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4 Common Reasons Strategies Fail

  • Andrea Belk Olson

why do some business plans fail

Stop blaming execution, and start identifying the underlying flaws.

Just because a strategy is formulated, doesn’t mean it’s ready for hand-off to the front-line for execution. Instead of reactively addressing failures during implementation, leaders need to examine whether the strategy was on solid footing in the first place. This requires stripping away assumptions to avoid four core errors, which often plague a strategy’s feasibility for being put in practice: 1) not understanding the problem; 2) not understanding the organization’s capabilities; 3) not understanding the immovable pressures; and 4) not understanding the cultural landscape. Examine whether the strategy considers the context in which it must be executed, as this is where uncertainty proliferates, and address potential pitfalls preemptively. This will ensure the team has the tools to deliver the hoped-for results. Successful strategy execution is a product of the fastidiousness of the plan itself.

Business strategies often fail. This is well-know by now: According to studies , some 60–90% of strategic plans never fully launch . The causes of derailment vary widely, but execution consistently bears the blame. While that can be — and perhaps often is — a fair diagnosis, it isn’t the whole story. The strategy design itself can be the real problem, however difficult that might be to admit.

why do some business plans fail

  • Andrea Belk Olson is a differentiation strategist , speaker, author, and customer-centricity expert. She is the CEO of Pragmadik, a behavioral science driven change agency, and has served as an outside consultant for EY and McKinsey. She is the author of 3 books, a 4-time ADDY® award winner, and contributing author for Entrepreneur Magazine , Rotman Management Magazine, Chief Executive Magazine , and Customer Experience Magazine .

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50 Reasons Why Some Businesses Fail While Others Succeed

Why is it that so many businesses fail while so few succeed.

One of the great mysteries of entrepreneurship is why businesses fail . Some people start one successful business after another while others fail to succeed.

Why some businesses fail while others succeed?

The worst part about a failing business is that the entrepreneur is unaware of it happening until it is often too late. It makes sense because if the entrepreneur really knew what he was doing wrong, he might have been able to save the business. Some entrepreneurs live in a land of denial while others are unaware of their mistakes.

One thing for sure, a business almost always fails because of the entrepreneur.

There are over 28 million small businesses in the United States, according to the SBA .

Factors That Lead to Business Failure

Businesses fail for many reasons. The following list includes some of the most common reasons:

3 – No differentiation – It is not enough to have a great product. You also have to develop a unique value proposition, without you will get lost among the competition. What sets your business apart from the competition? What makes your business unique? It is important that you understand what your competitors do better than you. If fail to differentiate, you will fail to build a brand.

5 – Inability to  learn from failure  – We all know that failure is usually bad, yet it is rare that businesses learn from failure. Realistically, businesses that fail, fail for multiple reasons. Often entrepreneurs are oblivious about their mistakes. Learning from failures is difficult.

8 – Premature scaling – Scaling is a good thing if it is done at the right time.  To put it simply, if you scale your business prematurely, you will destroy it. For example, you could be hiring too many people too quickly, or spend too much on marketing. Don’t scale your business unless you are ready.  Pets .com failed because it tried to grow too fast. They opened nationwide warehouses too soon, and it broke them. Even the great brand equity that they have built couldn’t save them. Within a few months, their stock went from $11 to $0.19.

10 – Lack of profit – Revenue is not the same as profit. As an entrepreneur, you must keep your eyes on profitability at all times. Profit allows for growth. According to Small Business Trends, only 40% of small businesses are profitable, 30% break even, and 30% are losing money.

13 – Lack of focus – Without  focus, your business  will lose it the competitive edge. It is impossible to have a broad strategy on a startup budget. What makes startups succeed is their ability to quickly pivot, and the lack of focus leads to the inability to make the necessary adjustments.

16 – Macroeconomic factors – Entrepreneurs can’t control macroeconomic factors. Common macroeconomic factors are business cycles, recessions, wars, natural disasters, government debt, inflation, and business cycles. Your business can still succeed in bad times. Hyatt, Burger King, FedEx, Microsoft, CNN, MTV, Trader Joe’s, GE, HP are only a few examples of wildly successful companies started during a tough economy.

18 – Wrong partner – It’s no secret that it is easier to succeed in business with the right partners. The wrong business partner will, at the very least hurt, or, at worst, destroy your company.

Your business plan should include the following:

20 – Core values – Your core values are the  fundamental beliefs that drive your business . They are your guiding principles that should remain constant. Even as your company grows your core values should remain the same. Core values can also serve as a moral compass. Some of the more common core values are integrity, trust, excellence, respect, responsibility, and teamwork.

22 – Who are your customers – If you are  going to succeed in business  you will have a clear definition of your customer. It is not an abstract idea. It is something that can be expressed in numbers. For example, if your target customers are family law attorneys, you have to be able to put a number on it. For example, there are 175,000 (fictional number) family law attorneys in the USA and they are our customers.

