The business landscape in Africa is a precarious one, especially for newbies. It’s an unforgiving terrain where quite a number of factors appear to conspire against businesses and their owners. Government policies, lack of funding, and a host of other factors are usually thrown up as being reasons for this. Many opine that it is twice as difficult to build a business here than in other parts of the world.
The Statistics
According to available statistics, in South Africa, 50% of small businesses fail within the first 24 months of launch, while between 70% and 80% of small businesses fail within the first 5 years.
According to The Better Africa report by Weetracker, failure rate for start-ups in Nigeria, Africa’s biggest economy, has averaged 61 percent between 2010 and 2018.
Across the continent, the top 10 countries that have experienced the highest incidences of shutdowns among start-ups are Ethiopia (75%), Rwanda (75%), Ghana (73.91%), Zimbabwe (66.7%), The Democratic Republic of the Congo (66.7%), Tanzania (62.50%), Nigeria (61.05%), Senegal (58.3%), Somalia (60.0%), and Kenya (58.7%).
Consequences on the Economy
With the failure rate pictured above, the impact this has on the economies of the countries is obvious. Loss of capital, depression, which then leads to suicidal tendencies, and even crime, are some of the resultant effects.
But what exactly is usually responsible for a business folding up? According to Wole Oluyemi, a senior finance expert and business coach, the absence of funding is usually not the only cause of business failure.
He posits that the presence of funding may even be an encouragement for a business to fail, especially in the absence of a clearly defined business model.
He goes ahead to list ten causes of business failures:
1. Producing a product or service that is not needed by the market: Some startup founders do not conduct a thorough market survey to see if there is really a demand for the product they have in mind. They thus end up releasing a product but without patronage, which ultimately signals the death of such a venture.
2. The inability to have the right team or having a dysfunctional team: According to Oluyemi, some founders end up partnering or bringing in other team-mates who are either not passionate about the business or simply just square pegs in round holes.
3. Poor pricing strategy: Some business owners do not adopt the right pricing strategy, either due to a lack of understanding of the market or in a bid to draw in sales. Either way, this ends up affecting the business.
4. Poor product – quality issues: Quality, he says, is another issue that could cause the death of a business.
5. Poor marketing. It’s not just about advertising: The soul of any business is its customers. Where there is no effective integrated approach to marketing, the business tends to suffer in the long run.
6. Bad location: According to him, location is another critical factor that may make all the difference in the lifespan of a business. If a wrong or bad location is chosen to situate the business, this will no doubt go a long way in determining how long such a business stays.
7. Legal issues. Not having proper legal agreements for transactions: To avoid this, a careful and deliberate effort must be set in motion to ensure that all legal aspects of the business and sales are well covered.
8. Ignoring Customer Feedback: When business owners refuse to listen to the feedback of customers, then such a business may be heading ultimately to extinction.
9. Not moving with technological innovations or changing lifestyles: Businesses that do not adapt to the changing times, he says, will ultimately die as they will be behind in innovation and change.
10. Leadership not understanding their finances: This may include overtrading or poor working capital management.
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