reasons for business plan failure

8 Reasons Business Plans Fail That No One Wants to Talk About

Danielle Hendricks

7 min. read

Updated October 27, 2023

As a full-time editor and academic mentor at an academic writing service, I have read hundreds of business plans over the years. To help students and startups, I have compiled a list of reasons business plans are rejected or given a low grade.

Of course, there are obvious reasons that business plans fail. For example, missing crucial deadlines for finishing the business plan, or drawing hockey stick profit projections can repel potential investors.

However, there are also less nuanced and more subtle reasons that investors and banks lose interest. These tips can help you avoid the minute and often overlooked mistakes that people make when writing a business plan. When investors and banks see hundreds of business plans every month, a small mistake can lead to a business plan being thrown in the rejection pile.

• The top 8 reasons business plans fail

1. Bad business ideas

Nobody likes to talk about it, but the main reason why business plans fail is bad ideas. Most ideas look great on paper—but all too often, companies realize they have invested in a bad idea once it is too late.

To avoid this, smart businesses are using “user-driven development” (UDD) to build new businesses. Lots of ideas seem great until you figure out that the market doesn’t actually want your product. In order to ensure that a business idea is sound, entrepreneurs should search for product validation by reaching out to their target consumers before sinking huge amounts of time and money into the project.

At Stanford University’s d-school , the designers use UDD to develop products that are user-centered. Firms that want to innovate with a focus on customers often hold small meetings with the potential end users where they describe the project and then ask users for their opinions.

After the first round of discussion, the firm can go back to the drawing board to incorporate the helpful feedback. Second and even third rounds can enhance the final product’s popularity. For example, The Embrace Warmer was created by asking mothers with premature babies what they disliked about traditional infant incubators in hospital maternity wards.

The mothers responded that not being able to hold their baby was the worst part of the experience. By focusing on the needs of the end-user, the developers of The Embrace—who were also students at Stanford—were able to create a highly demanded and successful business plan. Avoid wasting time on a bad business plan by gauging the market sentiment toward your project before investing a significant amount of time and effort.

2. Employee compensation is not incentive compatible

Business plans can fail because employees are not compensated in a way that aligns the goal of the employee with the goals of the company. In game theory, a contract is an incentive compatible if “every participant can achieve the best outcome to him/herself just by acting according to his/her true preferences” (Nisan and Roughgarden, 2007). For example, if an employee is paid with annual or monthly bonuses then the employee will only do what is good for the company in the short run.

In 2015, Forbes released a nice article on different salary packages for different company goals. One option is to offer tailored benefits to the employee. Startups and small businesses can offer more customized salary packages than large multinational corporations.

For example, instead of offering a standard salary package of retirement plans, child-care assistance, savings program, determine what the employee wants the most. For example, elderly employees may not be motivated by child-care assistance, so don’t focus on that in their package. Secondly, instead of offering an upfront payment of 2 percent of the company’s stock, offer a salary that pays that 2 percent over several years to ensure that the employee stays committed in the long-run.

3. No exit strategy for firing lazy co-founders

Anyone who has started a company knows that team conflicts are inevitable. A good business plan should have a step-by-step procedure for handling internal disputes. First of all, each co-founder should have a specific set of responsibilities with deadlines and consequences for failing to meet those deadlines.

Choosing the right co-founder is as important as choosing the right spouse. During the first few years, you may end up spending more time with the co-founder than anyone else. First, you have to know what are your own strengths and weaknesses. Try to find a partner that diversifies your skill set. Also, ask for references. Try to find out who they worked for previously, how they got along with their coworkers, and why they left.

Another way to help alleviate this problem is by delineating roles and delegating tasks. However, if a team member just does not have the time or the competence to achieve the goals specific to their role, then the company should have a polite but quick method for ending the relationship. Mentioning how these types of situations will be handled in the business plan is important because hurt feelings and vindictive ex-owners can damage the firm’s reputation and profitability.

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4. The team is not balanced

Another problem that I often notice on business plans is that the team is not balanced.

Company culture is an often underestimated challenge. I have read several business plans that present a compelling argument for a new product; however, the majority of plans fail to put together a team that has the competencies required to actually execute the business plan.

For example, I recently read a tech business plan that was making a health application for smartphones. However, the team did not have a single developer or IT specialist involved. If the business idea requires 80 percent of the labor hours to be performed by a software programmer, then the team needs at least one developer onboard. It is important to keep in mind that venture capitalists sometimes refuse to fund companies that only have one founder or have unbalanced teams.

5. Detailed financial projections are missing

The majority of business plans that I have been asked to edit have conveniently left out the balance sheet, cash flow statement, profit and loss statement, and income statement . The “numbers” are actually the most interesting part of the entire document for most investors. Break-even and return-on-investment (ROI) calculations are also parts of a good business plan.

My favorite tool for ensuring that I have decent estimations and great charts are the business calculators here on Bplans . Make sure to consider how legal costs and taxes will deduct from the bottom line.

Do not forget to factor in future expenses. For example, if the company needs to purchase new office equipment every three years, then the discounted value of those expenses should be included in the forecasted financial projections. Of course, the figures are only estimates, but they are important benchmarks that can be used to measure the company’s progress toward achieving their goals.

6. Spelling and grammar mistakes

Every time that I read a new business plan, my first step is to read each sentence out loud. In order to stop my mind from automatically filling in the correct spelling and grammar, I start by reading the last sentence on the page and working my way backward to the first sentence on the page. If you want to be 100 percent certain that there are no spelling errors, then consider hiring a professional editor to review your business plan.

Although some people think hiring a professional editor is “over the top,” the reality is that the most competitive firms have a professional editor review all of their documents for accuracy. If a bank or investor reads a business plan with typos, they will start to wonder if the entrepreneur is competent enough to run a successful business.

7. False assumptions

One of the final mistakes that students and startups make is falsely assuming the values of their investors and the values of their end-users, with some of the most common false assumptions being about their political or religious affiliation. This can be game over for successful companies, so startups should be especially careful.

Several examples exist of people that falsely assumed that their opinions were not controversial or were held by the majority. For example, Matt Harrigan, CEO of the startup Packetsled, stepped down after his comments about President Trump .

One piece of advice that my dad gave me can be helpful for writing business plans: “Opinions are like armpits. Everybody’s got them, and they all stink.”

The main point is that entrepreneurs and students who are writing a business plan should do their own research about the background of their potential investors and lenders. This ensures that you will have as much information as possible before pitching or handing over a business plan.

8. Failure to improve business plan after receiving feedback

Once you have finished writing your business plan, it is a good idea to send it out to at least three people before showing it to potential investors.

Think of these three people as your board of advisors. Ask them to read the plan and look for logical gaps in the content. If one advisor recommends a change that you disagree with, do not ignore his advice. Instead, ask the other advisors for their opinions and then make a decision. Edit your plan according to their constructive criticism, and thank them for their help.

See why 1.2 million entrepreneurs have written their business plans with LivePlan

Danielle Hendricks is an academic mentor at ACAD WRITE . In her free time, she is known for writing outgoing and funky pieces about the startup scene in Santa Fe, New Mexico.

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More Like this

Ten common causes of business failure.