25 – How will you sell and market your product/service – Marketing and selling your service could be one of your  biggest business challenges . A sales and marketing plan is a must.  Set measurable goals . Create systems to manage the process.

Your first action item is to write your business plan. Completing your business plan will give you an opportunity to process your idea in detail. One of the best things you can do is to collect your thoughts before you make a real commitment to starting your business. If you aren’t passionate about writing your business plan, it’s unlikely that you’ll get passionate about your business either.

26 – In the end, enthusiasm is not enough to succeed. It takes much more than that. You need to research your market, your competition, the financial feasibility of your concept, and more. As you fight through the battles of making your dream come true, you need to be able to go back to read and re-read your business plan. The concepts laid down in your business plan will help you to convince your bank to give you the loan you need, or to determine the best marketing strategy for your business. Don’t be emotional when you prepare your business plan. Treat it as a business process with goals and deliverables. Once you complete it, ask yourself, “Would I invest in this company?” Remember, you are going to have to convince others to support your idea. Bankers, corporate buyers, investors, partners, and the like will look at your business based on facts. Their decision is not going to be based on emotion. When creating a written business plan you give yourself a chance to think about your idea thoroughly. As you put your ideas in writing, you tend to give them more thought. You might think writing a business plan is boring, or a waste of time. Truly, it should be one of the most exciting projects you could ask for. You are writing your future.

Entrepreneurs can stay accountable several ways:

30 – Join a peer advisory group. You will get feedback from fellow entrepreneurs. The best kind of peer advisory group is where your business is the smallest business. You definitely don’t want to be the largest or most successful business of your group. When you are the smallest you will be pushed harder to catch up to the others in your group.

33 – Forget the idea, take action –  You should never start a business based on a great idea. An idea is just that: an idea. It’s worthless. It is not going to help you succeed in business. Ideas won’t do; you need action to succeed. Wantrepreneurs are full of ideas that never result in action. Entrepreneurs are action takers.

Here are some effective ways to turn your idea into action:

37 – Give it due time. Ideas are fast, but making them happen will take time. Even if all goes well, almost everything you do in business will take longer than expected.

40 – Pivot, rinse and repeat – Successful entrepreneurs are always adjusting. There are many reasons to adjust. Your customers might ask for a new software feature. Or, the recession might have put your best customers out of business. The price of raw materials might rise one day. Your business and its environment are dynamic. If you are good, you develop a keen eye for changes and make quick adjustments. Most businesses that fail do so because they ignore the world changing around them.

43 – Manage cash – Entrepreneurs that fail often confuse cash flow with profit. The two are not synonymous. It is possible for you to go bankrupt with record cash flowing into your business. To succeed in business you don’t just need cash flow, you need positive cash flow. With positive cash flow happens when the cash funneling into your business is more than the amount of cash leaving your business. It is simple yet often ignored. The companies that ignore this end up with negative cash flow. This happens when the outflow of cash is more than your incoming cash. You should never allow negative cash flow.

Here are a few ways to improve your cash flow:

45 – Be very selective in offering credit to customers, avoid it if possible.

Systems are crucial to recovering from a disaster. Formal procedures are key. Identify the key parts of your business and think about what it would take to recover losing any of them. For example, if your company relies on your e-commerce website, develop a system to recover your site even if your current site crashes and  your hosting company  goes out of business within the same day. You don’t have to be paranoid about it, but create systems of key parts of your company.

Unsuccessful Business Strategies

A profit-first approach can be a short-term win but a long-term loss. If you want to succeed in business, you must drive innovation in your industry. Profit is only a by-product of exceptional service.

Why do most businesses fail?

Ineffective business planning is a top reason for business failure. Business planning requires time and effort, that many entrepreneurs are unwilling to invest.

The biggest reason most businesses fail is a lack of funding. Without working capital, no business can continue to operate. Payroll, funding day-to-day business expenses, is a recipe for business failure.

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Why do business plans fail?

Table of Contents

Bad product ideas

Poor partnerships , a lack of detail , unrealistic financial planning , how a simple app can help improve your business plan.

Unfortunately, not every business will be a success. The failure of businesses is usually due to some issue in their business plan, and there are hundreds of different issues a business plan could have.

This article will describe some of the most common reasons a business plan might fail and how you can avoid them. We’ll look at common pitfalls such as:

  • Poor partnerships
  • A lack of detail
  • Unrealistic financial planning

Sometimes, a business plan fails simply because it focuses on bad product ideas. A bad product idea means that the product or service your business specialises in does not sell well, and the lack of sales leads to an income problem for your business.

Business plans containing bad product ideas usually come about due to a misunderstanding of the term ‘ unique selling point ’. A unique selling point is what makes your product stand out from the products of the competition. It’s a feature that makes the product better as well as being unique. 

Many bad product ideas come from individuals that focus too much on the ‘unique’ part of the term unique selling point. While it is important to have a different product from anything else on the market, make sure you also know what your customers want from a product .

