13 Reasons Why Small Businesses Fail in Nigeria

Business failure is not new in any part of the world. However, the most striking observation is that startups andsmall businesses face this problem more than big businesses. There are several statistics out there about the failure and survival rate of small businesses. For example:

  • Only 20% of new businesses and startups make it pass their first year of business operation
  • Only 33% of small businesses make it to the 10th year
  • 18% of startups crash and die within the first 18 months of starting business.

Some businesses that closed within 5 years of starting operations in Nigeria include:

  • Efritin
  • GoMyWay
  • Konga Nigeria (later acquired by Zinox)
  • OLX
  • Ranona Foods Limited
  • Showroom.ng

Whether youare a startup or small business owner in Nigeria, youmight find these statistics to be quite scary. However, don’t allow them to make youjettison or kill yourentrepreneurial morale and spirit. The most important thing is for youto understand the common reasons why small businesses fail. Thisis because if youknow the common reasons for business failure, youwill be able to avoid becoming a victim.

There are numerous reasons why small businesses fail in Nigeria, but here are the 13 major reasons.

1. Copying Other Businesses

Every small business is bound to fail if it always copies what other businesses are doing. A business needs to demonstrate originality and should not make vital business choices or decisions just because others did it. Often times, trying to imitate other businesses without doing proper consultations would do more harm than good, especially if the objective is to succeed or generate more sales.

2. Poor Customer Care/Support

When customers are not well treated or appreciated, they often become dissatisfied, leave bad reviews and patronize others. Small businesses that lack good customer care will die a natural death because they will lose many customers and prospects. When customers feel superfluous to a business, they move away to another business that would care and value them.

3. Mismanagement of Funds

Some small businesses fail because the owners mismanaged the business funds and there was no accountability. These businesses fail to account for the sales they make or what they use the cash for. Even some business owners spend their business revenue on personal or family needs. So what do you expect when the money meant for business is used up on non-business stuff? Such business will crash sooner or later.

4. Inability to Manage Changes that Come with Growth

Some small businesses experience exponential growth within a small period of time. This growth usually creates new challenges for these small businesses. These challenges include a changein financing, billing, resource utilization andtechnology. Unfortunately, if a business is unable to overcome the challenges that come with the growth, it will crash. For example, GoMyWay and Efritin went out of business within 16 months because they were unable to generate the fund required for continuous operation after growing exponentially.

5. Lack of Market Demand

Many startups and small businesses in Nigeria crash because of the lack of market need/demand for their products or services. This is why it’s important for any business to ensure that it is focused on particular products or services that are in demand and has an existent market. Companies in Nigeria that died due to this problem include Easy Taxi, Camplus and9jabookings.

6. Inadequate Financing

Inadequate funding or lack of funds is another major reason why many small businesses close down in Nigeria. A huge number of entrepreneurs make a common mistake of starting a business with no adequate operating funds. Owing to this, most business owners will get discouraged and decide to close down.

7. Poor Business Management

When a business is poorly managed, its death is imminent. Management comprises of activities such as planning, organizing, staffing, directing, motivating, controlling, co-coordinating and communicating. Moreover, knowing where your business stand every time is the fundamental rule of small business management. However, small businesses that are managed poorly will eventually go out of business.

8. No Planning

Just like the popular saying; if you fail to plan, you have planned to fail.This answers why some small businesses in Nigeria fail. Isn’t it funny that someone will start a business with no adequate plan? No simple and actionable business strategy in place. There are high chances that such a businesswill fail. A business plan is a clear roadmap that shows where a business has been, where it is currently and where it is going next.

9. Failure to Understand their Market and Customers

Nigeria is a complex country andanyone who wants to do business within the country has to understand its competitive market and the buying habits of customers. Some of the small businesses that fail don’t understand their markets and customers. They fail to know who their customers were and how much they (customers) were willing to spend.

10. Wrong Expectations

Some startup and small business owners expect money to start rolling into their business account immediately with doing little or nothing. They seem to have no idea that building successful businesses in Nigeria could be compared to running a lengthy race which takes a lot of efforts, commitments andpatience before reaping the profits. The idea of starting a business with the wrong expectations and impatience has mademany businesses in Nigeria to collapse within a short period of time.

11. Reactive Attitudes

Several businesses have failed in Nigeria because their managers or decision makers have failed to react to technology, competition and/or market changes. Small businesses that refuse to change and remain innovative will fail and become irrelevant in their respective markets.

12. Lack of Focus

Investing in many things almost at the same time is not healthy fora business. For you to serve your customers very well, your focus must be on product quality, delivery and follow-up. Some small businesses will run out of cash and become unprofitable because the owners started projects that are not part of their business models. At the end, they will have to close down business. There are times when it’s necessary to say NO to additionally projects (new products or services) in order tofocus on quality rather than quantity.

13. Inability to Communicate Value

Some small businesses fail in Nigeria because of their inability to clearly define their value propositions — that is, they fail to understand and communicate their products or services to consumers effectively. These businesses will go out of business because there are no connections between the value they provide and what the market needs.

Starting and running a business successfully is not easy andthe owner of a business has a great role to play in the success of the business. Failure should never be accepted as an option. So if you can navigate your business around those 13 major problems as well as have the right mindset, drive and determination, you’re on the right path to building a successful business.

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