Failure is a topic most of us would rather avoid. But ignoring obvious (and subtle) warning signs of business trouble is a surefire way to end up on the wrong side of business survival statistics.

What’s the survival rate of new businesses? Statistically, roughly 66 percent of new businesses survive two years or more, 50 percent survive at least four years, and just 40 percent survive six years or more. This is according to the study “Redefining Small Business Success” by the U.S. Small Business Administration.

Does Your Strategy Suck? Get this Free Guide to Find Out.

Learn how to avoid the most common pitfalls in strategic planning here .

With this information as a backdrop, we’ve put together a list of 10 common reasons businesses close their doors:

• Failure to understand your market and customers. We often ask our clients, “Where will you play and how will you win?”. In short, it’s vital to understand your competitive marketspace and your customers’ buying habits. Answering questions about who your customers are and how much they’re willing to spend is a huge step in putting your best foot forward.
• Opening a business in an industry that isn’t profitable. Sometimes, even the best ideas can’t be turned into a high-profit business. It’s important to choose an industry where you can achieve sustained growth. We all learned the dot-com lesson – to survive, you must have positive cash flow. It takes more than a good idea and passion to stay in business.
• Failure to understand and communicate what you are selling. You must clearly define your value proposition. What is the value I am providing to my customer? Once you understand it, ask yourself if you are communicating it effectively. Does your market connect with what you are saying?
• Inadequate financing . Businesses need cash flow to float them through the sales cycles and the natural ebb and flow of business. Running the bank accounts dry is responsible for a good portion of business failure. Cash is king, and many quickly find that borrowing money from lenders can be difficult.
• Reactive attitudes . Failure to anticipate or react to competition, technology, or marketplace changes can lead a business into the danger zone. Staying innovative and aware will keep your business competitive.
• Overdependence on a single customer. If your biggest customer walked out the door and never returned, would your organization be ok? If that answer is no, you might consider diversifying your customer base a strategic objective in your strategic plan.
• No customer strategy . Be aware of how customers influence your business. Are you in touch with them? Do you know what they like or dislike about you? Understanding your customer forwards and backwards can play a big role in the development of your strategy.
• Not knowing when to say “No.” To serve your customers well, you have to focus on quality, delivery, follow-through, and follow-up. Going after all the business you can get drains your cash and actually reduces overall profitability. Sometimes it’s okay to say no to projects or business so you can focus on quality, not quantity.
• Poor management. Management of a business encompasses a number of activities: planning, organizing, controlling, directing and communicating. The cardinal rule of small business management is to know exactly where you stand at all times. A common problem faced by successful companies is growing beyond management resources or skills.
• No planning. As the saying goes, failing to plan is planning to fail. If you don’t know where you are going, you will never get there. Having a comprehensive and actionable strategy allows you to create engagement, alignment, and ownership within your organization. It’s a clear roadmap that shows where you’ve been, where you are, and where you’re going next.

Running an organization is no easy task. Being aware of common downfalls in business can help you proactively avoid them. It’s a constant challenge. We know, but it’s also a continuous opportunity to avoid becoming one of the statistics.

36 Comments

This article is apt for everyone who’s planning to make a business, i admire this article so much ths more clear, understandable and realistic. I really appreciate this information, thanks for those people behind this informative thing. thumbs up!!!!!!!!!!

I have been looking at countless articles on why businesses fail. This one seems to make the most sense.

Thanks! David

Wonderful article thank to those behind this am really happy to read this article,u will be blessed in Jesus name (amen).

Awesome article

The article is very helpful and I have been assisted by it keep posting helpful thing.

I found this useful to us in Africa; especially Uganda

why is small business fail

Item number 8 is an eye opener for me thanks. More grace!

I found this useful to us in Africa; especially Uganda lol

mind opening article keep on posting

Cash flow or lack thereof is the #1 thing I evaluate when helping a company turn their business around. I am not disagreeing with any one of the 10 but unless you have enough cash you may not have enough runway to fix any one of the other 9 items to turn the situation around.

I thought I would have a look at the article and then add something that was missed as I have good understanding of these issues. Well darn and hats off Todd Ballowe. You have covered all the issues in a very tightly worded manner. Well done.

your article is good. keep on posting such important stuff. the information is helpful. thank you very much.

Right on point about why some businesses fail??

This is the richest article I have ever read while doing my research on the cause of business failure.

thank to the author, Keep up.

am very grateful about this article

The points are well put and straight to the point.

Thanks to the author we are now aware of whats causes our business to fail .

Sir/Madam! The article is fine. If you don’t mind, please specify the internal and external factors that influence a business to success or to failure. Because, in this modern world, specification i every field is appreciated. The tips are good, but quite mixed, please categorize them, thankyou

woo ,this article is awesome.I have found what i was looking for

what must a manager do to sustain a business growth?

this article is so helpful cause it contains sense why bussineses fail

Great article! Covered a lot of perspectives. Most owners believe that “knowledge is power” however they should understand that only “applied knowledge” is only the power that works! -great point. Came across a blog on Buymaster.co which really compliments and adds to this article. Take a look http://blog.buymaster.co/why-small-businesses-fail-or-fail-to-thrive/

thanks this artical is very helpful

Wow , great article. it touches an interesting field that i’m studying “Strategic management Accounting” This field seeks to involve the marketing environment with accounting as the strategy to gain sustainable competitive Advantage in the market. Thus , this articles highlights the importance of strategic tools in the market.

I am just a new comer in business, but I think this article can be a help for me.

Its a nice article but its just that we read these kind of articles only after failing in business and there are mistakes that we do again and again..as much as your articles helps me to understand the common reasons for failure I would like to point out some major reasons in my own way:

1) Lack of Capital- This is by far the most major reason for any business to fail although I am not saying this is the only reason. But it is often seen that people have capital to start up a business but in a long run they are not able to fulfil the internal and external demands of the business like salaries of staff, rent, raw materials etc. 2) Lack of Managerial expertise: This is also a major reason. It is often seen first time entrepreneurs lack management skills like planning, organizing, controlling etc. 3) Competition: This also plays in the success or failure of any business. Before or even after starting a business one must know who there competitors are and what are there strategy like what is the price of the products that they are offering, similarly quality,finish etc. Know your competition. 4) Random: There are many other reasons like understanding the needs and mentality of the customer. Know their likes and dislikes, their paying capacity, handling raw materials, keeping proper money/cash flow and accounting the same at regular intervals, having an open thinking and attitude, and their could be many that might not be present in what all I have stated. Please do give a feedback on this one

i found this article very useful , i have 40 years experiance in managing various business . thank you

Thaxs I loved the article since it opens up peoples’ minds.

Must say, this is an excellent article.

Covers the most important point in perfect details with no extra fluff.

