Cody Sanchez, founder and CEO of financial advice firm Contrarian Thinking and billionaire entrepreneur, has made a name for himself by challenging conventional wisdom and offering unique insights to the business world.
Drawing on her experience and keen analytical skills, Sanchez has identified eight types of businesses that almost always fail. Her observations are invaluable for aspiring entrepreneurs, helping them avoid common pitfalls and lead them to more sustainable and successful ventures.
So, what types of businesses should budding entrepreneurs avoid? Outlined below:
1) Restaurants
Sanchez emphasizes the statistical difficulty of running a successful restaurant — a staggering 60% fail within the first year, and 80% don’t even last four years — and the significant investment required to create a truly great dining experience.
Competition is fierce and the challenges are severe. Even established brands like Cracker Barrel need help. The company’s CEO recently acknowledged that changing consumer tastes and an aging customer base have led to declining relevance.
The revelation sent shares tumbling, and the company announced a $700 million turnaround plan to try to turn things around, but its effectiveness remains unclear.
2) Retail
In her TikTok video, Sanchez highlights a harsh reality of retail: 70% of businesses go out of business within five years. “You can’t survive in a competitive brick-and-mortar store that sells average products,” she warns.
Additionally, Aapley’s report identifies poor leadership and management as key factors in retail failure and stresses that the responsibility lies entirely with business owners.
Passion may fuel the entrepreneurial spirit, but effective day-to-day management is essential for long-term success, and the report notes that lack of experience and poor management skills are the main reasons for these failures.
3) Software
Sanchez stresses that tech giants like Facebook are incredibly hard to imitate, citing statistics that suggest a tiny percentage of software companies — fewer than one in a million — reach the level of a potential competitor.
Many of these aspiring companies need help developing products and services that have broad market appeal. Beyond the challenge of imitating the tech giants, there are many other factors that can lead to the failure of a technology company.
Failory’s report gives the example of ChaCha, a human-powered search engine founded by Scott Jones and Brad Bostic, whose decline was blamed on increased competition, especially since Google introduced its Panda algorithm, which has had a major impact on search rankings.
4) Electronics
As Sanchez emphasizes, the relentless pace of innovation in the electronics industry is a double-edged sword: on one hand it’s a dynamic and exciting field, but on the other it can be disastrous for a company to fall behind. This rapid evolution is evident in the rapid arrival of new devices, with rumors of a successor to the iPhone 15 already circulating online.
5) Hotel
Sanchez emphasizes that running a hotel requires a large capital investment. To add to the complexity, hotels also require 24/7 customer service. This challenging environment can deter entrepreneurs and make the hospitality industry an unattractive option for some new businesses.
Epos Now highlights a worrying trend across a range of businesses, with 60% failing within one year and 80% failing within five years, but the hospitality industry faces an even tougher challenge. This 10% higher failure rate can be attributed to factors such as a lack of a unique concept, poor cost control, poor food quality or substandard customer service.
6) Newspapers
The newspaper industry is dominated by large corporations, making it difficult for others to make a name for themselves. The digital revolution has undoubtedly changed the face of print journalism.
Across the country, magazines and newspapers are struggling with declining revenues and changing readership, as readers accustomed to the immediacy and accessibility of online news move away from traditional print formats.
According to a Brookings Institution report, the number of journalists at American newspapers has fallen by 39 percent since 1989. This data suggests that continued declines are inevitable, as advertising revenues spent on print media far outstrip the time readers spend reading the paper.
7) Automotive parts
Sanchez warns that many entrepreneurs in the auto parts industry stumble in the first year because they don’t have a clear strategy or a defined target market. Without a clear approach, it’s much more difficult to navigate the competitive environment and gain a loyal customer base.
According to Yahoo Finance, underestimating the importance of strategy in the auto parts business can be fatal. Many entrepreneurs fail to target a niche market or conduct thorough market research beforehand. However, there is a clear path to success. Conducting thorough market research and targeting a specific niche market is essential to avoid failure.
8) Luxury Architecture
Luxury architecture uses the finest materials, custom designs and premium finishes, goes beyond building codes and incorporates smart technology, premium appliances and fixtures. It caters to the tastes of the wealthy with upscale spaces. In contrast, regular architecture adheres to standard building codes and focuses on functionality and cost-effectiveness to meet common needs. It prioritizes practicality over luxury functionality.
Luxury construction is a business with high costs, a small market, and is vulnerable to economic fluctuations and market changes, making it a high-risk business with a high risk of failure.
The dream of starting a successful construction company can quickly turn into a harsh reality. Data from the Bureau of Labor Statistics paint a grim picture: Only 17.2 percent of construction companies founded in 2001 survived for 20 years.
This industry is full of risks and challenges, and it requires careful planning and execution to overcome the high failure rate. If you are determined to enter this challenging field, conduct thorough research and planning to increase your chances of success.
Sanchez’s insights into business downturns provide an important perspective for both entrepreneurs and investors. She empowers them to navigate the competitive business environment by identifying warning signs and pitfalls. Understanding these risks is essential to making informed decisions, whether launching a venture or evaluating an investment, that lead to sustainable growth.
