Why do businesses fail?

I recently met with a few fellow entrepreneurs over dinner. The discussion soon got round to an acquaintance that several of us share. The individual’s latest venture had just gone under causing a significant financial loss for him and a couple of angel investors. We were all, of course, concerned for his well being and hoped that he would bounce back. After all, surviving a failure is good business experience. The conversation was turning to potential options should our acquaintance be so inclined when one of the group said, “You know, of course, that this is the third time this has happened. I don’t know why he is so spectacularly good at failing!”

There was a moment of silence while we all considered that statement. The vey next words were “Why do so many businesses fail and why does it always seem to be the same type of people that are involved?”

I am still not sure what was meant by “the same type of people” but in my humble opinion, the number one reason small businesses fail is the people that lead them. There seems to be a root cause based around a lack of understanding of what it really takes to run and grow a business. However, what I really don’t get is why experienced business angels are fooled into parting with their money by these people. Surely even a small amount of diligence would expose past failures or raw inability to lead and grow a business?

Have I got this wrong? Am I looking at the problem from the wrong perspective? Or, do you agree? Do you have examples of bad investments in people and firms that were clearly headed for the toilet?


About Peter Borner

Peter is an entrepreneur and successful business leader. Currently leading a consultancy firm specialising in technical diligence for M&A and advising global firms on IT consolidation and migration to consumption based costing through the use of Cloud Technologies.

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@JasonLauritsen hmm, food for thought, thanks for sharing