It’s a great article and very knowledgable here are some pointers hope this could help you 1) Lack of Capital- This is by far the most major reason for any business to fail although I am not saying this is the only reason. But it is often seen that people have capital to start up a business but in a long run they are not able to fulfil the internal and external demands of the business like salaries of staff, rent, raw materials etc. 2) Lack of Managerial expertise: This is also a major reason. It is often seen first time entrepreneurs lack management skills like planning, organizing, controlling etc. 3) Competition: This also plays in the success or failure of any business. Before or even after starting a business one must know who there competitors are and what are there strategy like what is the price of the products that they are offering, similarly quality,finish etc. Know your competition. 4) Random: There are many other reasons like understanding the needs and mentality of the customer. Know their likes and dislikes, their paying capacity, handling raw materials, keeping proper money/cash flow and accounting the same at regular intervals, having an open thinking and attitude, and their could be many that might not be present in what all I have stated. Please do give a feedback on this one https://www.meshcowork.com/en/blog/read/620446883/failure-in-entrepreneurship

Thanks I have enjoyed the article ,,, very sensitive to understand especially to students who study financial management

It’s really very helpful. Thanks for sharing this amazing strategy

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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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5 Reasons Strategy Execution Fails

• 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.

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.

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 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.

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Written by Grant Olsen | February 2, 2022

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There are all kinds of conflicting statistics and opinions for why businesses fail . The headline of one report might proclaim that “90% of businesses fail in the first 3 years,” while another asserts that by following their tips, “You can enjoy a 90% chance of success.”

It’s difficult to accurately aggregate the numbers and find global statistics on business failures, so we’ll use the United States as a microcosm for trends that are also relevant in Australia, New Zealand, Canada, the UK, and other parts of the world.

Here’s a look at survival rates when viewed at the end of the first, fifth, and tenth years:

• 80% of businesses survive their first year
• 50% of businesses survive 5 years or longer
• 33% of businesses survive 10 years or longer

While these statistics highlight the fact that there’s certainly a risk of failure, they’re higher than some of us might expect. Anytime you’re looking at a vast collection of disparate individuals attempting something difficult, you’re going to see similar trends.

For example, let’s look at how many first-time college students seeking a 4-year degree stay the course all the way to graduation day:

• 33% of students graduate with a bachelor’s degree in 4 years
• 57% of students have graduated with a bachelor’s degree by 6 years

Some of the remaining 43% of students who didn’t graduate within 6 years will likely go on to attain their degree in later years, but it’s too inconsistent of a number to show up in most studies. For thousands of different reasons, hundreds of thousands of students fail to attain their bachelor’s degrees.

So the percentage of businesses that survive 5 years or more is strikingly similar to the percentage of students who earn a degree by 6 years. Sure, things happen that derail many of the businesses and students. But at least half of them are still standing after 5-6 years.

Why Small Businesses Fail to Change

Just as many of those students who earned degrees switched majors during their college experience, it’s critical for business owners to maintain flexibility in their structure and operations. If the COVID-19 pandemic has taught us anything, it’s the immense value of a well-time pivot. Whether your change is compelled by a new idea or the pressures of the times, never hesitate to innovate.

As Dan Fries explains :

Sometimes a crisis, while always tragic, can force some positive effects. It might not feel like that right now, but by responding to COVID-19 will teach you some valuable skills. In other words, this is not the only crisis you are going to face as your business grows, and the lessons you learn in the next few months will be extremely useful when it comes to scaling your startup further down the road. In fact, some of the tools and processes above are likely to be relevant long after the current pandemic has passed.

When businesses embrace this open-minded approach, they usually find themselves among the 50% that are still strong after 5-10 years. As the old saying goes, “If you’re flexible, you’ll never get bent out of shape.”

Yet many business owners remain rooted in their old ways. It’s understandable that they believe in their products or services, and are attached to the business model. After all, it was these elements that inspired them to take entrepreneurial risks in the first place.

But if you love something, you need to take care of it. And part of nurturing your business is being willing to change directions when outside pressures are threatening it. Stubbornness can be mildly amusing in childhood friends or cranky great-uncles, but it can be devastating for a business.

Why do businesses fail when they resist change? Because they’re refusing to acknowledge the primacy of the customer. Let’s review a few examples of roadblocks to success that arose during the pandemic, and how they all connected back to the role of the customer:

• Lockdown prevents a restaurant from serving customers inside the building. This scenario has played out again and again in nations around the world. It presents many dilemmas, but none larger than the inability of a business to directly serve its customers. Successful restaurants found ways to provide new pickup and delivery options, serve their communities, and even send meal kits by mail. They kept providing a quality product, though it might’ve looked much different.
• The supply chain is disrupted. The inability to source the materials or ingredients necessary for your current model is problematic. But the main issue is that it prevents you from delivering what your customers are seeking. If replacements couldn’t be found for the supply chain, a pivot was required. For example, a bakery that couldn’t source eggs might stop selling baked goods and begin selling dry mixes to customers.
• Depleted finances make it harder for customers to make purchases. With customers in many areas struggling to meet financial obligations such as rent and mortgages, it’s no wonder that some had to curtail purchases. By finding ways to lower costs so you can lower your prices, introducing tiered pricing, or creating new product options altogether to meet your customers’ needs, successful businesses continued to meet the needs of those who historically had depended on them.

Whether you’re struggling with cash flow issues or have a broken supply chain, your ability to deliver for your customers will always be the real issue. And discovering new ways to meet their needs will always be the real solution.

The fact is that pandemics will emerge, trends will evolve, and economies will fluctuate. So if you insist on moving your business forward in the exact same way regardless of these external factors, you’ll instead find your trajectory rapidly nosing downward.

The alternative is to commit to meeting your customers’ needs no matter what occurs. While it won’t guarantee a smooth journey, this North Star will guide you through all manner of catastrophes and downturns.

9 More Reasons Why Businesses Fail

We’ve identified the inability to adapt to their customers’ needs as a major contributor to businesses that go under before reaching their 1-year, 5-year, and 10-year anniversaries. When your customer is kept at the forefront, all your other efforts will steer you in the right direction.

But there are many other specific risks facing young businesses. These are risks that you should anticipate early and be on the alert for as time goes on.

With that in mind, let’s now look at 9 other reasons why businesses fail:

1. Poor Planning

Coming up with a great business idea is only the first step because it can’t go anywhere unless it’s supported by a solid plan . Outline where you’ll go in your first month, first 3 months, first year, and first 3 years. Make the milestones measurable so that you’ll know if you’re on track.

Of course, things will occur that necessitate updates to your plan. But the point is that you have a master document that outlines how you’re going to stand out from the competition, how you’re going to deliver value to customers, how you’re going to build your culture, and how you’re going to ultimately thrive.

2. Hiring the Wrong People

We get it—there’s a lot of pressure to build your team in a timely manner so that you can launch a business. But rushing this stage can kill your chances for long-term success.

You need to find people who believe in what you’re doing and have the skills to improve the ways you’re doing it. In the crucial early stages of a business, negative employees can quickly sink morale and overall performance.

3. Failing to Foster a Good Culture

As you assemble your team, communicate openly about the culture you’re seeking to build. Ask their opinions and make a point of incorporating new ideas from your team. The businesses that prioritize profits over people or have a leaders-versus-employees dynamic often fall by the wayside because their toxicity trickles right out of the office and can be sensed by suppliers, partners, and ultimately, customers.

4. Growing Pains

Plenty of defunct companies launched with a strong culture but lost it as the company scaled. There’s obviously no way to maintain all your team’s perks and traditions as new employees swell the ranks, but you can keep the heart of who you are.

Make sure that you continue seeking your team’s input and act on their ideas. New hires will bring innovative suggestions to make things better, while the old guard can share the things that you should most think about retaining.

