11 Common Causes of Business Failure in Nigeria and Solutions
What Causes Business Failures in Nigeria?
It is said that about 80% of Small and Medium Enterprises (SMEs) in Nigeria fail within the first year of operation.
In the United States, however, statistics show that about 20% of small businesses fail in their first year. 30% of small businesses fail in their second year and 50% of small businesses fail after five years in business.
The statistics above show that while 80% of Small and Medium Enterprises close in the first year of operation in Nigeria, only 20% of SMEs in the USA close in their first year. The larger numbers of entrepreneurs in that country make it into the fifth year and even seventh year before they close down.
Why is there such a short life span for SMEs and even start-ups companies in Nigeria?
What causes the high rate of business failure in Nigeria?
There are so many factors that contribute to the low rate of survival for businesses here in Nigeria.
If I were to ask you for your opinion, it is likely your mind would easily go to lack of funding.
Yes, funding is very crucial to the success of a business. In fact, without needed funding, a business can hardly survive.
But there are many other causes of entrepreneurial failure in Nigeria other than lack of funding.
That explains why some start-ups even after being raising hundreds of thousands of dollars still close down untimely.
Most of the materials I have come across on the internet about the causes of entrepreneurial failure in Nigeria do not address the real issues entrepreneurs face.
Based on my experience working with entrepreneurs and start-up founders, and my own little experience in business, below are some of the most common reasons businesses fail in Nigeria and some of the recommended solutions:
- Lack of clear strategy
Simply put, a strategy is the set of actions and choices you make as an entrepreneur in order to achieve your specific business objectives.
Explained in more details, a strategy is your master plan. The management of a company implements a master plan in order to secure a competitive position in the market.
They ensure to carry out its operations, please customers and ensure they achieve the desired objectives of at the business.
Obviously, many of the failed businesses in Nigeria do not take their time to come out with a proper business strategy for their businesses.
If your strategy will be any effective, there must be a strategy at different levels of your business i.e. operational strategy, co-operate strategy, business unit strategy etc.
This is so that every unit of your business knows what is expected of them in contributing to the overall goals of the business.
Do you have a business strategy?
Most SMEs businesses in Nigeria do not give much attention to developing a clear strategy, hence their failure.
These 6 ways to create an effective business strategy will be of great help.
A solution to this problem is to have a clear business strategy even before launching a business that will guide you as you carry out your day to day activities.
It’s no rocket science. Simplify it as much as you can, identifying actions and decisions needed to achieve specific goals.
Like I always say, Google is your friend. So if you have any problem coming up with a strategy for you, why not consult Google.
Lack of needed finance is one of the common causes of failure for entrepreneurs in Nigeria.
Whether you run a service business or you are into manufacturing or even a tech start-up owner, you need funds to keep the business running.
Some people are of the school of thought that much can be done without funds when starting a business. Technology has made it easier for businesses to be done with little or no funds.
For example, consider an entrepreneur who wants to start a beauty store. Instead of looking for money to rent a shop and money to buy items in the shop, all he needs to do is to open an Instagram account, download and upload sample images of the items and put their prices on-page.
Once an order is made and payment is done, he could then go and buy the item and then sell to the customer.
This is a typical example of where an entrepreneur does not necessarily need external funds for his business.
For other kinds of businesses, however, you may need a huge amount of money to start and more importantly, grow a business.
Lack of such needed funds is one major cause of the majority of businesses in Nigeria closing prematurely.
As a solution to the problem of inadequate funds, there are various legit ways you could get funds for your business without necessarily borrowing from a bank – you certainly shouldn’t do that.
Another thing you could do is to cut down on your expenditure. Reduce your overhead drastically.
When newly starting a business, instead of using your little profits to pay your bills, why not save some money for such expenses even before starting your businesses so you don’t mismanage your funds.
Some people have decided to still maintain their 9-5 so they could save a reasonable amount of funds to start their business.
- Incompetent team
Who are your team members? Are they competent to handle their different roles?
Incompetent team accounts for business collapse for many SMEs in Nigeria.
What makes a team incompetent? Mismatched skills, lack of experience, etc.