While it’s nice to have help running your business, it’s important to find the right person for the job before you write a contract for a business partnership . If you create a business plan as a partnership and your partner fails to fulfil their responsibilities, your business will struggle to succeed.

There are three things you may want to consider if you’re trying to avoid poor partnerships. The first is your partner’s skill set: look for someone with talents related to your business idea as well as talents you don’t possess. It’s helpful to have a diverse collection of skills within your business. 

Secondly, make sure your potential partner is as passionate about the business as you are. If they aren’t, you may find that you end up doing most of the work or that they leave the business as soon as things become difficult. While measuring passion and emotional investment is challenging, finding a business partner that matches your feelings regarding your business plan is vital.

Finally, create an exit strategy. While you may have found a perfect business partner, you never know what difficulties you’ll encounter in the future. So make sure you know what to do if there is an internal conflict in your company that you can’t resolve peacefully.

When you write a business plan , you need to make sure that you plan for almost anything. One of the biggest reasons business plans fail is because they don’t account for certain situations.

It’s impossible to plan for truly unexpected problems, but a detailed business plan will account for most situations by listing off your company’s weaknesses during a SWOT analysis . SWOT stands for strengths, weaknesses, opportunities, and threats, and it’s a standard part of most business plans. 

By using SWOT to list weaknesses in your business plan and potential threats to your success, you can start planning ways to deal with problems. For instance, you might identify a lack of sales as a potential threat. To account for this, you could invest in marketing or reduce your prices. If your business plan doesn’t account for these sorts of situations, it increases its chances of failure. 

Another reason for lack of detail in a business plan is low-quality research or not performing research at all. Without researching the market and industry you operate in, you’ll struggle to learn about your competitors or understand your customers’ needs. Thorough research is an essential part of avoiding business plan failure.

Financial planning is essential in business. You might not know the future of your business, but with a decent financial plan, you’ll be able to avoid most obstacles to success. If your financial plan is poorly thought-out or unrealistic, though, it might not be as valuable.

Financial plans are all about mapping out your company’s growth. If you’re too optimistic about this growth, it can cause serious problems. Unrealistic expectations can cause unprepared businesses to go bankrupt very quickly.

For example, say you expect to be making £1,000 a week in sales revenue by your second week of business. Your financial plan relies on this for you to pay rent and buy supplies. If it gets to that week and you’re only making £500, you’ll not be able to pay the bills that allow your business to operate. 

To avoid these problems, try lowering your expectations. Even if you think you have a fantastic product idea, it’s better to prepare for the worst than plan for the best and run into trouble. If you create a conservative financial plan that expects some success but accounts for things like low sales, your business plan is much less likely to fail. 

One of the biggest parts of your business plan is the financial aspect. To create a business plan that’s unlikely to fail, you’ll need to make sure you have a good understanding of accounting and a way to track how you’re spending your money.

The Countingup app offers built-in accounting software with its business account so that you can manage all your financial data in one place. 

With additional features like automatic expense categorisation, invoicing on the go, receipt capture tools, tax estimates, and cash flow insights, you can confidently keep on top of your business finances wherever you are. 

You can also share your bookkeeping with your accountant instantly without worrying about duplication errors, data lags or inaccuracies. Seamless, simple, and straightforward! 

Find out more here .

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#2 inadequate management, #3 ineffective business planning, #4 marketing mishaps.

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The Bottom Line

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The 4 Most Common Reasons a Small Business Fails

Running a small business is not for the faint of heart

why do some business plans fail

  • How to Grow a Successful Business
  • Business Financing Basics
  • How Factoring Works
  • How Much Capital Do You Need?
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  • Other Small Business Loan Sources
  • Biggest Small Business Challenges
  • Managing in Hard Times
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  • P&L Statement vs. Balance Sheet
  • Lines of Credit
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  • Why Small Businesses Fail CURRENT ARTICLE

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Many small businesses in a broad range of industries perform well and are profitable but a study by the U.S. Small Business Administration (SBA) that covered the years 1994 through 2020 revealed that only 67.7% of new small businesses survived their first two years. The five-year survival rate was 48.9% and the 10-year rate was just 33.7%. Only 25.6% of new small businesses made it to 15 years.

The most common reasons that small businesses fail include a lack of capital or funding, retaining an inadequate management team, a faulty infrastructure or business model, and unsuccessful marketing initiatives.

Running a business is not for the faint of heart. Successful business owners must possess the ability to mitigate company-specific risks while simultaneously bringing a product or service to market at a price point that meets consumer demand levels.

Key Takeaways

  • Running out of money is a small business’s biggest risk.
  • Owners often know what funds are needed day to day but they're unclear as to how much revenue is being generated.
  • Inexperience with managing a business or an unwillingness to delegate can negatively impact small businesses.
  • A poorly visualized business plan can lead to ongoing problems when the firm is operational.
  • Poorly planned or executed marketing campaigns or a lack of adequate marketing and publicity are among other issues that can drag down small businesses.

A primary reason why small businesses fail is a lack of funding or working capital . A business owner is usually painfully aware of how much money is necessary to keep operations running on a day-to-day basis from funding payroll, paying fixed and overhead expenses such as rent and utilities, and ensuring that outside vendors are paid on time. Owners of failing companies are less in tune with how much revenue is generated by sales of products or services, however.

This disconnect can lead to funding shortfalls that can quickly put a small business out of operation.

Another reason that small businesses fail is that owners miss the mark on pricing products and services. Companies may price a product or service far lower than similar offerings with the intent to entice new customers and beat out the competition in highly saturated industries .

This strategy can be successful in some cases but businesses that end up closing their doors are often those that keep the price of a product or service too low for too long. Small businesses have little choice but to close down when the costs of production, marketing, and delivery outweigh the revenue generated from new sales,

The Small Business Administration offers a variety of loan programs to help small businesses find loans for a variety of needs.

Small companies in the startup phase can also face challenges in obtaining financing to bring a new product to market, fund an expansion, or pay for ongoing marketing costs. Angel investors, venture capitalists, and conventional bank loans are among the funding sources available to small businesses but not every company has the revenue stream or growth trajectory necessary to secure major financing from them.

Small businesses can be forced to close their doors without an influx of funding for large projects or ongoing working capital needs. Business owners should first establish a realistic budget for company operations and be willing to provide some capital from their own coffers during the startup or expansion phase.

It's imperative to research and secure financing options from multiple outlets before funding becomes necessary. Business owners should already have a variety of sources they can tap for capital when the time comes to obtain funding.

Another common reason small businesses fail is a lack of business acumen on the part of the management team or owner. A business owner is the only senior-level person within a company in some cases, especially when a business is in its first year or two of operation.

The owner may have the skills necessary to create and sell a viable product or service but they often lack the attributes of a strong manager and don't have the time to successfully oversee other employees. A business owner has greater potential to mismanage certain aspects of the business without a dedicated management team whether it be finances, hiring, or marketing.

Most small businesses start with the entrepreneur's savings or money from friends and family and then look for outside financing to grow.

Smart business owners outsource the activities they don't perform well or have little time to successfully carry through. A strong management team is one of the first additions a small business needs to continue operations well into the future. It's important for business owners to feel comfortable with the level of understanding each manager has regarding the business’ operations, current and future employees, and products or services.

Small businesses often overlook the importance of effective business planning before opening their doors. A sound business plan should include:

  • A clear description of the business
  • Current and future employee and management needs
  • Opportunities and threats within the broader market
  • Capital needs, including projected cash flow and various budgets
  • Marketing initiatives
  • Competitor analysis

Business owners who fail to address the needs of the business with a well-laid-out plan before operations begin are setting their companies up for serious challenges. A business that doesn't regularly review an initial business plan or one that's not prepared to adapt to changes in the market or industry meets potentially insurmountable obstacles.

Entrepreneurs should have a solid understanding of their industry and competition before starting a company. A company’s specific business model and infrastructure should be established long before products or services are offered to customers and potential revenue streams should be realistically projected well in advance. Creating and maintaining a business plan is key to running a successful company for the long term.

Business owners often fail to prepare for the marketing needs of a company in terms of capital required, prospect reach, and accurate conversion-ratio projections. It can be difficult to secure financing or redirect capital from other business departments to make up for the shortfall when companies underestimate the total cost of early marketing campaigns .

Getting your company's name in front of your customers is a crucial aspect of any early-stage business. Companies must ensure that they've established realistic budgets for current and future marketing needs.

Having realistic projections in terms of target audience reach and sales conversion ratios is critical to marketing campaign success as well. Businesses that don't understand these aspects of sound marketing strategies are more likely to fail than companies that take the time to create and implement cost-effective, successful campaigns.

What Is the Small Business Failure Rate?

Approximately 32% of small businesses fail in the first two years, about 51% fail within five years, about 66% fail within 10 years, and roughly 74% fail within 15 years.

What Are Some Signs That Your Business Is Failing?

Signs that a business is failing include small levels or lack of cash, inability to pay back loans on time, inability to pay suppliers on time, customers that pay late, loss of clientele, and an unclear business strategy.

What Is a Saturated Market?

The market for a product is said to be saturated when the product is no longer in demand. Its availability is significantly greater than customer demand. This can happen when high quantities of a specific product are manufactured or offered, more than there are consumers to purchase them. They effectively begin piling up and gathering dust on store shelves.

New businesses face several challenges when they first open their doors. Statistics gathered by the U.S. Small Business Association reveal a daunting failure rate. Running out of money and lack of experience are the greatest risks but new business owners have options to increase their odds of success. The Small Business Association offers and supports several loan programs. Seeking advice and education from experienced professionals can help, too.