5. Failure to Stand Out

Even if your business idea is a gem, you’ve still got to communicate it effectively to your audience. Otherwise, you’ll just get lost in the shuffle.

Using the market research from your business plan, craft a unique selling proposition that boldly articulates what makes you different from the rest. Questions to answer include:

• What unique value do I offer?
• Why is my solution better for customers?
• How can I communicate these important differences?

The more you can differentiate your brand, the better your chances for success.

6. Not Focusing on the Essentials

Plenty of businesses lose their way in the first year as distractions pull them from the very things that give them a competitive edge. For example, if your quirky product packaging is beloved by customers, don’t ditch it as your business grows. Instead, find ways to make the packaging more efficient so that it complements your efforts to scale.

When your business stays focused, you’re better able to deliver on your unique selling proposition and to adapt to unforeseen bumps in the road.

7. Not Controlling Expenses

Launching a business is expensive. And growing that business involves a whole new set of financial demands. So it’s understandable that many businesses struggle to keep up with the pace.

You’ll put yourself in a much stronger position by carefully watching your expenses . If something doesn’t help you deliver an even better experience to your customers, it might not warrant the cost. This goes for everything from Netflix on the breakroom television to the vehicles you rent on business trips.

8. Not Managing Inventory

Balancing acts are hard enough for any person, which is why those who perform on the trapeze are referred to as “artists.” But business owners must control the inventory so they don’t lose sales from insufficient numbers or burn through capital by allowing too much inventory to pile up.

You can avoid these fates by investing in inventory management software that helps you track items through the supply chain, in your warehouse, and all the way to final deliveries .

9. Inadequate Profit Margins

It’s possible to bring in substantial revenue and still find yourself in financial danger. One of the factors that have claimed many young businesses is inefficient processes and poor pricing strategies that lead to low profits.

Your business provides distinct value to customers, so you should feel confident setting prices that reflect this fact.

Get the Skills That Won’t Let Your Business Fail

Want more strategies to help your business excel? We’ve prepared a library of free business courses that cover everything from finance to negotiations to advertising. Taught by proven entrepreneurs from a range of industries, they provide the type of insights that usually take years to acquire. In this way, you can fast-track your success and avoid many of the threats that impact other businesses in their early years.

About Grant Olsen

Grant Olsen is a writer specializing in small business loans, leadership skills, and growth strategies. He is a contributing writer for KSL 5 TV, where his articles have generated more than 6 million page views, and has been featured on FitSmallBusiness.com and ModernHealthcare.com. Grant is also the author of the book "Rhino Trouble." He has a B.A. in English from Brigham Young University.

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Why Do So Many Strategies Fail?

• David J. Collis

Today it’s not unusual for corporations that have dominated their markets for decades to be blindsided by upstarts with radical new business models. A lot of young ventures, on the other hand, raise vast sums of money and attract tens of millions of customers, only to collapse when they can’t figure out how to fend off imitators. In these situations and many others, the underlying cause is often a failure to take a holistic approach to strategy.

Strategy today demands more than classic competitive positioning. It requires making carefully coordinated choices about the opportunities to pursue; the business model with the highest potential to create value; how to capture as much of that value as possible; and the implementation processes that help a firm adapt activities and build capabilities that allow it to realize long-term value. Neglecting any of those imperatives can derail a strategy, but CEOs frequently zero in on just one. Entrepreneurs tend to focus on identifying a golden opportunity and don’t think enough about how to monetize it; leaders of incumbents, on capturing value but not new ways to create it.

By tackling all the elements of strategy and integrating them well, however, firms will greatly increase their odds of success.

Leaders focus on the parts rather than the whole.

Idea in Brief

The problem.

Seemingly successful new companies struggle to turn a healthy profit. Established firms get disrupted by upstarts. Companies that excel at serving their markets can’t adapt when customers’ tastes shift.

The Root Cause

All too often business leaders focus on one element of strategy—such as identifying a golden opportunity presented by new technologies or building advantages that competitors lack. But they either ignore the other components of strategy or don’t recognize the components’ interdependencies.

The Solution

Take a holistic approach and craft a strategy that encompasses carefully coordinated choices about the business model, the competitive position, implementation processes that adapt constantly to the changing environment, and the capabilities needed to win in the long term.

The CEO’s job of crafting a strategy that creates and captures value—and keeps realizing it over time—has never been harder. In today’s volatile and uncertain world, corporations that have dominated their markets for decades can be blindsided by upstarts with radical new business models, miss the boat on emerging technologies, or be outflanked by competitors that are more adept at shaping consumer preferences. Young ventures can raise hundreds of millions of dollars, attract tens of millions of customers, and achieve lofty market valuations, only to collapse when they cannot figure out how to turn a profit or hold off imitators.

• David J. Collis is an adjunct professor of business administration at Harvard Business School and the winner of the McKinsey Award for the best HBR article of 2008.

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The 6 Reasons for Business Failure, and How to Address Them From a lack of customer awareness to loss of execution focus, how failure happens, and why you should never shy away from analyzing it.

By Lak Ananth • Jan 6, 2022

Opinions expressed by Entrepreneur contributors are their own.

In my work with startups and company founders, I have found that the possibility of failure is a constant companion: it's always there, waiting around the corner. However, instead of fearing failure and doing everything we can to avoid it, I've found that a much more effective strategy is to anticipate and prepare for it, do everything we can to establish the reasons for it when it happens, then learn methods of improving.

While there are many ways to fail in business, let's consider some of the most common and what we can do as leaders to transform them into success.

1. Customer failure

After then-Tata Group Chairman Ratan Tata witnessed a family of four crash to the pavement as they rode an overloaded two-wheeled scooter through a slippery intersection in Bengaluru, India, he was moved to create a $2,500 "people's car": the Nano. Tata's vision for this vehicle was to democratize transportation — providing a safe and affordable way for potentially hundreds of millions of people to drive from villages to cities where higher-paying jobs were available.

Ultimately, the Nano was a failure. Only about 300,000 of the cars were sold during its 2008-to-2018 production run, most within the first few years after it was introduced, then sales quickly tailed off. The cause was a failure to fully understand the needs of its customers, and a marketing overemphasis on "cheapest", which is a reliable customer turnoff in this industry.

So, to avoid this brand of customer failure, have a destination in mind, a vision for the destination and the conviction that the journey is worthwhile. But beyond that, you need to know who the customers are for a new product, and that it needs to solve a problem that's sufficiently important to them. Without a customer, you have nothing.

Related: Determining Your Ideal Customer

2. Technology failure

Who can forget the Segway PT stand-up electric scooter, introduced to the world in 2001? It was a marvel of technology, incorporating a groundbreaking network of five gyroscopic and two acceleration sensors with the ability to analyze the environment and the rider's position 100 times per second.

Segway anticipated sales of up to 100,000 units a year starting in 2003. By mid-2006, however, only 23,500 had been sold and the company was acquired by the Chinese electric kick scooter manufacturer Ninebot in 2015.

An enduring lesson here is that it takes more than great technology to make a product successful. There also needs to be an ecosystem to support the adoption of the technology and the support of innovations. What's needed is to take a wider view of the entire innovation realm instead of narrowly focusing on execution. This can be done by focusing on two specific types of risk: co-innovation risk (what else needs to improve for my innovation to matter?) and adoption chain risk (who else needs to adopt my innovation before the end customer can assess the full value proposition?).

