Why do most companies eventually fail?

Question

There is some darwinian selection in action here. But what is the single most important factor in a company collapse? Sloppy employees as a whole, self-interested executives, bad luck, something else?

Answer 1

It's the inevitable result of competing in the marketplace that most companies will fail. I would say that it is a good thing, proves that competition is alive and kicking.

Companies are competing with others in all aspects of their business not just the product or service that they provide, ie. recruiting and retaining good staff, organisation and planning, controlling costs and not over trading in the early days of the company.

People who set up companies are often not very good at delegating, but all the possibilities mentioned in your question can help to bring a company down. Perhaps also, complacency, failing to keep a watchful eye on the competition.

I don't think that Darwinian theory can be applied to business failures because I don't think that human evolution will be influenced by the way we organise ourselves in business.

I am sure that you can get at statistics that will give you an answer to your question. Although the reasons given may not give you sufficient depth to satisfy you.

Probably the single biggest reason for failure is "failing to adapt"

Answer 2

Do you want the statistics, or how to actually prevent this from occurring? The first reason that SMALL, new companies fail is due to lack of planning, and the money strategy. Failure to consider advertising, over-head (electricity, water heater blowing up, raise in rent). Not enough tenacity! Sticking to the plan, and persevere. TRY TRY TRY! work work work. The second reason is employee theft and/or bad employees that don't want to work or don't show up. The third is reality, a new business has little chance of success. But guess what? IF you don't take a chance, you don't have a chance. If a bank loans you money to start a business you must have something going for you. Being a self-starter, going that extra mile and being an honest business person will give you the good reputation that advertising cannot. Good Luck!

Answer 3

Most companies that fail do so in the first years of operation. That is usually because they over-estimated their growth, and then ran out of start-up money before they could turn a profit.

After a company has survived 5 or 10 years, there are many, many reasons that they can still fail, which other answerers already mentioned.

Some others are: 1) too internally focused; 2) tried to expand too fast and then couldn't manage change; 3) a new entrant started the same kind of business and did a better job; 4) focused on saving money rather than strategy; 5) too many acquisitions or mergers gone bad; 6) overly aggressive trade unions absorbing all of the profits; and 7) numb skull or greedy management.

Answer 4

All businesses start with an idea, a dream. Along the way that initial idea becomes secondary, overcome by new trends, different management.
It's called development, and it results in either growth or failure.
You say sloppy employees, I think that would be a result of sloppy management.
People need rules and structure. Look at McDonald's. When you don't enforce rules, you get sloppy employees.

Answer 5

similar to why do people fail in life. Its a bit of a big question!
Luck is important.A corporate sense of discipline also ( If you look at IBM over the last 20 years , they have lost a lot of their market , but are still a major player ( 60 billion last year) becuse the entire company works as a unit).MG Rover in the UK was at the end of a long line of bad decisions , the final blow being a set of directors who decided to put their hands in the till.The big-3 car builders in the USA are appearing to fail because , in my opinion , they still think they can build cars to the old 'planned obselescence' model , whereas the US public want Japanese/German reliability and specifications.
Im working this out as I go along here , but , to summarise , If you have a 'one-vision' company with all employees believing this vision , and the target market also believing this vision , then you are minimising the risk of failure. Anything other than this then you have to be lucky.

Answer 6

Failure or lack of re-investment policy. Whatever profit is realised annually must be included in the following years return together with the actual cash investment return. This means that most going-concerns are underfunded and fail eventually, especially when accompanied by a weakening currency and average- backs- to- the- wall management.

Answer 7

All the above plus complacency.
When a business or company stops growing/innovating,
or lacks efficient quality control, the end is near. Aka the survival of the fittest.

Answer 8

Because they fail to look at the big picture. Owners /CEO/ managers are so busy penny pinching that they lose sight of bigger issuue and let people with fresher, bolder ideas slip away due to fear.
The most successful people/companies took the biggest risks. Of course their are those who took the risk and lost everything.

Answer 9

yes... over expansion in a short space of time resulting in poor cash flow, eventually the outgoings exceed the incoming.
Loss of major contracts is another reason, usually lost to complacency, they forget its a bad world in business and there is always someone willing to do the job cheaper. Keep a business tight, under control, and check your customers happiness with your work CONSTANTLY...and your business will thrive.

Answer 10

Lack of demand for that particular business, money loss due to supply being greater than demand, poor accounting issues.
there are many things that can cause a business to fail, just depends on what type of business it is.