U.S. Small Business Association Office of Advocacy. " Frequently Asked Questions ." Page 3.

U.S. Small Business Association. " Loans ."

CFI Education. " Market Saturation ."

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14 reasons why businesses fail

why do some business plans fail

If you’re starting a business, you may be wondering how many businesses fail either in the short-term or the long run. Unfortunately, business failure is common: About 20% of small businesses fail in their first year, and a staggering 96% of businesses will fail over a 10-year period of time. As for the remaining 4%, it does not necessarily mean they succeed – it means that they’ve survived.

Why Businesses Fail

So why do businesses fail? What makes one entrepreneur succeed while another experiences business failure? It comes down to a combination of preparation, strategies and knowledge.

1. Not having an effective business plan

If you don’t have an effective business plan, you can’t properly communicate your vision to your team. Tony Robbins advocates not just having a business plan, but having a business map for entrepreneurs to take their small businesses to the next level. Your business map will help you master vital stages of the business cycle, like scaling. Explosive growth can be tempting, but not scaling in a mindful manner is one of the biggest reasons why businesses fail – you have to strike the right balance between growth and infrastructure.

2. Not putting the customer first

One of the top reasons why businesses fail is that they fall in love with their product instead of their customer. To circumvent business failure, fall in love with your client and figure out every single way you can meet their needs. Anticipate what they want, what they need and, when possible, determine what they might not even know they need yet. Turn your customer into a raving fan – somebody who will tell everybody about your product or service or company. Once you grasp that your customer’s life is your business’ life , you can truly envision how to succeed.

3. Not hiring the right people

Hiring the right people has a massive effect on nearly every area of your business. One of the most obvious examples is sales: If you don’t have enough sales, you can’t pay your team or yourself and you cannot grow. Confident salespeople are a key to increased sales. It’s also astounding how many businesses fail due to inventory mismanagement. Hiring someone who is skilled at inventory management or using a good inventory management software is an easy way to solve this issue.

4. Doing it all yourself

Yes, you are an entrepreneur, but that doesn’t mean you have to do everything on your own. A business is only as strong as the psychology of its leader – and the ability to let go and trust others is an essential leadership trait . If you need to control everything, it’s likely you won’t succeed over the long term. Delegating is a top skill to manage a business effectively : it helps you manage your time, focus your energy on what matters most and spot potential up-and-coming leaders within your company.

5. Lack of flexibility

Remember Blockbuster? Radio Shack? Tower Records? These giants of their industries all fell victim to the same reason for business failure: inability to adapt to a changing market . Entrepreneurs who fall in love with a service or product and refuse to change directions when the market demands it are likely to fail. The key to long-term success – in business and in life – is flexibility and a willingness to pivot when necessary.

6. Lack of innovation

Peter Drucker and Jay Abraham, among the greatest business minds of our time, maintain that business failure – and success ­– all starts with two key factors: innovation and marketing . Innovation means finding a better way to meet your clients’ needs than anybody else. Anybody can make some money for some amount of time. But if you want to become successful and sustain that success over years and over decades – if you want to build a brand – then you have to find a way to add more value than anybody else in the game. And that comes from constantly innovating.

7. Not understanding your industry

This is one of the driving factors behind why businesses fail to innovate. Certain industries require more innovation, while others may have different product life cycles. Consider the technology industry. The life cycle on an average product is about six months. And in some sectors, like the app business, it’s just one month. People expect continual innovation and improvement , and if you don’t deliver that to them, someone else will. It’s a different world we live in today, where the only constant is change. And if you aren’t staying ahead, you’re falling behind.

why do some business plans fail

8. Fear of business failure

Business failure is one of the main, if not the biggest, fears of any business owner. If it weren’t for that fear, we wouldn’t even be asking, “Why do businesses fail?” However, as you develop your entrepreneurial and managerial skills, you will find that one of your greatest assets in running a successful business is overcoming your fear of business failure . Without minimizing the validity of your fears, you need to learn to view business failure as a learning opportunity rather than an insurmountable obstacle. Remember, life happens for you, not to you .

9. The wrong mindset

One of Tony Robbins’ central philosophies is that our mindsets create our realities ; what we believe influences what we are able to achieve. As entrepreneurs, when we embrace strategies for turning business failure into success, we transform our mindset from one of defeat into one of empowerment . And when we are empowered, a failing business is not the concluding chapter in our story; it is only the beginning. Don’t let your limiting beliefs disempower you. Instead, stay hungry in your search for success . Your hunger will inspire you and pay off in the end.

10. Lack of vision

Marketing guru Jay Abraham understands the question of why businesses fail. It’s a high-velocity and high-leverage mindset that prepares business owners to navigate the ever-changing seas of business. Rather than adapt your dreams to the economy, you must set and achieve your own goals, independent of circumstances. How can you accomplish this? By recognizing that business success hinges on loyalty to a vision .