3. Product failure

In part using funds generated by sales of records by The Beatles, UK technology company Electric and Musical Industries Ltd. (EMI) first conceived the revolutionary computed tomography (CT) scanner and began selling units in 1972. Demand turned out to be off the charts, growing at more than 100 percent per year, and EMI had all the advantages: it was the first mover, it owned the patents and intellectual property, it had plenty of cash in the bank and it employed the technology's inventor.

Eventually, EMI's first-mover advantage eroded. The same year the company sold its first three scanners (which were limited to imaging human heads), Siemens started its own CT research and development unit, and in 1974 began hospital trials of a CT head-scanning machine. Siemens quickly realized, however, that the next big thing was going to be whole-body scans, and in 1977 it was the first to introduce a CT scanner capable of doing them. Sales for EMI units plunged, and the company exited the medical imaging business entirely in 1980.

EMI's failure was not expanding into the many available product adjacencies it could have tapped for second and third acts. Interestingly, and seemingly ounterintuitively, the first mover may have a higher risk of product failure than a fast follower, which has the opportunity to learn from the first's mistakes. A lack of speed kills, so maximize the pace of translating ideas into action, seeing results and getting feedback, then feeding what you've learned into your hypothesis — making required changes along the way.

Related: 7 Ways to Build Hype Months Before Your Business Launches

4. Timing failure

The Essential Phone, invented by Andy Rubin (founding father of Android), had everything going for it. After leaving Google, Rubin created Playground, a venture fund and startup studio, which he envisioned as a place where remarkable hardware, software, artificial intelligence and design would be merged to create great products. To this end, he attracted $300 million in investment and put together an enviable coalition of partner companies. The result was an innovative smartphone launched in 2017.

According to press reports, only 5,000 Essential Phones were sold through exclusive partner Sprint in its first month, just 88,000 units in the whole of 2017 (after delays, the phone started shipping in August 2017). Compare this with Apple's iPhone, which sold a million units within 74 days of its release. The Essential Phone was too little too late, and its exclusive partnership with Sprint limited visibility in the marketplace.

When introducing a new product, there is a golden window: that optimum period when a product will be adopted quickly. If you're too early, but most will ignore it. If too late, the market will already be overly saturated, and your product won't be sufficiently differentiated to spur people to buy. The key is to identify market transitions and take advantage of them before the competition does.

5. Business model failure

If you live or work in most any large city, you have no doubt seen the proliferation of electric ride-sharing scooters. Bird was the first electric scooter sharing company out of the gate, placing them on Santa Monica streets in September of 2017. After one year, Bird had sold more than 10 million e-scooter rides and was the fastest startup ever to achieve a valuation of $2 billion. However, in 2020, scooter usage dropped significantly (between 60 and 70%) jeopardizing the industry, which by that time included a slew of companies.

It is simply not enough to have a great product, amazing technology and customers whose problems you are going to solve. To succeed, you must also develop and focus on implementing a sustainable business model that will provide you with sufficient revenue and profit to grow your venture. This depends on getting unit economics right — creating profitable transactions for the company that solve a customer problem. As you work to get these economics right, you have three levers to work with: revenue, cost and differentiation. Each must make positive contributions for you to succeed.

Related: Follow the Laws of Business Building to Secure Your Startup's Success

6. Execution failure

Fully 99% of a business's success is based on just one thing: getting execution right. Amazon learned a very important lesson in this when, in 2013, UPS failed to deliver numerous packages in time for Christmas. The latter company was overwhelmed by an unprecedented volume of packages and wasn't prepared for the surge. To ensure that this would never happen again, Amazon set out to build its own in-house delivery system — transforming UPS's execution failure into a stunning example of execution at scale. By 2020, Amazon delivered more than half of its own packages to customers, and it is anticipated that both UPS and FedEx will deliver fewer packages than Amazon within the next few years.

One of my favorite sayings is, "A vision without execution is just hallucination". I believe that, ultimately, just 1% of a business's success is based on getting the things discussed above right: the customer, the technology, the product, the team, the timing and the business model. Fully 99% of success is based on one thing: getting execution right.

Applying lessons for success

So, it's important to get the basics done, including having sound unit economics, building a team with purpose, understanding customers' pain points, getting timing right and executing well. Unfortunately, companies often remain in the failure zone for some time — especially when they have the funds to keep them afloat, but the best find their way out as quickly as they can. So, when failure knocks at the door, and it will, don't shy away: take it on and break through to the other side… to your long-term success.

CEO & Managing Partner, Next47

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How a great business plan will maximize your risk of failure

The business plan is a great execution tool. Yet, requiring a business plan during the early stages of idea development might maximize the risk of failure. Large organizations in particular still require business plans. That is an error. In this post we outline three reasons why companies should drop business plans in favor of a more rapid and iterative approach.

While business plans are less and less common in the startup world, they persist in large corporations. In large companies it’s not uncommon that a team of several people spends a couple of weeks developing a business plan. They will first spend time on market research. Then they will craft a detailed plan with an impressive financial spreadsheet looking 3-5 years ahead. Finally, all of this will be summarized in a beautiful slide deck to convince top leadership or investors of the brilliance of the idea.

Great business plans can look so good and have such convincing arguments that it becomes hard to doubt them. Unfortunately this false illusion of security may also maximize the risk of failure (or waste time and money at the very least). No company wants that. Let’s look at three reasons why requiring business plans is a bad idea.

1) Getting too granular too early = you risk wasting time

One of the dangers of writing a business plan is to spend too much time refining an idea before it is really proven. Unfortunately, “no business plan (however smart it looks) survives first contact with customers”, as Steve Blank the initiator of the Lean Startup movement likes to say.

Rather than refining an idea at the early stages, you should test it immediately and evolve it based on market feedback. Otherwise you risk wasting time working on refining an idea that nobody cares about. The problem is that you’ll only realize that much, much later. 

TIP: Keep your early ideas very rough (e.g. on one page with the Business Model and/or Value Proposition Canvas) and immediately test them. Gradually refine your ideas with increasing  evidence.

2) Selling an idea & plan to leadership or investors  = You risk getting locked-in

Where it starts getting dangerous is when a team sells their top leadership or investors a polished and refined business plan - before rigorously testing the underlying business model and value proposition(s) in the market.

When leadership or investors buy and finance a plan they expect that success is a mere execution problem. They expect that beautiful and detailed spreadsheet in the business plan to materialize exactly how you projected it. In other words, you just got locked into a plan that was entirely made up. You are forced to execute an idea that is yet to be proven. If you want to change direction later on, it will be difficult to convince leadership because you sold them something else.

TIP: Don't sell leadership a polished and refined business plan. Sell them an opportunity and a rigorous process that will turn your idea into an executable business model by producing market evidence. Show them how this approach will minimize the risk of failure, as opposed to a business plan which maximizes the risk of getting locked into one direction that is yet to be proven.

