5 (Other) Reasons Small Businesses Fail

NEW YORK (TheStreet) -- There are many reasons why startups never get to reap the riches of a Google (Stock Quote: GOOG), Amazon (Stock Quote: AMZN), Chipotle (Stock Quote: CMG) or Starbucks (Stock Quote: SBUX).

An estimated 627,200 companies big enough to hire began operations in 2008, and 595,600 closed the same year, according to data collected by the Small Business Administration. This amounts to an annual turnover of about 10%. Companies without employees have turnover rates three times as high, mostly because they're easier to start and shut down.

The recession added to the problem, with failures at small companies -- according to the Small Business Administration, those with fewer than 500 employees -- accounting for roughly 60% of job losses in 2009.

And extreme circumstances such as natural disasters -- last month's earthquake and tsunami in Japan, the devastation in Haiti last year or Hurricane Katrina in 2005 -- can take down small businesses as sure as they can wreck the building a business is in.

Lots of articles have been written about why small businesses can't get off the ground, most pointing to them having either too little capital or no compelling business proposition or product.

But there have been other reasons why many small business were forced to shut their doors, one, two or 20 years after opening.

TheStreet came up with five other key reasons small firms fail:

1. You have become the dreaded micromanager

Business owners want to ensure their company succeeds, but they may not at first hire more-qualified staff to take over functions that require such specialized skills as marketing or business accounting. Whether by choice or because they can't afford to hire, the owner typically inherits these tasks.

In fact, it is common for business owners to remain in control over all aspects of the business -- ensuring the job gets done right. As a company grows, though, this may not be so efficient.

"When a company is in its earliest stages, its success is really driven by the owner's strengths and willpower. It takes a lot of willpower and skill to get a company off the ground and get it to the point where it's profitable," says Randy Albert, COO of Phimation Strategy Group in Michigan, a consulting firm that helps small businesses expand. "But once it reaches that point -- in order to continue -- you need a broader skill set. The owner can no longer be everywhere at once. Nor should they be."

Even if it's difficult to let go of the reins, owners need to realize they can't do everything, Albert says. They need to check themselves on control issues and either hire, outsource or allow trusted employees to take responsibility for certain functions.

"Once you get to even eight [employees], the interdependencies are now in the hundreds of thousands of different permutations of how conversations could go," Albert says. "An owner should no longer be in every single one of them. And if they try, they will stifle growth and potentially kill the company."

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