Evolution of Business Failure Mode and Effects Analysis (BFMEA): A Strategy to Reduce Failure Rates of Small Technology Businesses (STBs)

Small businesses are the backbone of the U.S. and global economies but face alarmingly high failure rates. Despite their critical role, a holistic framework for proactively identifying and mitigating the causes of early-stage business failures remains limited. This study addresses this gap by introducing the Business Failure Mode and Effects Analysis (BFMEA) framework - an innovative, structured methodology tailored to reduce failure rates among small technology businesses (STBs), a key subset of the small industry sector. Drawing inspiration from the traditional Failure Mode and Effects Analysis (FMEA) used in product development, BFMEA adapts its principles to the business context, integrating both financial and non-financial risk dimensions. The business framework prioritizes failure modes based on the severity of their financial impact and the value they deliver, addressing significant limitations of traditional FMEA approaches. Employing the elaborated Action Design Research (eADR) methodology, the study evolved the BFMEA theory, and the artifact progressed through diagnosis, design, and iterative implementation stages. Collaboration with academic experts and STB practitioners was central in shaping and refining the BFMEA worksheet artifact. Real-world feedback from initial implementations revealed the tool's practical utility in improving business resilience and reducing risk exposure. Additionally, the framework offers value to investors, such as venture capitalists and business angels, by serving as a pre-investment risk assessment tool. The study highlights the effectiveness of academic-practitioner collaboration in evolving applied solutions and positions BFMEA as a scalable, cost-effective approach for enhancing the long-term sustainability of small enterprises.