3) Hiring based on an idea & plan = you risk premature scaling

The biggest risk of business plans is that they may lead to premature scaling. This happens when you hire people and spend money on key resources based on a plan rather than market evidence. In other words, you get into "execution mode" before you fully finished the "search" for the right business model and value proposition(s). We wrote about this in a recent post on how Great Execution of Bad Ideas Kills Businesses . 

This type of premature scaling of great looking business plans can lead to enormous financial losses. My "favorite" examples are Flo TV by Qualcomm ($1+ billion loss) or  Better Place , a startup that aimed at getting people to use electric vehicles ($850 million loss).

TIP: Don't invest in execution until you have strong evidence that your idea will work. Otherwise you risk premature scaling and running out of money.

Burn your business plan before it burns you

At Strategyzer, we are no enemies of business plans if they are used purely for execution purposes. Unfortunately we've seen too much damage from business plans used during the early stages of idea development - particularly at large organizations.

There is no place for a business plan when you are still searching for the right business model and value proposition for your idea. It's simply the wrong tool for the task and it might even lead to maximizing your risk of failure.

Business plans should be replaced by a more dynamic approach until you have sufficient evidence that your idea will work. Only then should you consider crafting a business plan. Until then, we suggest you burn your business plan before it burns you.  

Does your organization still require business plans? What's the impact?

About the speakers

Dr. Alexander (Alex) Osterwalder is one of the world’s most influential innovation experts, a leading author, entrepreneur and in-demand speaker whose work has changed the way established companies do business and how new ventures get started.

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Top 6 Reasons New Businesses Fail

It's often said that more than half of new businesses fail during the first year. According to the U.S. Bureau of Labor Statistics (BLS), this isn't necessarily true. Data from the BLS shows that approximately 20% of new businesses fail during the first two years of being open, 45% during the first five years, and 65% during the first 10 years. Only 25% of new businesses make it to 15 years or more. These statistics haven't changed much over time, and have been fairly consistent since the 1990s. Though the odds are better than the commonly held belief, there are still many businesses that are closing down every year in the United States.

According to the BLS, entrepreneurs started 1,054,052 new businesses in the year ending March 2023. From the historical data, we can expect approximately 210,810 of these businesses to fail within the first two years. With the right planning, funding, and flexibility, businesses have a better chance of succeeding. We'll go through some of the biggest mistakes that startups can make and figure out how to improve your chances of success.

Investopedia / Ellen Lindner

1. Not Investigating the Market

So you've always wanted to open a real estate agency, and you finally have the means to do so, but your desire to open the agency blinds you to the fact that the economy is in a down housing market and the area where you want to work in is already saturated with agencies, making it very difficult to break in. This is a mistake that will result in failure from the start. You have to find an opening or unmet need within a market and then fill it rather than try and push your product or service in. It's a lot easier to satisfy a need rather than create one and convince people that they should spend money on it.

2. Business Plan Problems

A solid and realistic business plan is the basis of a successful business. In the plan, you will outline achievable goals for your business, how your business can meet those goals, and possible problems and solutions. The plan will figure out if there's a need for the business through research and surveys; it will figure out the costs and inputs needed for the business, and it will outline strategies and timelines that should be implemented and met.

Once you have the plan, you should follow it. If you start doubling your spending or changing your strategies whimsically, you are asking for failure. Unless you have found that your business plan is overwhelmingly inaccurate, stick with it. If it is inaccurate, it's best to find out what's wrong with it, fix it, and follow the new plan rather than change how you do business based on quick observations.

The more mistakes you make, the more expensive your business will become and the greater the chance of failure. You may also be called to pivot when market conditions change drastically and impact negatively the chances of success based on the initial business plan. In this case, you revisit your plan and edit it fully based on the decided pivot.

3. Too Little Financing

If you have started a company and things aren't working out, and you have little capital and a struggling business, you're not in a good position to ask for another loan . If you're realistic at the beginning, you can plan to start with enough money that will last you to the point where your business is up and running and cash is actually flowing in.

Trying to stretch your finances at the beginning may mean that your business never gets off the ground, and you'll still have a lot of cash to repay. Lean management strategy is warranted in this phase in particular but can be applied even after this phase. Try to think of multi-channels for funding and financing. Get educated about this area and be creative searching alternative sources of financing.

4. Bad Location, Internet Presence, and Marketing

A bad location is self-explanatory if your business relies on location for foot traffic . Just as dangerous, however, is a poor Internet presence. These days, your location on the internet and your social media strength can be just as important as your company's physical location in a shopping district. An online presence will let people know that they can give you their business, so if the need is already there, the availability and visibility of your business is the next important step.

This is similar to marketing . Not only must you make sure that marketing reaches people, but it must also reach the right people. So make sure the type of marketing lines up with the audience you want to reach. Big billboards may not be the way to go for an internet company, just as online ads may not be the way to go for a heavy-construction business. If the need is already established, make sure you're reaching the audience who needs your product or service.

5. Remaining Rigid

Once you've done the planning, established your business, and gained a customer base, don't become complacent. The need that you're fulfilling may not always be there. Monitor the market and know when you may need to alter your business plan. Being on top of key trends will allow you lots of time to adjust your strategy so that you can remain successful. One must only look at the music industry or Blockbuster video to know that successful industries can undergo huge changes.

6. Expanding Too Fast

Now that your business is established and successful, it's time to expand, but you must treat the expansion like you're starting all over again. If you're expanding the reach of your business, make sure that you understand the areas and markets into which you'll now be reaching. If you're expanding the scope and focus of your business, make sure you understand your new products, service and intended consumer as much as you do with your current successful business.

When a business expands too fast and doesn't take the same care with research, strategy, and planning, the financial drain of the failing business(es) can sink the whole enterprise.

Though the rate of business failure in the first two years is around 20%, it doesn't mean that you have to fail. Through research, planning, and flexibility, you can avoid many of the pitfalls of a new business and be a part of the approximately 25% that make it to 15 years and beyond.

U.S. Bureau of Labor Statistics. " Table 7. Survival of Private Sector Establishments by Opening Year ."

U.S. Bureau of Labor Statistics. " Table 5. Number of Private Sector Establishments by Age ."

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Home » The Tony Robbins Blog » Career & Business » 14 reasons why businesses fail

14 reasons why businesses fail

Learn more about business failure – and how to avoid it.

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.

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

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. S ince 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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Strategic Planning

Ten Common Reasons Strategic Planning Fails

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While the data on strategic planning rates is all over the map, suffice it to say it’s high. Below you’ll find ten common reasons strategic planning fails.  It’s likely that the last strategic initiative to fall short in your organization could be attributed to one (or a combination) of these ten causes.

You have to be mindful of your history when it comes to launching strategic initiatives.  If you’re the kind of organization which just launched a new initiative with great fanfare only for it to have died an unceremonious death, then your employees are not likely to be fooled again.   They’re smarter than Charlie Brown, who as you recall was repeatedly foiled by Lucy every time he was asked to kick the football .  If your announcement is met with rolling eyes and a collective groan, then you stand little chance of real success no matter how brilliant the plan.

2. People/Culture

Knowing what to do in the abstract is usually the easy part.  Knowing what you can do based on the unique skills and mindset of your team is an entirely different matter.   Understanding your people, the culture and sub-cultures within your organization, and shared vision/values are essential to developing a plan that stands a chance of success.   Failure to do so is a recipe for disaster.  Dave Logan’s research on “tribes”, in his book Tribal Leadership, offers a practical framework for understanding and working with your culture to achieve what Peter Senge describes as the difference between apathy/compliance and commitment/enrollment.

