Business owners start their businesses with so much excitement, energy and optimism; the possibility of failing is not something anyone wants to consider. But, findings have revealed that a high number of small businesses in Nigeria fail within a year of their establishment.
Small Business Administration, a research institute in the US, published their findings in 2018 and it showed that about one-fifth of start-ups fail in the first year. In Nigeria, the statistics is likely to be a lot higher. Why is it so hard for businesses operating within Nigeria to survive longer than a year?
Why many small businesses in Nigeria fail
Nigeria’s harsh economic climate
Nigeria’s harsh and unfriendly economic climate make it tough for businesses to thrive. Nigeria is ranked 131 among 190 economies in the ease of doing business, according to the latest World Bank annual ratings. The rank of Nigeria moved up 15 places to 131 in 2020 from 146 in 2018. Ease of Doing Business in Nigeria reached an all time high of 170 in 2014 and a record low of 120 in 2008. Though, Nigeria has moved up in the rankings, has the processes of doing business in Nigeria really improved? From findings, this is not always the case.
The harsh and very unfriendly economic conditions in Nigeria makes it tough for businesses to thrive; the poor road and power infrastructure, high taxes, unfriendly business policies, insecurity, to mention but a few.
Lack of a thorough market research
Prospective small business owners should go into ventures armed with the right information, conduct a thorough market research and don’t live it to faith and prayer alone. You need to ensure that there is a market for your product, before any other thing.
Starting a business for the wrong reasons
Aspiring entrepreneurs should always think of the right reasons for starting a business. Don’t start a business because you don’t want to work under someone else or say “Yes Sir” to a superior, or because you don’t want someone else to control your time. If your sole reason for starting a business venture is because you want to make lots of money very quickly, or because you have been without a job for so long and you are tired of being in the labor market, those are not good reasons for starting a business, either. Start a business because you have a passion to own your own business and after conducting a thorough market research, you are certain your product or service will fulfill a real need in the market.
Laziness, lack of drive and determination.
Small business owners who are lazy, negative and lack drive and determination will likely not succeed in their business venture. Hard work, positivism, self-motivation and patience are essential qualities to build a thriving business.
Poor Management of resources
Another major reason why small business owners in Nigeria fail is poor management of resources. Startups that lack relevant business and management expertise will not survive for too long. As a business owner, you need to separate your business account from your personal account. Be frugal with your resources.
Lack of business and management expertise
This is closely linked to the last point. Lack of business expertise can lead to poor management and this can result in the failure of your business. New business owners generally have passion and creativity but sometimes lack relevant business and management expertise in areas such as finance, negotiation, marketing, production, hiring and managing employees. If the business owner does not recognize what they do not do well and seek help, the company may fail and go out of business. To remedy this, small business owners can educate themselves on skills they lack, hire skilled and knowledgeable employees to manage the areas they are not good at, automate using soft wares such as accounting software and the like.
Lack of a comprehensive business plan and vision for your business
Many newly established businesses fail because of not having a realistic, strategic and carefully thought out business plan and vision for the business. Your business plan should include components such as a description of your business goals, financial and budgeting plans, your business model, analysis of the competition; among others. It is crucial for ALL businesses to have a business plan. In addition, most banks request a business plan if you are seeking to secure a loan for your company.
Small businesses also fail as a result of low operating capital. New business owners often make the mistake of underestimating how much money they will need to start and run the business and have unrealistic revenue expectations. Businesses take years to break even (that is when your sales/revenue can fully cover your operating costs), so you need to have the money to run the business and to stay in business. Getting loans in Nigeria have been difficult until recently. Now it is quite easy due to the advent of many financial loaning institutions springing up in the country and the directive of the Central Bank of Nigeria’s to all Nigerian banks.
How we can help …
At Mentor Nigeria, we know scaling and optimizing your business in the Nigerian environment can be challenging, Mentor Nigeria’s training academy and mentorship services ensures your entrepreneurship journey is made easier. Mentor Nigeria is dedicated to improving the way Nigerians do business. We are committed to bridging the skills-gap among aspiring and young entrepreneurs by conducting training programs in business, entrepreneurship and management. Mentor Nigeria provides mentorship services and grants to support young and aspiring business owners.
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