Small Business Failure – Most Common Reasons

I have been teaching, coaching and training a number of aspiring small business owners/entrepreneurs. Some enter into business some don’t. Generally speaking those who enter into small businesses do not plan well and once in trouble start looking for quick fixes.

Recently I met with a young and quite influential entrepreneur who acquired a degree in Business Administration from the UK. During his stay in the UK, he worked at Burger King. This working experience gave him some insights in the restaurant business. While working in cash management, he was astonished to see the profitability in food business and decided to open a restaurant on his return to Pakistan.

He was convinced that in addition to oriental cuisine, his restaurant will also target younger generation with mouth watering fast food. Objective was to give his customers a unique dining experience. A perfect location was chosen and finally a 100 seat restaurant was opened. First few months were excellent. Customers were happy, sales were high. He was lucky to find a dedicated employee to manage the affairs. This young lad would deal with the staff, manage supplies and also resolve nitty-gritty issues.
Problems started arising when complaints regarding food quality started appearing! Chef told the owner right in the beginning that his kitchen was not equipped enough to deal with a wide variety of dishes, an advice which was ignored by the owner. The next major issue was dealing with service staff which was expecting a fare share in gratuity (TIPS). Frustrated with complaints from customers and staff, the owner decided to deal with issues himself. He called the manager and gave him hard time.

Staffs’ morale went down, Manager became less interested in fixing things and taking decisions that made the owner’s position more venerable, he now had to get involved in all petty issues. He started replacing staff which did not work. Manager did not see his future in the organization and left.

Owner decided to take on the responsibility of running the restaurant himself. It was tough, he had to supervise every bit, remained engaged with the kitchen, services staff, making sure that the customers are well looked after, etc. He also introduced various promotion schemes, but nothing worked out.

Majority of the small businesses fail in the first few years of their existence and this was one of them. In my view, this restaurant owner failed (like most of other small business owners) because of the following reasons:
• Lack of proper organisational structure
• Inadequate hiring practices such as nepotism, hiring of unskilled staff and not being able to forecast future HR needs
• Customers’ dissatisfaction and poor customer service
• Poor communication (both within and outside the organization)
• Ineffective cash flow
• And many others…………………………

What do you think, in your opinion, are the most common reasons of any small business’ failure around you?

Related Posts Plugin for WordPress, Blogger...

7 comments

    • maroomi says:

      Thanks Hammad….It’s not only South Asian entrepreneurs alone. Small business owners all over the world do these mistakes time and again.

  1. Syed Yaqzan says:

    Certain entrepreneurs consider that such standard practices are not required in initiating/operating SMEs. Above all the gap between theory and practice is another issue as in above case interesting fact is the young entrepreneur was business graduate.

    This blog was due a long time ago. Hope next one is coming soon!

  2. Suzaal (Monirul Ahsan) says:

    I believe the owner of the business has missed some core and serious basic points. Since the owner of the restaurant Graduated in Business Administration in the UK, at least he should not have made these mistakes; for example;

    In addition to the Blogger Roomi’s points I would like add the followings;

    1. He was never careful about the staff MOTIVATION.
    2. His LEADERSHIP was absolutely centralized, and taken too much responsibility on his shoulder. Rather he should have decentralized the responsibility to his managers.
    3. It is understandable that in subcontinent restaurant business, it is very difficult to find skilled workers because of lack of social prestige (Almost none). For example the person who has customer service and leadership skills, he/she would not work in the restaurant environment; rather he/she will look for the jobs in private companies.
    4. Staff De-Motivation caused because of no TRAINING facilities as well, although the owner was British Business Administration Graduate. He should have trained his unskilled workers according to the restaurant requirements to make them skilled. So his Entrepreneurial Leadership has failed in this way.
    5. Finally presence of Scientific Management is believed to be very important in restaurant environment. The owner had the STICK, but there was no CARROT.

  3. Halima Mohiuddin says:

    You have beautifully shed light on issues that slide most businesses off curve even before they reach the top. I think it happens universally irrespective of race or nationality. But even here in America I have observed and also experienced that ONLY in some cases, some of us South Asians get so ego drunk, that we start considering ourselves “the know it all God” and get badly caught into a vicious cycle, that prevents us from evolving, accepting help, acknowledging others’ expertise especially when they are subordinates and if they are employees then we have the tendency of becoming The Pharaoh.

    It is very important that we stay grounded and humble and acknowledge, encourage, appreciate and learn from others who are better than us. Most of all we need to accept the fact that every business owner needs to rely on and delegate responsibilities to other people sooner or later for a sound business foundation that can hold, sustain and encourage extensive growth.
    My late grandmother used to tell me about this guys called Haji Sahab, who would sell bakery items on his bicycle, a very humble, down to earth and extremely hardworking guy a personification of “”dignity of labour”. She said he would be pedalling even when it was above 100 degree Fahrenheit and was unconsciously, without any formal schooling let alone MBA Degree, was beautifully capitalizing every “moment of truth”. Now his third and fourth generations are minting money off of the good will that he earned for Rahat Bakery.

    Every business needs periodic evaluation and tweaking to ensure optimal output especially if it wants to survive in the highly competitive market or get ahead of the cutthroat competition. If the person running the business has issues and refuses to evolve then the business might survive but will not be able reach their full potential. If the root cause if fixed getting back on track becomes inevitable. OMG I hope my comment is not longer than your blog, I am just in the mood to write today but I am conciously making an effort to save some for your future blogs, Keep writing Roomi…:-)

  4. moon says:

    human resource management and customer satisfaction is crucial in any business. patience and wise dealing with everybody is a key to success.

  5. Ramya Cooke says:

    Managing people is key to sucess but in this scenario defining the role and responsibility of the business owner ( Chief Executive) would have directed him to get the necessary knowledge and advice to run his business successfully.

Leave a Reply