It is very important to identify and analyze why certain businesses fail, so that we can learn from their mistakes and be guided by the successful ones.

Many businesses fail due to some common causes that many entrepreneurs ignore at the start of the business. These causes must be studied in depth because no university degree gives you enough material to study, in topics like this. The most common causes of business failure are:

1. Put more emphasis on the product, rather than the market and marketing

The requirement to identify a market for your idea or product is more important than the product itself. You may have a great idea or product, but if there are no buyers for it, then it cannot be a success. Smart companies first identify market requirements and then develop products accordingly.

Tip: For your business idea to be successful, you must first find out if there is a market for your idea by conducting a market test. Find out if people really want your product and how much they are willing to pay for it.

2. Put more emphasis on the image of the company.

Projecting a high-profile image for the business by hiring expensive office space and a fancy logo and website won’t make your business success much easier. In fact, high overheads, due to the high cost of website space and maintenance, can bankrupt you very quickly, because the golden rule for any successful business is to keep overheads low, especially in the start-up time.

Tip: At start-up time, keep overhead low by reducing expenses. Operate from a modest office space. Prospects can’t see where you’re operating from, and they don’t care anyway. Try to invest more in your marketing activities, which will probably increase your income and chances of success.

3. Entering into an undesirable or bad business partnership.

You should form a business partnership only if you find your ideas coincide with those of the prospective partner, because business partnerships are even more difficult to maintain than marriages. Many partnerships fail due to a lack of communication, proper documentation, and deeds. A failed partnership can lead to bankruptcy and sour relations with the business partner.

Tip: Avoid partnerships altogether, if possible. But if you must form a business partnership, make sure the duties and responsibilities of the partners are spelled out from the outset, and that the partnership deed along with the business terms are clearly defined.

4. Trying to have a very complex business model

The simpler the business model, the better it is. In a simple and uncomplicated business model, everyone, including your vendors, suppliers, employees, and customers, is well aware of their responsibilities and goals. In a complex model, they have to adjust to new roles that they may not be comfortable with.

Tip: While designing the business model, follow the rule of ‘keep it simple’. As the business grows and establishes itself, it can shift to a more radical or complicated business model, if necessary.

5. Try to pioneer a new product or industry

Many companies get into the vicious cycle of trying to pioneer a new product or industry; many times, the whole exercise can exhaust you and your company completely, without much success. Very few and limited entrepreneurs succeed in radically new businesses. Even customers sometimes get scared by a totally new concept or product, so the chances of success are not assured, despite all the efforts you can apply.

Tip: Try to achieve extraordinary business success simply by improving the business practices of your existing business, rather than trying to pioneer a new product. Once the business is established, you can try to get into the pioneering cycle of new products.

6. Getting involved in a business lawsuit and bankruptcy

Business lawsuits that are not in your favor can take away all of your assets, including your personal assets such as your home, property, savings, etc., and put you and your business in bankruptcy.

Tip: Always operate a business under the umbrella of a corporation, courtesy of which you get a corporate shield. In this way, personal liability with respect to the business is limited to what you choose to put into your business. In the case of a lawsuit, simply close the existing corporation and try to start a new one. It is always advisable to retain the services of a lawyer and an accountant to discuss your personal involvement in the business, regarding assets and even taxes. With careful planning, you can eliminate almost 100% of all potential legal threats against your personal assets.

7. Getting involved in complicated divorce proceedings.

In many cases, when marriages fall apart for people, their businesses also come to a standstill due to financial disagreements arising from divorce proceedings.

Tip: At the time of the marriage, get a lawyer to prepare a prenuptial agreement that clearly outlines the financial implications of the divorce proceedings, if any, on your business dealings with your partner. Avoid the above pitfalls and the road to trading success will be much easier for you.