4 Reasons Why Companies Fail

Starting a small business takes a lot of hard work and talent. Keeping a small business going takes even more of the same. According to labor statistics, more than 80 percent of businesses fail within the first year—but very few reports explain why.

I sat down with Mark Stevens, author of Your Marketing Sucks and CEO of MSCO, a marketing firm in Rye Brook, New York, to get some answers.

He told me that there are four fundamental reasons why companies fail.

1. Lack of Leadership

According to Stevens, real leaders set an example, reward employees, and terminate swiftly.

"Set the example yourself," he says. "At my company, I tell my employees to give me homework. This shows them that their leader is willing to do the work to make the company exceptional, not just the job of a CEO."

Leaders also reward high performing team members, he says.

Stevens's last leadership criteria: weed out bad employees. "Terminate people who just go through the motions; after a while, your entire company will be that way," he says.

2. Complacency

While several companies have struggled over the last two years due to the economic downturn, others have stayed afloat and even thrived. What gives?

According to Stevens, the companies still standing have flourished because they never showed signs of complacency when things were going well. Instead, they pushed and worked hard regardless of the health of the stock market.

"I see companies that were doing really well before 2008 because there was simply enough business to go around," Stevens says. "They got lazy, didn't do marketing, and assumed it would always be that way. Then, when things got bad, they had to close up shop."

In addition to a lack of complacency, the key to staying in business is "thrilling customers" and working hard on a consistent basis, Stevens says.

3. Hot and Cold Customer Treatment

Stevens calls this the "lust to lax syndrome." This is when a business wines and dines its potential customers, but upon signing of a contract, the client is put on the back burner. Not a good idea.

"They are just put into the 'customer' file," Stevens says. "Then, business owners move on to the next lusting experience. No one wants to be a customer; they really want to be a family member."

This is where small businesses have an advantage, Stevens says. "Lets say you sell someone a dish set. After they take it home, send them a card that says, 'I hope you enjoy a million happy meals on these plates' and I guarantee that person will come back to your store."

4. Conventional Thinking

Remember a few years back when The Rules: Time-tested Secrets for Capturing the Heart of Mr. Right came out? I can't tell you how many of my single friends ran out to the bookstore to read every word. They followed each of the 'rules' to a T and: many of them are still single. This lesson also applies to business.

"There is definitely a set of concepts that are accepted as the gospel of how to do business; but if you really look at them, many of them are simply not true," he says. "You really need to look at yourself and ask, 'What is the wisest thing to do in my business for my team members and for my clients?'"

For example, Stevens doesn't believe that persons with high seniority should always be paid the most. "That is ridiculous," he says. "What if a younger person is a star?"

In addition, he doesn't believe in waiting for a consensus. "Everyone has to fall behind the leader…peroid."

Dania Ramirez Lucy Liu LeAnn Rimes Adrianne Curry Jennifer Gimenez