3. Leadership

How committed is your leadership team to the success of the strategic plan?  Not just in terms of what they say when the plan is announced, but how they communicate (words & actions) during the life of the plan.  What signals do they send to the employees?  As Kouzes and Posner might ask: How is your leadership modeling the way?   If employees sense that the leadership’s commitment is tepid, then that’s what leaders can expect in return.

4. Discipline

Let’s say you’ve got committed leaders and employees.  That’s great, but commitment to achieving strategic goals is still not enough.  The question is: Do they have the discipline necessary to make real behavioral change?  Jim Collins refers to this in terms of “disciplined people, disciplined thought, and disciplined action.”   So in individual terms, someone might be committed to losing ten pounds, yet lack the discipline to do what’s necessary to achieve the goal and maintain the weight.  It’s no different in organizations.  David Maister says that without discipline your strategic plan will have all the teeth of a typical New Year’s Resolution.

5. Communication

Most strategic-related communications, even if thoroughly planned and executed, are designed only to create clarity around what management wants the employees to do.  (Which by itself can be a tall order).   As a result, the communication efforts fall woefully short of the mark.   Good strategic communication should have one goal:  To make sure everyone in the company sees the strategic plan not as just the leadership’s plan, but as their plan.   Failing that, you’re asking your employees to be more committed to your goals than their own.  Not sure that’s very realistic.

6. Monitoring, Measurement, Feedback

Even the best conceived strategic plans require adjustments along the way.  It’s critical to monitor the plan’s progress, measure outputs as well as outcomes, and obtain feedback from all your stakeholders.  It’s also essential to consider unintended effects.   For example, is success in one area of your company undermining results elsewhere in the organization?  Are you realizing short-term gains at the expense of long-term growth?  Have you considered delays, both positive and negative, that could result in outcomes you may have to wait months or years to fully understand?   So if your organization didn’t listen along the way and lacked patience, it was likely accompanied by a failed effort.

7. Lack of Flexibility

While it’s helpful to have all the right systems in place to track your progress, it’s all for naught if you lack the will, the flexibility, and the triggers necessary to make adjustments along the way.   Over time, and presented with solid evidence, you can’t be afraid to depart from the original plan.   Keep the goal, change the plan – not the other way around!

8. Milestones/Rewards

Most strategic initiatives of any consequence take time.  Even for the most disciplined among us, we need to be motivated and inspired to achieve a longer-term goal.  Consider what it takes to keep your people on track.  How do you stay focused on the goal and celebrate your progress?  What are the best milestones and rewards for your plan?  Your organization?  You can’t let your organization lose steam.

9. Bad Planning

Make a list of the people in your organization who were involved in developing your last strategic plan.  Who were they?  How deep did you go in the organization?  How wide? What was the extent of their involvement?  OR, did the senior leadership team develop the plan on its own and then announce it to the organization?  How did that work for you?   Off-site huddles by the senior management team to develop a strategic plan often result in developing a plan that has no chance of success.

10. Bad Plan

Sometimes plans fail because they are simply bad plans, and I would argue that they are often bad plans because we don’t tend to get everyone involved that we should.  We either fail to tap into the collective talents and dedication of our people or we misjudge the external environment and the response of our stakeholders.  It can make employees feel isolated and the leadership look out of touch.

What have you found to be the common reasons your strategic plans have either fallen short or just simply given way to other priorities?  We’d like to hear from you!

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Category: Strategic Planning

Tags:   Strategic Goals , strategic initiatives , Strategic Planning

Vistage facilitates confidential peer advisory groups for CEOs and other senior leaders, focusing on solving challenges, accelerating growth and improving business performance. Over 45,000 high-caliber execu

My reasons of previous strategic planning was not deemed to be successful..Learn to avoid the common mistakes that can sink a new small business check here http://jewelsnistico.com it really help me a lot.

[…] Original Source Here […]

I might add communication. Employees hate executive vacuums. If you want their buy-in, you have to communicate regularly about progress, issues and problems.

Like Innovation, all about execution, great article, thanks

Thanks for your comments. Number 5 addresses communication, but to your point, not in all its permutations. Robert, as you said, it’s all about execution, the rest is just talk. In my next post, I’m going to look at how to bring strategic thinking, strategic planning, and strategic doing into one seamless process, rather than the typical, “let’s come up with a plan and then try to figure out how to put it in place.”

[…] […]

[…] very clever Leo Bottary recently posited ten reasons why strategic thinking fails on the Vistage blog . Note: these are just ten reasons amongst a list that could number in the […]

Hi Leo …great article and lots of it directly resonated with em as I was part of a leadership team that developed and implemented strategic plans. One comment I’d add is trying to do too much. We’ve probably all seen start plans with “our 10 strategic imperatives for the coming year are…”. Its too much for employees to absorb and connect. One year we had five and they worked quite well. Fewer might be even better. All the best Geoff Vincent, CEO http://www.bizcompare.com

Geoff, great addition to the list!

Great summary and follow-up comments. I’d be interested in hearing more about integration and implementation of strategy between functions/departments. (E.G. finance + operations + marketing). One group may “buy in” and the other may not.

[…] Kaplan and Norton research suggest that 90% of organizations fail to successfully implement their strategies. […]

[…] to Start Thinking About It Strategic Planning – A Simple Process for Small Organizations Ten Common Reasons Strategic Plans Fail Agile Strategic Planning – Part […]

[…] seminar companies of the country, he has sold more than 250 residential real estate wholesale.As well as each individual is absolutely unique, the strategic plans for financial goals are every i…at require people to different financial goals based on their needs. Of course; Another question is […]

wow! this article was very useful for my research . thanks and big up

I found your article by chance and am glad I did. Many interesting facts and analysis. Thank you!!!

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More From Forbes

Eight common reasons small businesses fail.

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By: Laura Cowan

It’s no secret that a large portion of  entrepreneurs and aspiring business owners  fail. Studies have shown a full 20% of small businesses fail in their first year, 30% in their second year, and 50% by year five. A full 70% of small businesses don’t make it past their tenth birthday.

As a new entrepreneur getting ready to start a business, there is a lot of uncertainty ahead of you. You are probably being reminded by family and friends how unlikely it is your endeavor will succeed.

However, when we look at the trends, we tend to see the same mishaps over and over again. Armed with this information, your odds of having a profitable endeavor increase significantly.

Here are eight common reasons small businesses fail.

Who Needs A Business Checking Account?

1) no vision.

Successful businesses owners have a clear vision of their purpose and mission. Your vision serves as a roadmap to help you see where you are today in relationship to where you want to be tomorrow. Your business plan serves as the mechanism that will get you there.

When you don't have a clear vision, it’s like taking a  road trip  without a map. You don’t know where you are going, so you end up wasting a lot of time, money, and energy trying to get on the right path. A well-defined vision will help keep you on track.

2) No niche

One of the most common reasons for business failure stems from having a poorly-defined niche. A niche refers to a target market or area of specialization. If you try to make your business attractive to everyone, it will end up being attractive to no one.