11. Lack of passion

A passion-driven mindset lets you persist in honing your ethics and beliefs while learning from all the reasons why businesses fail. By adhering to your passions, you’re able to see your circumstances clearly – the positives and negatives. With this level of focus, you create an unstoppable drive to accomplish your goals. This focus allows you to take risks, acknowledging that feelings of doom and failure arise not from circumstances but from feeling stuck in the status quo. Don’t get stuck – persist.

12. Ineffective marketing strategies

Whether your company is large or small, marketing is the next critical step . Why do businesses fail in their operations? If you cannot find a way to market your product or service, then your business will have a hard time getting off the ground. Because the truth is, you could have the most innovative product or service, but the best product doesn’t always win. Do you think McDonald’s has the best burger? Probably not. But their marketing strategies are top-notch.

13. Not understanding your X factor

To market effectively and prevent business failure, you have to understand what your “X-factor” is . What are you here to deliver and how can you improve your customers’ lives? Take, for example, FedEx founder Fred Smith. Even in FedEx’s early stages when profits were slim, Smith invested in three market studies for testing the value expedited shipping would add to his product. Smith’s research paid off: He discovered his X factor and FedEx is now a household name, in large part due to its corner on the market via expedited shipping.

14. Asking the wrong questions

To help discover what your true value is as a business, go one step further and ask yourself the right questions . This includes core questions like: What does the marketplace need? Who is my customer? What can I do to make my company talkably different ? And perhaps one of the most important questions you can ask yourself is, “What business am I really in?” Let’s look at an example of a wildly successful company that needed to ask itself that very question: Apple.

How Apple came back from business failure

why do some business plans fail

Today, everyone has heard of Apple. It’s one of the most valuable companies of our time, with a market cap of nearly $2 trillion and a stock that is soaring above its competitors. But it wasn’t always that way. Apple is actually the perfect example to look at when considering why businesses fail.

Apple’s founder Steve Jobs was fired from the company in 1985. Before re-hiring Jobs in 1997, the failing business operated at a loss and inched toward bankruptcy. In fact, Michael Dell was advising decision-makers to shut Apple down and give its shareholders their money back. But Apple persisted, and Steve Jobs asked himself one of the most critical questions in his lifetime: “What business are we really in?”

At first, the answer seemed obvious – Apple was in the computer business. But how were they supposed to win back customers when 97% of all computers across the United States were run by Microsoft?

That’s when they realized that no matter how good their product was, Microsoft was embedded and entrenched in the masses. After all, it was one of the main reasons Apple found itself in bankruptcy.

So Jobs asked, “What business do we need to be in?” And Apple decided that it needed to be in the business of connecting people to their passions – to their photographs, their music, to each other. When he did this, he avoided one of the top reasons why businesses fail: lack of flexibility.

Answering this question created one of the most life-altering shifts for Apple. The company transitioned into building basic, cool technology that connects people to what they love. Upon rehiring Jobs, the company arranged a partnership with Microsoft which signaled the company’s turnaround. When Apple launched the iMac just one year later, the firm returned to profitability and made its mark. Before long came the iPod and iTunes, then the iPhone. Their net sales soared. Since that point Apple has never stopped innovating, and their marketing campaigns have propelled the company to an entirely new realm. Had Jobs viewed his firing as the death toll of his career (and company), the firm would have never experienced its revival.

Today, is Apple really in the computer business? Only 10.4% of their business is computers, which means almost 90% is not – the vast majority is made up of iPhone, iPad and Apple Watch sales. Honestly answering the question “Why do businesses fail?” was vital for Apple to change course and become profitable.

If success is about innovation and marketing, then you have to decide who your customer is, what they need, what business you are in and what business you really need to be in. Answering these questions can change your entire business, because the answers will ultimately allow you to change your offer. As we say, change your offer, change your business – and change your business, change your life.

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5 Reasons Strategy Execution Fails

A team of four business professionals discussing strategy at a conference table

  • 21 Dec 2023

If your organization struggles to keep up in an increasingly competitive market, it’s not alone. Successfully executing transformative strategies is a challenge for many businesses.

The benefits of effective strategy execution are immense. According to a PwC survey , companies that invest more time and effort into strategy execution are three times more likely to report above-average growth and twice as likely to report above-average profits than those that don’t.

However, strategic plans don’t always succeed.

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Why Do Strategic Plans Fail?

Companies’ strategic plans often fail for the same reason: ineffective strategy execution. According to Harvard Business School Professor Robert Kaplan’s book, The Balanced Scorecard: Translating Strategy into Action , 90 percent of organizations fail to execute their strategies successfully.

“Studies have shown that execution is continually rated as one of the most significant challenges by executives,” says HBS Professor Robert Simons, who teaches the online course Strategy Execution .

For example, consider technology company IBM’s strategy execution mistakes . When personal computing became popular in the early 2000s, IBM managers continued to allocate resources to the business’s archaic aspects, like mainframes. As a result, IBM lost its industry standing once competitors began offering well-built, affordable PCs to consumers.

