after failing. Business failure isn’t personal – so learn to embrace it, receive the lessons it teaches, and move on to the next thing with renewed optimism!

 

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