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Why Most Small Businesses In Canada Fail In Their First Year

Unfortunately, many small businesses in Canada fail within the first year.


In this blog, we will discuss why most small businesses in Canada fail in their first year and provide some tips on avoiding common pitfalls and ensuring success. 

So, if you’re considering starting a small business in Canada, read on and learn how to increase your chances of success!

Why do Small Businesses in Canada Fail?

Poor planning is the principal cause of small business failure. 

According to an Industry Canada study, managers of bankrupt firms do not have the experience, knowledge, or vision to run their businesses” (Failing Concerns: Business Bankruptcies in Canada). 

To avoid failure, small business owners should take the following steps: plan for success, gain knowledge about the industry, develop financial strategies, create a business strategy, and monitor their performance.

That said, here is a list of reasons why most small businesses in Canada fail in their first year in business.

a). Having a poor marketing strategy

Business owners may not have the same marketing skills as a professional, which could be the reason for their business failure. 

Money spent on marketing and advertising doesn’t guarantee results and this is an oversight many entrepreneurs make. 

A successful marketing strategy should be a part of your business plan, and if you see poor results, it is important to adjust the strategy before it is too late. 

Advertising is an essential part of the company’s success and if you as an entrepreneur cannot do it correctly, consider seeking help from an expert.

b). Not having the right team

When hiring help, small business owners in Canada must consider that it is one of their largest expenses. 

Therefore, it is important to evaluate each applicant that comes through the door with the same criteria and not simply go with the first person who says they need a job. 

Investing in the right person for the job is worth the extra money and will prove to be a wise decision.

c). Rapid growth

You may wonder how growing too quickly can be a reason for a business to fail? 

While growth is beneficial, if it happens too fast, it can cause issues – particularly when the company still has an immature business model. 

This is because the owner, employees, and processes have not had enough time to catch up with the growth of the business, resulting in a large amount of money being invested. 

However, many business owners focus on the financial aspect and neglect the many small, yet important aspects of their business that haven’t kept up.

d). Poor understanding of numbers

Failing to monitor and comprehend your financial statements can lead to a lack of funding or working capital, one of the main reasons why small businesses in Canada fail. 

Without being aware of your revenue and expenses, it is impossible to ascertain whether you are profitable or not. 

Misunderstanding your financial statements can lead to inadequate preparation to meet bills, wages and rent, thus hindering the growth of your business. 

Monitoring and understanding your financial statements is a must for business owners, as it allows for effective goal-setting and taking preventive measures to move your business forward.

Related: How To Apply For A Small Business Grant In Canada

e). Failing to meet market needs

The type of business can influence its longevity. 

In Canada, small and medium enterprises that dealt in goods were more likely to survive between three and 17 years than those providing services. 

However, even when selling goods, the chances of survival are contingent upon satisfying the market’s requirements. 

Should the goods have no buyers or be priced unprofitably, the business is still at risk of closing. 

Notable products have failed due to a lack of demand. 

Microsoft’s Zune portable music player could not differentiate itself from the already-successful iPod. 

Google Glass, an augmented reality tool, was met with ridicule due to its appearance, exorbitant cost, and ineffective marketing. 

Segway, an alternative to biking or walking, failed to interest potential buyers.

Sometimes, initial success can be detrimental, blinding business owners to the need to pivot.

Business owners and entrepreneurs may become so devoted to their product or service, they may overlook the indications highlighting the need to adapt or explore a new opportunity. 

A decline in sales might not indicate the necessity to invest more in advertising; it could mean it is time to make a bigger transition to a different market, product, or sales channel.

f). Poor management

The potential for small business failure in Canada can often be seen in the mirror. 

Many entrepreneurs and business owners in Canada can become so entrenched in the ways they have achieved success that they do not evolve. 

The tactics and strategies that were effective in the early days may not be necessary to move the business forward.

Business owners must have the knowledge and skills to bring a product to the market. 

Still, those are separate from the abilities needed for managing teams and inspiring them to work together. 

Entrepreneurs need to recognize that they are not experts in every area and to bring in assistance from professionals like coaches and accountants or hire the right team members.

Resource: How To Buy Small Business in Canada

g). Premature scaling

Believing that expansion is the answer to their difficulties might be a risky opinion for entrepreneurs. 

A study from Startup Genome, an American R&D project monitoring startup progress, stated that earlier than necessary growth was the main cause of company failure. 

Under their definition, premature scaling is when parts of the company like the business model, customers, finances, product and team expand too quickly and become out of balance. 

The study found that 70% of startups had some form of premature scaling.

h). Influx of copycats

The good news is that your product has become profitable and is being sought by customers. 

Unfortunately, “you’re in the spotlight” for competitors that aim to replicate your success.

A prime example is GroupOn – when the “daily deals” trend gained traction and GroupOn became a household name, many similar websites began appearing. 

GroupOn’s business model was easily replicable and this has had a detrimental effect.

Starting a business in Canada can be daunting, with hundreds of potential reasons for failure. 

Business owners should be mindful of these common challenges, viewing them as an opportunity to learn and develop entrepreneurial skills. 

It is essential for them to take the necessary steps to ensure their business’s success.


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