Failure of very small businesses: a study of the causes of failure

Abstract

Failure represents an economic phenomenon feared by all entrepreneurs, particularly very small enterprises that fail to meet their obligations after a series of difficulties (Charreaux, 1996). Statistics show that VSBs have the highest failure rate, with more than 98.9% of failures in 2020 (Inforisk, 2020).

This article questions the main causes of TPE failure in Morocco. To identify these causes, a questionnaire was sent to more than 2000 experts and specialists, with 386 responses received. The comprehensive data collection process ensured a diverse range of insights from various regions and sectors. Data analysis, carried out with SPSS and R, reveals two main categories of causes: those related to the start of the activity and those appearing during the activity. This methodological approach allowed for a detailed examination of the factors contributing to business failure at different stages of the business lifecycle.

The results of this study highlight that the main causes of the deterioration of TPE activity can be grouped into two main categories. The first includes factors that manifest themselves from the launch of the activity, such as insufficient equity, competition, and sector choice. These initial challenges can set a precarious foundation for the business. The second category includes causes that emerge as the activity progresses, notably insufficient financing, payment delays, and low profitability. These ongoing issues can erode the business’s stability and sustainability over time, making it difficult for TPEs to thrive in a competitive market.

Keywords : Micro-enterprises; failure; causes; start-up phase; operational phase.

JEL Classification : L25, L26, G33, D22.

Paper type : Empirical research.