If you have been running your business for the past 5 years, of course, you have achieved what 80% of startup founders in Nigeria couldn’t do.
A study shows that only 1 out of 25 businesses that started together in Nigeria survive after 10 years, while about 80% fail within the first 5 years.
This is a freaking 96% and for aspiring entrepreneurs, they have every reason to feel nervous.
But what might be responsible for this huge failure rate?
Well, continue reading.
In this post today, I will walk you through 5 reasons startups fail in Nigeria and of course, how to avoid the pitfalls.
But first, let take a look at the failure rate in other countries.
According to data from the US Bureau of Labor Statistics, 20% of small businesses fail in their first year, 30% fail in their second year, 50% in their fifth year while 70% fail within their 10th year.
In the UK, the Office for National Statistics found that only 91% of small businesses survive after the first year of trading in some industries but after 5 years, 60% will fail.
But in Canada, 96% will survive in the first year, 85% will survive the third year and 70%, the fifth year. This shows a failure rate of 4%, 15% and 30% for the first, third and fifth year respectively.
All these stats show that this is not just a Nigerian thing but a global concern.
The only difference is that the failure rate in Nigeria is quite higher after the 10 years unlike in other countries.
And in this post, I x-rayed why this so.
So, let get started.
Top 5 reasons businesses fail in Nigeria
Of course, there are a lot of reasons businesses fail in Nigeria, this post compiled the top 5 reasons and of course, in no particular order.
If you find the post useful, kindly share it to your friends on social media and I will be super grateful.
So, let’s dive in.
Lack of mentorship
Generally, 96% of new businesses fail in Nigeria after 10 years, but there is an exception.
A recent study found that 70% of mentored businesses survive more than 5 years. Of course, when you compare this with the 35% survival rate of non-mentored businesses over the same period, it is truly stunning.
Another study found that 89% of business owners who don’t have mentors regret not having one while a different study shows that 84% of business owners with mentors have avoided costly mistakes.
And, also increased revenue by 83%, unlike non-mentored businesses that do so by 16%.
The truth is a good mentor will help set the right direction for your business, define critical tasks and then guide you towards meeting those goals.
Luckily, you can get one for free.
Deficient market intelligence
One huge mistake a lot of young people make in Nigeria is to dive into entrepreneurship without actually sorting out their market, the marketing and sales first.
Of course, these are three different things and deficiency in any would be catastrophic for any business.
Before starting your business, you need to understand your target audience, their pain points, what makes them buy, how they prefer to be reached and importantly, their disposal income.
Again, you need to know the people you will be competing with, how they are reaching and retaining their customer base and key areas that need improvement.
After sorting this out, you need to develop a clear marketing strategy.
But another mistake a lot of people make is that they focus on marketing without paying much attention to sales.
In an era where average consumers require omnichannel touch-points to convert, this is a no-no.
This is because what marketing will do for you is to get the message out to the right people, build the interest, initiate the conversion journey, water the ground and maintain the relationship.
But all these don’t matter without conversion and this is where sales skill come in.
And sadly, a lot of young entrepreneurs focus efforts at developing great products than actually finding ways to sell them.
Problem of funding
Lagos boasts local entrepreneurship that worth about $2 billion beating Johannesburg ($1.36 billion) and Cape Town ($172 million) as the most valuable ecosystem in Africa.
Despite leading the bulk of startup investment in the continent, one of the major challenges the Nigerian startup ecosystem faces is that of funding.
For instance, out of the multitude of active startups in Lagos, only 58 were able to secure funding in 2018 and less than 20 of these firms dominated funding within the past years.
Some of the reasons people cite for this is that a lot of investors expect that the entrepreneurs have businesses with good enough active customers, generate a certain amount in revenue and have a formidable partnership or on the verge of establishing one.
Of course, achieving this in an environment where the cost of running a business is one of the highest in Africa is quite difficult.
But a study shows that companies participating in ecosystem support programs are 23% more successful in securing investment.
Issue of profitability
Of course, businesses require a constant stream of revenue to continue operations, but sadly, only 40% of small businesses make a profit.
A study shows that 40% of small businesses make a profit, 30% come out even, and the remaining 30% lose money. A different study found that 84% of small businesses reach profitability in their first four years.
Now the question is, how many businesses can survive 4 years without profits.
Of course, only a few.
And the problem, most of the time is poor management of cash flow and unfortunately, most startup entrepreneurs in Nigeria lack basic accounting skills.
The truth is…
“poor accounting practice puts a business on a straight path to failure”.
Every business has leadership positions, but that is not enough to navigate them through the murky water, of course, what is needed is leadership as a skill.
And unfortunately, only a few business owners can boast of this quality and this has been responsible for some of the business failures in Nigeria.
Leadership is the art of motivating people to act towards achieving a common goal.
According to Susan Ward, effective leadership is based upon ideas; whether original or borrowed, but which are communicated to others in a way that engages them enough to as act as the leader wants.
Dysfunctional leadership will affect every aspect of the business especially, employee morale and once productivity is down, failure will become inevitable.
How to grow your business even in the midst of failures
In the midst of failures, how do you grow your business or start your new business?
Of course, it is simple.
At Mentor Nigeria, we help people to transform their life experiences, talents, skills, education and their passion into a highly successful story as an entrepreneur millionaire.
We work with young Nigerians to help them to create businesses that are scalable, repeatable and profitable, scale it and then link them to the right investors.
You can get started by attending our free seminars to learn what this opportunity means for you as an entrepreneur or aspiring one.