The origins of small business failure : A Taxonomy of Five Explanatory Business Failure Patterns

Whereas it is obvious that the failure process can vary from one firm to another (Argenti, 1976; D'Aveni, 1989; Laitinen, 1991), to date, few researchers have worked on the detection of several explanatory failure patterns. In addition, none of the reviewed research really focuses on small firms while their failure is important and particular (Haswell and Holmes, 1989).
Considering these observations and on the basis of two complementary statistical analyses (Thiétart, 2003), this paper identifies, among a sample of 208 small distressed firms, a taxonomy of five explanatory business failure patterns, i.e. five homogeneous groups of small firms on the basis of the reasons for their failure. These five patterns are the following ones : shocked firms (1), firms serving other interests (2), apathetic firms (3), firms that fail after a punctual managerial error (4) and badly-managed firms (5). The results of this paper are consistent with previous literature but they shed new lights on the understanding of the reasons for small business failure.
As the detection of the fundamental explanatory failure factors is the basis of failure prevention (Argenti, 1976), the identification of these patterns is of crucial importance for a better understanding and for a better prevention of this phenomenon.