Why Some Businesses Fail (and How to Ensure Yours Doesn't) This article is part of our “Business Startup Guide” – a curated list of our articles that will get you up and running in no time!

As I walked into our building last Thursday morning at 7, I noticed some unusual work going on in the restaurant on the first floor. Locksmiths were busy changing the locks and securing the doors. It was an odd time have maintenance done, but I didn’t think too much of it.

Later that day, as I walked out to lunch, I saw the vegetable delivery sitting outside the locked doors of the dark restaurant. While the tables were set with their tablecloths and wine glasses from the end of service the previous evening, not a single light was on, and the open kitchen in the back was dark.

Clearly, something wasn’t right.

That evening, as I left the office, a note was taped to the door: “Closed until further notice.” The wait staff for the evening huddled in the entryway, obviously surprised at the abrupt closing, complaining about the lack of business sense the restaurant management had and wondering if they were going to get paid for the previous week’s work.

While it’s always a surprise to see a business close this suddenly—the tables set for guests that won’t be coming, the kitchen ready for food that won’t be prepared—it wasn’t a total shock to see this particular business close.

Over the course of the past year, my coworkers and I had been wondering how long this restaurant would stay open. We watched the restaurant sit empty at lunch, and noticed that only a few diners appeared for dinner, once initial interest from the local community had worn off. While we never want to see any business fail (after all, our business is built on helping entrepreneurs find success and growth), watching it happen in front of our eyes reminded us of some key lessons all businesses can use. Lessons that not only help avoid failure, but that can build the foundation for a robust and growing business.

But before I dive into these critical lessons, it’s important to remember that all business success is built on three core tenets:

Your target market has a specific problem
Your business provides a solution to this problem
You have a target market that is well-defined and big enough to support your business

This particular restaurant didn’t fail because they lacked one of these critical pillars of business success. It actually had all of them. From an outsider’s perspective, here’s what I observed:

Problem: There aren’t many places in our town to have a good business lunch or a nice dinner.
Solution: A moderately upscale restaurant with unique farm-to-table cuisine, cooked by an experienced chef, serving business lunches and elegant dinners.
Target Market(s): A thriving business community within a 3-block radius and a foodie population willing to spend big-city dollars on a good meal.

While I’m not a restaurant expert, from the outside it appeared that this restaurant had all the ingredients for success. I was excited for it to open and heard from many people that they were eager for a newcomer to provide some competition to the primary alternative, an expensive French bistro.

But, despite having the key ingredients required for success, this restaurant failed. Here are the lessons that would have helped save this business and that can also help others as they search for success:

1. Make friends with your customers

OK, your customers don’t have to be your best friends, but you do have to enjoy having them in your place of business. After all, your customers are the lifeblood of your business. You should enjoy seeing them come in.

How you feel about your customers shows. If you’re excited to see them and welcoming, your customers will feel good. They will feel like they have come home to comfortable place and will be more comfortable. My completely unscientific theory is that a happy, at-home customer will spend more.

And your loyal customers should get special treatment. They don’t need free food and drinks, although that’s always nice. Oftentimes, just remembering customers’ names and greeting them like an old friend is enough.

Our failed restaurant didn’t make friends with its customers. Because our business is in the same building, we inevitably had several meals there. But, despite being in the same (small) building and being regulars, we were never greeted with even a hint of recognition. We felt like we weren’t welcome, so we stopped going.

2. Listen to your customers

When you have customers that are “friends,” you have an enormous asset: a group of people who are willing to tell you what is working and what isn’t. Most casual customers aren’t going to give you the honest truth—they’ll just grumble on their way back to their cars. But customers that you can ask for feedback and ideas for improvement are incredibly valuable.

Beyond just friendly customers, it’s critical to listen to what people are saying about your business (and your competition) on social media and review sites. It’s amazing how many businesses either don’t pay attention to what is being said about them, or, if they are listening, how many businesses simply don’t respond.

What’s great about social media today is that it’s a two-way street. While customers have open forums to write reviews and critique businesses, business owners have the ability to write back and try and resolve issues.

Our failed restaurant had a Yelp page full of suggestions for improvements as well as customers who had made in-person recommendations. Yet, those Yelp reviews went unanswered and suggestions for changes in the menu were ignored.

A business owner that is open to criticism can leverage social media comments, even if they’re critical of their business, into a source for new ideas and ways to change the business. Which leads us to the third lesson…

3. Change and adapt when things aren’t working

If things aren’t going well, listen to your customers and be willing to change and adapt. This is tough medicine for most entrepreneurs who have a vision of their business and how the future is going to unfold. But, having the ability to let go of that vision or to modify it is crucial for long-term success.

If customers don’t want what you have, then you need to figure out what they do need and want and cater to those needs. It’s almost always possible to change and adapt to your current situation without completely losing sight of the long term vision for your business.

Our failed restaurant unfortunately refused to change. Despite mixed reviews that cited inconsistent and unwelcoming service, no real changes were made to the front-of-house staff. Despite feedback that the lunch menu wasn’t working for the local business crowd, the menu stayed fundamentally the same.

Meanwhile, as a counterpoint across the street, a new gastropub made massive modifications to its menu and ditched its high-tech (but flawed) dynamic beer pricing, and has since enjoyed solid success. (Yes, this pub had demand-based beer pricing that constantly changed on digital screens. Interesting concept, but one for a different blog post.)

4. Don’t waste money on things customers won’t notice or care about

I’ll never advocate for cutting corners on things that really matter to customers, but too often I see businesses get distracted by things that aren’t core to the solution they are providing to their target market.

In this specific case, thousands of dollars were spent on custom-made, imported light fixtures. While they are certainly cool lights, this entrepreneur lost sight of the core solution he was trying to provide: great food in a good atmosphere. The lights were not only a distraction, but wasted money. Restaurant customers don’t come back to a restaurant because of great lighting. They come back because the food is good.

The key lesson here is to not lose sight of the problem you are solving and the solution you are providing. As you get started and are learning from your customers and adapting your business to feedback, ask yourself, “Is this thing critical to providing the solution I’m offering?” I think you’ll find that more often than not, the answer is no.

Business failure is always sad to see. But, if we can at least learn from these failures and share our findings, hopefully more businesses will survive and thrive in the future. If you have other tips to help businesses grow, I’d love to hear about them in the comments.