These recruitment strategies by Talentlyft will guide you in hiring the right team for your business.
Hire the right team. With your goals and objectives as a guide, hire guys with the right mix of both top soft skills and technical skills. Emotional intelligence is about the most important soft skill you should look out for.
Your employees must be on the same page with you when it comes to the goals of the business. Commitment is key.
Most businesses, especially start-ups cannot afford to get the best guys on their team. This boils down to fund again.
If you have the funds, even if it costs more to have the most qualified person in your team, please get them.
- Poor Execution
Like every aspect of our lives, the execution of your plan is what will guarantee your success in achieving the desired outcomes.
Many businesses fail in Nigeria because of poor execution or implementation of strategic goals.
Where your business needs technology to be deployed to achieve certain outcomes in your strategic goals, deploy the technology.
If your business needs a certain type of skilled team members, do what it takes to have them on board.
If your business requires certain funding to achieve specific goals in your strategy, pump in the finance.
Whatever is required of a business to carry out its plans should be met. This is what execution means.
- Fierce Competition
Do you remember that famous house-hold brand that used to be very popular back in the day?
What happened to them? They appeared to be doing so fine at the time and then suddenly, they are nowhere to be found.
There are many examples of famous failed companies in Nigeria but I will not mention any names here for obvious reasons.
If you do your finding well, however, you will find that there was nothing internal that went wrong, fierce competition sent them packing.
Nigeria has a population of over 200 million. So whatever business idea you may come up with, chances are, some other persons have the same or similar ideas up their sleeves.
If your competition has more money, a more competent team, and a well-implemented strategy than you do and are generally more aggressive, the bitter truth is that they may send you packing.
- Change in consumer taste and interest
Change in consumer taste is almost always beyond the control of businesses and is inevitable.
Consumer taste changes from time to time without giving notice to any business.
If for reasons best known to them, your consumers change their taste and interest and no longer see your products or services as their choice, if care is not taken, it may cost you your business.
Investing in consumer data is one of the solutions to this common problem SMEs face.
According to SearchCIO, consumer data is
“The information trail customers leave behind as a result of their Internet use. This data, which sometimes comprises personal information, comes from such sources and channels as social media networks, marketing campaigns, customer service requests, call centre communications, online browsing data, mobile applications, purchasing history and preferences, and more.”
These 8 Ways You Can Get Data You Want from Your Customers will give you some insights into consumer data and how you can solve the problem of change in consumer taste and interest.
- Unfavourable government policy
In Nigeria, government policies hardly favour entrepreneurs. This factor combined with other business challenges is responsible for small and medium scale business failure in Nigeria.
Excruciating tax obligations demanded by Government can kill a new business.
Other policies that may not favour a business maybe a ban on products or raw materials for manufacturing a product etc.
- Poor leadership
Lack of or poor leadership skill can cause a business failure too. There are some Top Skills Smart Entrepreneurs must-have. Leadership skill is one of them.
A business leader must possess all of the following skills:
- Communication skill
- Commitment and passion
- Honesty and integrity
- Creative and innovative
- Emotional intelligence etc.
- Lack of passion
If you to be successful in anything, a measure of passion for that thing is required. The same applies to small and medium scale business.
Whatever business you may be doing, it will definitely have its ups and downs. Passion is what will help you stay true to your business when things are not looking too good.
Without such passion, discouragement may set in quickly giving room for failure.
Make sure whatever business line you may be venturing into interests you and even gets you excited. Otherwise, you know the consequences.
- Lack of patience
Nigerians are some of the most impatient people in the world.
We are always too much in a hurry to see results and celebrate our success.
Businesses, however, require a certain time frame for it to grow and attain success. If you are not patient enough to allow your business to take its full course, then, too bad for you.
The sad thing is that a lot of business close down at the verge of success, unknown to the entrepreneurs.
- Other Factors
There are other causes of small business and start-up failure in Nigeria. It’s time for you to contribute your quota.
In your experience as an entrepreneur, what do you think causes businesses to fail in Nigeria? How are you coping with these challenges?
Feel free to share your thoughts, we would love to read them.