Why do Businesses fail?

Learn about failed businesses with Queen Latifah
Beauty Shop 2005

Case Breakdown: Movie Beauty Shop

The scene that you just saw shows a conversation between Gina (Played by Queen Latifah) and her former boss Jorge Christophe (Played by Kevin Bacon). Gina used to work for Jorge in his salon. Due to Jorge’s selfish behavior, Gina decides to quit and start her own salon. She is met with many obstacles, but she keeps fighting and running her salon. Jorge becomes jealous of Gina’s salon so he decides to burn down her shop in the hope that she goes out of business.

As she mentions in the scene, her business is up and running and she is not defeated by this incident.

Why do Businesses Fail?

Entrepreneurship can be a risky affair but it can be the most fulfilling as well. Similar to life, businesses have their ups and downs. Running a business can make you learn a lot and with time understand how to manage risks. It can be challenging as it would teach you things about yourself. Your reactions and responses to different situations and scenarios. Let’s discuss some glaring reasons that lead to a business failure:

       1. Financial Insufficiency:

This indicates that businesses can easily run into financial barriers. Small businesses can sometimes run out of money as initially, the business might not be able to generate revenue. This causes a gap between the available money and needed money for operations. Hence making a detailed plan laying down how much are you investing in the business and how you think you will recover it would be a good idea, to begin with. This is called budgeting and forecasting for the business.

     2. Shortage of Management:

Businesses fail due to inexperienced management at times. It might not have the leadership it requires. Leaders steer the ship towards calmer waters even if the situation seems otherwise. That’s mainly because leaders have a vision. They can carve a path for the company even if it seems difficult. Building a strong foundation for a business would reap benefits in the future.

       3. Unforeseen Circumstances:

External catastrophes and situations cannot be predicted. Fire, Tsunamis, Pandemics, etc can cause businesses to fall off track. The covid-19 Pandemic has proved to be a disaster for some businesses while some businesses have grown significantly. For example: during this time, everything and everyone went online, online education businesses grew, and interfaces such as Zoom and Microsoft Teams grew. Netflix added close to 16 million subscribers in the first quarter of 2020. But, one can’t say the same for fine-dining restaurants or any small budding businesses. Makers of Hand-sanitizers and masks were a happy bunch.

Since events like these can’t be predicted, businesses should have reserves in place to battle these circumstances. There is not a guarantee though but any reserve can provide cushioning for businesses during this time.

       4. Inadequate Marketing:

Understanding marketing needs is crucial and essential. Reaching the target audience is critical for the conversion of the customer into a client. Marketing is essential in the early stages of business. Hence it is important to draw a solid plan to market your product or service to your customers in the most cost-effective way possible.

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