“There are many stories like this,” Simons says in Strategy Execution . “In each, we find a business strategy that was well formulated but poorly executed. And while you can find lots of advice on how to devise better strategies, there's very little guidance on how to execute those strategies.”

To help understand how to manage and implement strategy more effectively, here are five common reasons strategy execution fails.

1. Ineffective Resource Allocation

Resources are a powerful tool and provide the support to achieve strategic goals; businesses that fail to allocate them effectively rarely succeed.

For example, Circuit City was a successful electronics company that faced financial challenges caused by poor resource allocation. Instead of selling off risky business acquisitions , the company eliminated its most valuable resource: experienced sales staff. That decision proved detrimental when the company lost its competitive edge in providing quality customer service and industry knowledge.

One way to avoid similar outcomes is by designing high-performing jobs and understanding what roles require more resources and funding.

“Job design is a critical part of strategy execution,” Simons says in Strategy Execution . “If individuals don't have the resources they need and aren’t accountable in the right way, they won’t be able to work to their potential.”

To ensure your organization’s jobs align with its business strategy , Simons recommends using the Job Design Optimization Tool (JDOT) , which enables you to design or test any job by analyzing its balance of demands and resources.

The JDOT helps determine the following aspects of job design:

  • Span of control: The resources for which you’re given decision rights and held accountable for performance.
  • Span of accountability: The range of trade-offs affecting the performance measures used to evaluate employees—defined in both financial and non-financial terms.
  • Span of influence: How many people you must reach out to when attempting to influence others’ work.
  • Span of support: The support you can expect from those in other organizational units.

In terms of resource allocation, be mindful of who on your team needs wider spans of control. Those employees should directly support your business objectives and aid in strategy execution.

Strategy Execution | Successfully implement strategy within your organization | Learn More

2. Ineffective Risk Management

One of the most common reasons strategy execution fails is ineffective risk management . While external factors like emerging disruptive technologies and evolving customer needs can negatively impact business strategy, many companies forget to mitigate internal risks.

Consider the downfall of energy company Enron. Due to a lack of internal monitoring, the company misled investors and stakeholders about its financial health for years through fraudulent accounting practices .

Effective oversight can help prevent such situations, but leaders are often expected to monitor too many aspects of their businesses simultaneously.

One of the best ways to prevent what Simons calls “bad employee behavior” is through internal controls —policies and procedures designed to ensure reliable accounting information and safeguard company assets.

“Managers use internal controls to limit the opportunities employees have to expose the business to risk,” Simons says in Strategy Execution .

There are three types of internal controls:

  • Structural safeguards: Ensure a clear definition of authority for individuals who handle assets and record accounting transactions (for example, segregation of duties).
  • Systems safeguards: Assure procedures for processing transactions and management reports are adequate and timely (for example, database security).
  • Staff safeguards: Make sure accounting and transaction processing staff have the right levels of expertise, training, and resources (for example, job rotation).

Leveraging internal controls like these can help mitigate internal risks that could hurt your strategy execution.

“There's a lot of opportunities if we start thinking about internal controls and what it's trying to prevent,” HBS Professor Eugene Soltes says in Strategy Execution .

In addition to mitigating financial risks, internal controls can influence your company’s long-term operational and financial performance by safeguarding strategy execution.

Related: What Are Business Ethics & Why Are They Important?

3. Vague Strategic Goals

A common mistake when implementing strategy is underestimating the power of business goals and objectives .

According to a study by The Economist Intelligence Unit , 90 percent of senior executives say they failed to reach all their strategic goals because of poor implementation.

One example of a company impacted by poor strategy implementation is Target. Although a successful retail company, it had difficulty expanding into the Canadian market due to management’s inability to effectively communicate strategic goals, operational procedures, and differences in customer expectations to Canadian employees. As a result, Target had to close all Canadian operations .

You can help avoid such outcomes by using tools like the balanced scorecard .

“The balanced scorecard combines the traditional financial perspective with additional perspectives that focus on customers, internal business processes, and learning and development,” Simons says in Strategy Execution . “These additional perspectives help businesses measure all the activities essential to creating value.”

When paired with a strategy map —an outline of the cause-and-effect relationships that underpin your strategy—a balanced scorecard provides a roadmap for understanding the relationship between your business’s goals, measurements, and value creation .

Remember to define and outline your goals and objectives before implementing your strategy to ensure consistency and alignment throughout the execution process.

An example strategy map and balanced scorecard

4. Lack of Organizational Support

No matter how great your strategic initiatives are, you can’t implement them alone. Successful strategy execution requires the support of employees, stakeholders, and customers.

One situation that exemplifies why it’s vital to gain employee buy-in before implementing high-level changes is JCPenny’s failed 2011 rebranding strategy . Under new leadership, the company tried to implement a strategy focused on modernizing stores and pricing models, which was met with internal resistance. Longtime staff and sales associates felt disconnected from the new direction. Many employees also didn’t understand the pricing strategy and weren’t adequately trained in the company’s latest sales tactics.

