5 Factors that threaten the Success of Small Businesses

Opening and managing a small business is rewarding but often difficult work. For many small business owners, it can sometimes feel impossible to beat the odds and maintain a profitable company for the years to come. And the data doesn’t offer much comfort; according to the U.S. Labor of Statistics, about 20 percent of small businesses close within a year of opening.

However, it isn’t all grim—with hard work and awareness of the elements that threaten your business’ success, you can take preventative measures to protect your investment and maintain a loyal customer base. If you can recognize these five significant threats to your business, you can run your company with caution, take concrete action to lower liabilities and risks, and leverage your resources for greater impact.

Competition with Big-name Brands


Perhaps the most talked-about reason small businesses fail is being unable to compete with big-box brands. A small business will never have a big company’s resources, but there are still cost-effective ways you can compete with these well-known brands.

For example, you can focus on customer service and how you can personalize the shopping experience. Tap into marketing efforts that stress “shop local” campaigns and present what sets your business apart from the big-name brands. You can also join local business associations that spread awareness of local brands and sponsor large-scale events, like a small business week.



It’s an unnerving matter of fact that businesses of all sizes get sued every day. That’s why major companies often have entire departments full of lawyers and PR employees who specialize in minimizing the damage of a claim against the company. Especially if you run a small business without these resources, a single lawsuit could incur expenses high enough to end your business. A few of the most common lawsuits raised against businesses include:

Bodily injury

Copyright infringement

Property damage

Wrongful termination

Breach of contract

While you won’t have a full team of lawyers to fight for you in the courts, you can protect yourself by having a single representative on retainer and proper insurance coverage in all liability areas. The cost of having numerous policy types can add up quickly, but it will likely still cost far less than a successful (or even an unsuccessful) lawsuit against your business. Liability insurance policies that many small businesses have to include:

Workers’ Compensation Insurance– Workers’ compensation covers medical expenses and missed wages when an employee experiences a workplace injury or develops an occupational disease. This insurance not only protects you against employee injury lawsuits, but it’s legally required for most U.S. businesses.

CGL Insurance– CGL insurance, meaning commercial general liability insurance, covers claims of third-party bodily injury, third-party property damage, and advertising injury. Read more.

Errors and Omissions Insurance– Also called professional liability insurance, this policy covers legal defenses if you or an employee is accused of negligence, inadequate work, inaccurate advice, and malpractice.

Product Liability Insurance– This form of liability insurance deals with injury claims resulting from the use of a product your company designed, produced, distributed, or sold.

Business Interruption

If a fire or natural disaster destroys or severely damages your property and you have to repair or replace the damaged structures or equipment, you’ll likely have to shut down operations for the time being. Other occurrences, like severe weather or civil unrest, can also force your business to close temporarily.

Business interruption insurance compensates for your lost income in these situations. It can also help cover the costs of moving to a temporary location, payroll, and taxes, depending on your policy.



It’s impossible not to use computers and technology in a modern-day business. In today’s cyber threat landscape, over two-thirds of companies with fewer than 1,000 employees have experienced a cyberattack, and about 60 percent of small businesses go out of business after such an attack. Luckily, there are several ways to protect your business from criminal cyber activity:

Investing in Advanced Cybersecurity Software– Your anti-virus or endpoint security system is your first line of defense against an online attack. Though advanced packages can be costly, the risks of not having protection far outweigh the costs.

Best Practices and Employee Training– Ensure your employees know not to click on suspicious links, can identify phishing emails, and regularly updates their passwords.

Insurance Coverage– Cyber liability insurance covers expenses that result from cyberattacks and data breaches, such as legal costs incurred when defending your business against a negligence claim after a breach leaks private customer information.

Reputation Damage


Small businesses especially need to have a favorable reputation in the community. Otherwise, locals won’t have any motivation to support your business. To help protect your brand, you can:

Have clear social media policies in place so employees’ potentially controversial social media posts don’t reflect poorly on your business

If a product is recalled, have a PR plan before that emergency happens to minimize damages.

Address complaints from employees and customers quickly and effectively.

Proactive Small Business Protection

Running a small business is challenging but far from impossible. You can avoid becoming another statistic by understanding the risks you face and how to respond to them. By being proactive, you can save your business from the common setbacks that new and small businesses face.