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Budding entrepreneurs are everywhere, and small businesses are sprouting up left and right. However, over half of new businesses will fail in the first year. There are ways to avoid this, and it’s by learning from other’s mistakes. Here are five reasons why new businesses fail:

They get into the wrong market.

The service they offer doesn’t have a high enough demand to pay for their expenses, let alone lead them into success. Or, just as damaging, they get into a market that is already monopolized. You can’t spring up a grocery store next to Walmart and expect any sort of prosperity; smaller businesses don’t have the financial backing like large businesses, so your prices and services can’t out-match them.

The owners make it too personal

Business owners let their emotions get involved, and they end up giving deals to friends, and driving off customers they don’t like, but who are paying well. They keep bad employees and poor suppliers. This is incredibly inefficient if you’re looking to profit in your work or see any range of growth for your business. Business owners should not let their own emotions cloud their judgment.

There’s no emergency fund.


Bad things happen to good businesses. If a businesses’ money is stretched too far, completely dependent on smooth waters to stay afloat, you can count on at least one wave coming along to capsize it. Being in debt with a business is one of the most common sources of failure, because then personal life bleeds over to compensate and owners find themselves in complete debt — or they simply drop the business. Have an emergency fund to be used during storms, so your business doesn’t sink.

Bad business plans.

A business plan is the map that charts out a businesses’ road to success. A good one will set out goals – such as expansion, future publicity tactics, and general improvement – along with how to attain these goals, and all the problems and solutions therein. However, without a proper one, a business is a prime target for disaster, due to the lack of forethought and planning. Even without great problems, the business will become stagnant, and the customers stop flooding in.

Unrealistic expectations.


Say a business owner takes out several million dollars in loans to finance a business they’re sure will be a success. Now they get into the actual ground work and find it’s a completely different ballgame than they imagined; they’re inexperienced, so they didn’t know what they were getting into. Now the business has failed and they’re in outrageous debt. When starting a business, owners should start slow and feel out the situation before they commit too much. It’s smarter to start out with a couple thousand dollars, instead of millions; and don’t try to compete with the largest name brand in the area right away.

Conclusion: New small businesses can be successful, but only if they learn from the failures of others and avoid those mistakes themselves.