Reasons for the failure of new businesses

Filed by team twago on September 9, 2010

Reasons for the failure of new business

The Federal Ministry of Economy and Technology has, together with the European Centre for Economy, published a study with the title: “Reasons for the failure of new enterprises within the first 5 years of their existence.” The study names the most common mistakes, which can eventually lead to the failure of start-ups. It analyses 3000 businesses, which were closed between 2006 and 2009. According to it, three reasons are decisive for the collapse of a start-up: insufficient funding, unexpected shifts in the market, and strategically unwise decisions.

Interestingly, according to the results of the study, 75 percent of the analysed businesses had already exceeded the break-even point and were in the blacks. A dire financial situation is therefore not the main reason for abandoning one’s business. It is in fact personal reasons that play an important role. The majority of the respondents felt that their entrepreneurial activities put a strain on their health and psyche. Not enough time for friends and family was often named as a main reason. Most closures therefore happened voluntarily, not through insolvency proceedings.

Compared to other countries, such as France, Great Britain, and the USA, Germany’s rates of establishments and closures are, based on the data of the study, average. The ratio of the number of business formations and closures in Germany, however, is rather adverse. These results should be an incentive for economy and politics to encourage the establishment of new businesses in Germany. “The dynamics of a national economy essentially depend on young businesses, which enter the market with innovative ideas,” Ernst Burgbacher, Parliamentary State Secretary of the Federal Ministry of Economy and Technology, states.

 

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