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The Small Business Dilemma-Why Small Businesses Fail (Part 1):
In the last ten (10) years, I have been able to speak to and work for hundreds of micro, small and medium scale enterprises. During this time, I have seen similarities amongst these entrepreneurs. One striking similarity, is the passion that is always evident when an entrepreneur is describing the inspiration behind his or her business model and why the model was on the verge of heralding “the next big thing”. Sadly, passion and ‘big talk” are not often enough to help small businesses survive the first twelve (12) to twenty four (24) months of their business life. The jury is still out as to what percentage of start-ups or small businesses fail within the first two years of commencement of business operations. While some researchers have put it at between 80%-90%, some others have put it at about 50%.
Following my experiences with small businesses especially here in Nigeria, I will outline a few reasons why I believe small businesses fail and what they can do to survive the first few years of possible turbulence.
The first part will focus on why start-up/small businesses fail. The concluding part of this write up will focus on what small businesses can do to survive their early years.
Why small businesses fail:
- The quality of the idea:
One of the main reasons why small businesses fail in Nigeria is as a result of the quality of the idea that births the business model that is taken to the market. Most often than not, entrepreneurs do not subject the quality of their ideas through the required rigor and stress testing before taking it to the market. It is important to note that a business idea that is not profitable and sustainable is not worth taking to the market no matter how innovative and exciting it sounds. The number one aim of a business is profitability and the seed that births profitability is the idea that is translated into a business model.
- Motivation and Passion is not always enough:
In today’s Nigeria, motivational speaking and inspirational talk appear to be the new “cool” and as such many entrepreneurs find themselves listening to a lot of these speakers as they attempt to start or reposition their businesses. While there is nothing wrong with the activities of motivational speaking and “coaching” the truth is that the reality of starting a business goes beyond the excitement that comes after being exposed to a “think big, dream large” session or a “don’t walk on the earth start from the sky” message. There are many other things that must support one’s passion or excitement such as technical competence/skills, structured execution of strategy, effective cash-flow management, hiring the right people for the right roles at the right time to mention a few. These elements when mixed with passion, energy and excellence in the right business environment will help a great deal in achieving success.
… to be continued
Chukwuma Nwanze is a Fellow of the Institute of Chartered Accountants of Nigeria (ICAN). He holds an MBA from the prestigious Warwick Business School, University of Warwick, Coventry, United Kingdom. He is an alumnus of the Lagos Business School, Lagos, Nigeria, Nanyang Business School, Singapore and the Stellenbosch Business School, Cape Town, South Africa.
Chukwuma is the founder of Arkounting and has consulted extensively for Micro, Small and Medium Enterprises for over a decade.
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