After extensive study of the small business model and working with business owners with less than 50 employees, we identified the fatal errors that most business owners make:

Overexpansion- taking on added overhead and the need to demonstrate revenue growth to anxious investors can all induce businesses to overextend themselves financially. Let your revenue, not pie-in-the-sky projections, dictate your hiring practices.
Poor capital structure- Look at the businesses that fail and you'll find that many of them took on too much debt. Learn to pay strict attention to your finances and keep careful records of all money coming in and going out.
Overspending- Many startups spend their seed money before cash has begun to flow in at a positive rate.
Lack of reserve funds- Failing to prepare for volatile markets and uncontrollable costs like energy-rate increases, materials, labor, natural disasters, and the like is another top reason many businesses fail.
Bad business location- Don't let a cheap lease tempt you into opening your doors in the wrong neighborhood if your gut is telling you it's not right.
Poor execution and internal controls- Poor customer service, accounting controls, and overall employee incompetence can all combine to bring down the ship.
An inadequate business plan- Your business plan is your blueprint for success. A well-thought-out business plan forces you to think about the future and the challenges you'll face.
Failure to change with the times- The only constant in business is change. The ability to recognize opportunities and be flexible enough to adapt to changing times is a key ingredient to surviving and even prospering in the toughest business climate.
Ineffective marketing and self-promotion- Customers can't walk through your front door if they don't know you're there. Learn how to cost-effectively advertise and promote your business through such tried-and-true methods as direct mail, ads in local newspapers, Web sites, blogs, even by sponsoring a local little league team.
Underestimating the competition- Consumer loyalty doesn't just happen; you have to earn it. If you don't take care of your customers, your competition will.