One of the most effective ways to earn your team’s support is by communicating your company’s core values —your business’s larger purpose that inspires and guides employee behavior—and how it aligns with your strategy.

“You may think of them as little more than window dressing or ticking a box without much real impact on the business,” Simons says Strategy Execution . “But I've learned that the best companies—the ones that are most competitive and lead their industries decade after decade—put enormous emphasis on their core values and beliefs.”

Examples of core values include:

  • Diversity and inclusion
  • Sustainability

By aligning strategy with purpose, employees won’t just support your strategic initiatives but be engaged in their work .

Related: 6 Strategies for Engaging Your Employees

5. Imbalance of Innovation and Control

Innovation is essential to your organization’s long-term success. However, it’s critical that innovative products and services don’t hinder your business strategy’s execution.

For example, Uber has historically struggled with balancing innovation and internal controls. While the ride-hailing company has transformed the transportation industry, its need for innovation has led to several instances of misconduct due to insufficient internal controls . In response to public criticism and regulatory scrutiny, Uber has taken steps to address those issues and placed greater restrictions on what employees should and shouldn’t do.

You can help balance innovation and control by setting strategic boundaries , which define your business’s desired market position by identifying opportunities it should avoid and pursue.

You might be overwhelmed by such decisions. In choosing what to do and not do, you might worry about stalling innovation throughout your organization. However, restrictions are more guidelines than constraints. Instead, they should ensure innovation aligns with your business strategy’s direction.

How to Formulate a Successful Business Strategy | Access Your Free E-Book | Download Now

How to Succeed in Strategy Execution

Strategy execution doesn’t need to be intimidating. While many businesses have failed to execute their strategic initiatives, you can help ensure yours succeed by developing strategy execution skills .

By taking an online strategy course , you can build the knowledge and skills to reach your strategic goals. Through an interactive learning experience, Strategy Execution allows you to learn from real-world business examples to better understand the strengths and weaknesses of your organization’s strategy execution approach.

Want to discover more tools you can use to implement strategy? Explore Strategy Execution —one of our online strategy courses —and download our free strategy e-book to continue learning about how to avoid common execution mistakes.

why do some business plans fail

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10 reasons why strategic plans fail.

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If you’ve read this blog before, you already know we can’t say enough about how important strategic plans are to a company’s success .

Understanding the value of and need for a strategic plan is a great place to start, but just wanting something, isn’t enough. If it were, we’d all be famous actors in Hollywood. Developing a strategic plan takes discipline, foresight, and a lot of honesty. Regardless how well you prepare, you’re bound to encounter challenges along the way.

Here are 10 reasons why plans fail. Avoid these traps and you’ll be closer to your goal of implementing a strategic plan that actually achieves results and improves your business.

1. Having a plan simply for plans sake. Some organizations go through the motions of developing a plan simply because common sense says every good organization must have a plan. Don’t do this. Just like most everything in life, you get out of a plan what you put in. If you’re going to take the time to do it, do it right.

2. Not understanding the environment or focusing on results. Planning teams must pay attention to changes in the business environment, set meaningful priorities, and understand the need to pursue results.

3. Partial commitment. Business owners/CEOs/presidents must be fully committed and fully understand how a strategic plan can improve their enterprise. Without this knowledge, it’s tough to stay committed to the process.

4. Not having the right people involved. Those charged with executing the plan should be involved from the onset. Those involved in creating the plan will be committed to seeing it through execution.

5. Writing the plan and putting it on the shelf. This is as bad as not writing a plan at all. If a plan is to be an effective management tool, it must be used and reviewed continually. Unlike Twinkies or a fine vino, strategic plans don’t have a good shelf life.

6. Unwillingness or inability to change. Your company and your strategic plan must be nimble and able to adapt as market conditions change.

7. Having the wrong people in leadership positions. Management must be willing to make the tough decisions to ensure the right individuals are in the right leadership positions. The “right” individuals include those who will advocate for and champion the strategic plan and keep the company on track.

8. Ignoring marketplace reality, facts, and assumptions. Don’t bury your head in the sand when it comes to marketplace realities, and don’t discount potential problems because they have not had an immediate impact on your business yet. Plan in advance and you’ll be ready when the tide comes in.

9. No accountability or follow through. Be tough once the plan is developed and resources are committed and ensure there are consequences for not delivering on the strategy.

10. Unrealistic goals or lack of focus and resources. Strategic plans must be focused and include a manageable number of goals, objectives, and programs. Fewer and focused is better than numerous and nebulous. Also be prepared to assign adequate resources to accomplish those goals and objectives outlined in the plan.

By avoiding these pitfalls, you can create an effective planning process, build a realistic business direction for the future, and greatly improve the chances for successful implementation of your strategy.

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  8. 10 Reasons Why Strategic Plans Fail

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