It’s better to specialize. The narrower your market, the better your odds of speaking to the very people you want to serve. Market yourself as an expert in a specialty while showcasing yourself to the narrow market that can benefit most from your services.

[Related:  Forget Passion: Find Your Schtick ]

3) No business plan

Your business plan is your strategy. It details your business niche and target market, your marketing plan, financial projections, staffing, and the features of your products or services. It is your business plan that provides the strategies you need to move you from where you are today to where you want to be.

If you don't have a plan to follow, your chances of achieving success are greatly diminished. Plans have a way of becoming reality. Craft your plan carefully and use it to guide your progress going forward.

4) No marketing plan

A  marketing plan  outlines the steps you intend to take to sell your product or service. As one component of the overall business plan, it identifies your niche and the marketing strategies you'll employ to reach your target market.

You should have a defined marketing plan identifying how you plan on reaching your target audience. You should also have a marketing budget and a way to calculate your ROI for each marketing method employed.

5) No action

Taking action is the foundation of progress. You have to get things done. Some business owners get so caught up in process they are unable to make decisions. Others are perfectionists who don't implement ideas because they think they aren’t good enough.

Neither are acceptable. Anything that prevents you from moving forward will lead you down the path to failure. At some point you have to decide and move on. It's better to make a decision and risk an outcome you might not desire, than to mull over the options indefinitely.

[Related:  How to Make a Hard Decision ]

6) No commitment to learning

There is no place for complacency in an entrepreneur’s world. Successful business owners are constantly looking for new and better ways to get clients, as well as to serve the ones they already have.

They are aware of the latest trends. They are constantly innovating. They learn about and implement processes that increase the effectiveness of their day-to-day operations. By committing yourself to  learning and innovating , you're committing yourself to success in all parts of your business.

7) No follow-up

Business owners that don't follow up with clients and customers are perceived as inattentive, uncaring, and unprofessional. Lack of follow-up is a surefire way to lose clients and ensure you won't be referred any new ones.

Whether it's returning phone calls, responding to e-mails, or delivering a product or service to the client as promised, make sure that you complete these tasks in a timely manner. Following up is fundamental to creating long-term customer relationships. Not only does it show you respect your clients, but it is a standard of excellence among business professionals.

8) No consistency

Consistent action is one of the most important habits to cultivate if you truly desire business success. You must be committed for the long-term, because it’s going to take time to build your business. You have to grind on; grit is a quality of every successful entrepreneur.

Each day, commit yourself to taking one action that will increase your visibility or credibility. You'll be surprised at how quickly these little steps build into much larger successes.

[Related:  The 7 Lessons To Remember For Your Entrepreneurial Journey ]

Laura Cowan  is an attorney, CPA, and entrepreneur. She is the founder and owner of the Law Office of Laura Cowan, a boutique trusts and estates law firm based in Midtown Manhattan. She is also the founder and CEO of She's Having a Business!, a consulting firm providing entrepreneurs with the tools, templates, and education they need to run a legally sound business.

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The Operational Services Division Does Not Have a Business Continuity Plan or a Disaster Recovery Plan.

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OSD does not have a business continuity plan or a disaster recovery plan to ensure the continuity of operations in the case of an interruption or disaster.

Without a business continuity plan or disaster recovery plan, OSD cannot ensure that it has established procedures for the continuation of critical business processes in the event of any organizational or information technology infrastructure failure. An interruption or disaster may result in lost or incorrectly processed data, creating financial losses, expensive recovery effects, and inaccurate or incomplete data. Additionally, if OSD is inoperable, statewide procurement may cease.

Authoritative Guidance

EOTSS’s Business Continuity and Disaster Recovery Standard IS.005 states,

             6.1.1.4  Develop business continuity plans (BCP): Each agency shall develop BCPs for critical business processes based on prioritization of likely disruptive events in light of their probability, severity and consequences for information security identified through the [Business Impact Analysis] and risk assessment processes. . . . 6.2.1     Commonwealth Executive Offices and Agencies must develop and maintain processes for disaster recovery plans at both onsite primary Commonwealth locations and at alternate offsite locations. [Disaster recovery] plans shall include step-by-step emergency procedures.

Reasons for Issue

OSD management was unaware that they should develop and maintain business continuity and disaster recovery plans separate from the Executive Office for Administration and Finance’s plan and EOTSS policies, procedures, and standards.

Recommendations

1.    OSD should develop, document, and test a business continuity plan.

2.    OSD should develop, document, and test a disaster recovery plan for both onsite and offsite recovery locations.

Auditee’s Response

OSD acknowledges that it did not have a written plan that was fully compliant with EOTSS’s Business Continuity and Disaster Recovery Standard IS.005. OSD did have an obsolete plan that has been reviewed and updated to comply with the EOTSS standards since the audit took place. OSD will make a copy available to the audit team upon request. OSD would like to note that it has always had procedures and systems in place to ensure that its operations continue in the case of infrastructure failures or disaster. OSD has demonstrated the ability to maintain operations during challenging circumstances. For example, OSD core functions continued with little to no disruption during the transition to remote work during the COVID-19 emergency. OSD also monitors the COMMBUYS website/application and is in constant communication with the vendor that maintains that system to ensure that it remains functioning and accessible to the user community.

Auditor’s Reply

Based on its response, OSD has taken measures to address our concerns on this matter.

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Saudi Arabia is desperately trying to convince everyone that its Neom megaproject is going just fine

• Saudi Arabia insists its Neom megacity project is on track.
• The Saudi economy minister told CNBC there was "no change in scale" for the project.
• The kingdom's been battling reports that its ambitious desert city has suffered setbacks.

Saudi Arabia says its Neom megacity project is going ahead as planned.

The kingdom has been battling reports that plans for the ambitious desert city have suffered setbacks . In recent months, Western media outlets have reported that the country is scaling back population estimates for The Line, and seeking to borrow funds .

Earlier this month, Bloomberg reported that the financial realities of the project, which could cost as much as $1.5 trillion , have started to cause alarm within the Saudi government.

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In an apparent effort to refute some of these claims, the Saudi economy minister, Faisal Al Ibrahim, told CNBC that all Neom projects were continuing at the planned scale.

"There is no change in scale. It is a long-term project that's modular in design," he said.

"These projects will be delivered to their scale and in a manner that in terms of priorities suits the needs of the projects, the returns of these projects, and the economic impact. It's like minimizing any leakage, minimizing any overheating risks as well," he said.

Al Ibrahim also said the country was seeing growing investor interest in all of the Neom developments. The kingdom has recently been touring its Neom road show, making stops in Beijing, Shanghai, and Hong Kong in an apparent attempt to lure Chinese investors .

Representatives for Neom did not immediately respond to a request for comment from Business Insider.

The comments come two days after the kingdom's finance minister said "challenges" meant adjustments would be made to some aspects of its Vision 2030 plan, of which Neom is the centerpiece.

Speaking at a World Economic Forum meeting in Riyadh on Sunday, Mohammed Al Jadaan said the country would "change course" and "adjust" as needed.

"We will downscale some of the projects, we will accelerate other projects," he said during a session on global economic growth .

Saudi Arabia plans to open Sindalah , the megacity's first region, by the end of the year.

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