Companies fail when they lose their competitive advantage.
You lose your competitive advantage when the product or service you sell is identical or similar to your competitor and more expensive.
Other common reasons for loss of competitive advantage are:
Your margins cannot cover your costs. Costs include the cost of funds, overheads, employee costs, transportation and service costs, regulation, and general mismanagement.
Most companies’ failure is attributed to poor leadership. If your company is struggling, the first thing that you should do is to change the leader. Successful companies understand this. They affect leadership change when they realize that the company has started performing badly and is likely to become sick.
The chances of new companies failing are higher than older companies. It is because the founders who created these companies do not have the skills to run them. But they keep clinging to the company. In time these companies disappear.
In my experience with sick companies, I have seen this play out repeatedly. The leader almost always thinks that the problem lies with his management team. The last company I worked to turn around had the founder cum CEO offering me to run the company with him jointly.
I knew that divided leadership is the worst way to run a company, and the offer was promptly turned down instantly.
If your company is struggling, begin by moving yourself out. Let someone else run it for you.