The failure statistics for new businesses are well-documented and consistently grim. According to the Bureau of Labor Statistics, approximately 20% of new businesses fail within the first year. By year five, roughly 50% have closed. By year ten, about 65% are gone.
These numbers have remained remarkably stable across decades, despite dramatic improvements in technology, access to information, and business tools. The reason is that the fundamental causes of failure haven't changed — and most founders still don't address them before launch.
The Top Causes of Business Failure
Research from CB Insights, the Bureau of Labor Statistics, and various academic studies consistently identifies the same primary causes:
1. No Market Need (42% of failures)
The single most common cause of business failure is building something nobody wants — or not enough people want. The founder falls in love with an idea and assumes the market shares their enthusiasm. They invest months of time and thousands of dollars before discovering that demand is insufficient.
How a feasibility study catches this: Market analysis with TAM/SAM/SOM sizing, grounded in real data, reveals whether sufficient demand exists. If the SOM is too small to support a viable business, you know before investing.2. Ran Out of Cash (29% of failures)
The second most common cause is running out of money before the business becomes self-sustaining. This happens because founders underestimate how long it takes to reach profitability, underbudget for the ramp-up period, or fail to secure adequate initial funding.
How a feasibility study catches this: Cash flow projections that model the ramp-up period explicitly — including monthly losses before break-even — reveal exactly how much capital is needed and how long it must last. If the required runway exceeds available capital, you know to either raise more or redesign the concept.3. Wrong Team (23% of failures)
Team problems — co-founder conflicts, skill gaps, and inability to recruit — derail many businesses. While this is primarily an execution issue, a feasibility study can identify critical skill requirements and staffing challenges before launch.
How a feasibility study catches this: Operational feasibility assessment identifies the specific roles, qualifications, and expertise required. If the local labour market can't supply what you need at a viable cost, the feasibility study flags the issue.4. Outcompeted (19% of failures)
Many businesses fail because competitors — existing or new — capture the market more effectively. This often happens when founders don't thoroughly understand the competitive landscape.
How a feasibility study catches this: Competitive analysis reveals who you're actually competing against, their strengths and weaknesses, their pricing, and their market position. If the competitive landscape is too crowded or dominated by well-funded incumbents, the feasibility study makes this visible.5. Pricing/Cost Issues (18% of failures)
Businesses fail when they can't charge enough to cover costs, or when costs are higher than anticipated. This is fundamentally a margin problem — and it's entirely predictable with proper financial analysis.
How a feasibility study catches this: Detailed CAPEX and OPEX estimation, break-even analysis, and sensitivity testing reveal whether your margins are viable. If a 10% cost increase eliminates your profit, you know the margin is too thin.The Feasibility Study as Prevention
Each of the top five failure causes maps directly to a component of a thorough feasibility study:
| Failure Cause | Feasibility Component | Key Metric |
|---|---|---|
| No market need | Market analysis | TAM/SAM/SOM |
| Ran out of cash | Cash flow projections | Runway, break-even timing |
| Wrong team | Operational feasibility | Skill requirements, labour availability |
| Outcompeted | Competitive analysis | Market positioning, differentiation |
| Pricing/cost issues | Financial modelling | Margins, break-even, NPV |
A comprehensive feasibility study doesn't guarantee success — execution still matters enormously. But it eliminates the most common and most preventable causes of failure: launching into insufficient demand, running out of cash during ramp-up, and operating on unsustainable margins.
The Cost of Failure vs The Cost of Prevention
The average cost of a failed small business varies by industry, but even a modest venture typically involves $50,000–$200,000 in direct financial losses — lease obligations, equipment, inventory, legal fees, and lost deposits. Add the opportunity cost of months or years of the founder's time, and the true cost often exceeds $300,000.
A feasibility study costs $200–$2,000 with modern AI tools, or $5,000–$50,000 with a consultant.
The math is straightforward. If a $200 feasibility study has even a 10% chance of preventing a $100,000 failure, the expected value of that study is $10,000 — a 50x return on a $200 investment.
More importantly, the feasibility study doesn't just prevent bad investments. It also confirms good ones. A founder who launches with a positive feasibility study — positive NPV, acceptable IRR, resilient sensitivity analysis — has evidence-based confidence that the numbers work. That confidence is worth far more than hope.
Why Founders Skip Feasibility
If feasibility studies are so valuable, why do most founders skip them?
Optimism Bias: Entrepreneurs are, by nature, optimistic. They believe in their ideas. Subjecting that idea to rigorous analysis feels like looking for reasons to say no, when they want to say yes. But a feasibility study isn't designed to say no — it's designed to find the truth. Perceived Cost: Traditional feasibility studies cost $5,000–$50,000, which is prohibitive for many early-stage founders. This barrier has been largely eliminated by AI tools that deliver professional-grade analysis for $200–$500. Perceived Time: Traditional studies take 2–6 weeks. Founders eager to launch don't want to wait. AI tools now deliver comprehensive analysis in minutes. Didn't Know They Exist: Many first-time entrepreneurs don't know what a feasibility study is, or how it differs from a business plan. They go straight to planning (or straight to spending) without the validation step.The Bottom Line
Business failure is common, but the causes are well-understood and largely preventable. The founders who validate before they invest — who test their assumptions against real data, model the financial reality including ramp-up losses, and stress-test their projections against downside scenarios — dramatically improve their odds.
You can't eliminate all risk. But you can eliminate the risk of launching a business that the data clearly says won't work.
SimpleFeasibility generates comprehensive feasibility studies that test your business concept against real market data, model the financial reality with NPV/IRR/payback, and stress-test your assumptions with interactive What-If analysis. All in under 8 minutes. All for less than 1% of the cost of failure. Don't Be a Statistic →Related Articles: