Africa has one of the highest rates of new business start-ups. Every day someone is starting a new business somewhere In Africa because, it is quite easy to start new businesses in Africa. There are fewer regulations for new business start-ups in Africa compared to other parts of the world. However, many of these businesses die within the first five years in existence while those that survive do not grow above the sole proprietorship level.
I have started several businesses in the past two decades. Some failed and while some succeeded. From my experience and from the experience of others, I bring you 16 reasons why many businesses fail in Africa and how you can avoid them.
1. Failure to write a business plan before starting the business
The need to write a well-defined and comprehensive business plan before starting any business cannot be over emphasized. You are not supposed to start a business in the first place when you do not have the right capacity to start it or when the raw materials needed for that business are not within reach. When you subject your business ideas to the test of a business plan, you will know whether or not they are worth pursuing. See my previous article on how to write a unique business plan on my website.
2. Poor leadership
Your business will not grow if you don’t empower your subordinates and staff by means of training, motivation, proper communication, delegation of duties, etc. Entrepreneurs should strive to improve their managerial skills more so when the number of their staff increases. Get a good business mentors, read good books on leadership, attend seminars on leadership. According to John Maxwell, everything rises and falls on leadership. The reason for your business failed or is stagnated can be summed as: poor leadership. Every other factor emanates from this. Good leadership is the ability to always make the right decisions that will make your business venture to succeed.
One common thing among entrepreneurs in Africa is that they are in haste to start taking money from a business that they just started. I know that it is not easy not to start using some profits from a business to carter for our family needs due to the environment we find ourselves. However, bear in mind that it is better to reinvest profits into the business until the business has gained some form of stability. Even when the business has gotten some form of stability, profit taking should be very minimal. Many successful entrepreneurs I know do not start taking profits from their business until after five years.
4. Lack of determination & Persistence
To successfully start and keep a business running and profitable is not an easy task. It takes determination, courage and persistence, else you will be discouraged. There are many sacrifices you must make as an entrepreneur especially at the early days of the business. You must be determined not to give up until you see the business successful.
However, many entrepreneurs give up too easily because of their initial failure or difficulty.
5. Lack of focus & foresight
This is one of the greatest hindrance to business success. If you are not focused as an entrepreneur, you will not succeed in business. You must shun distractions. In your mind’s eye you should always see the great future of your business. Many African entrepreneurs start one business today and the next year they see people going into another business that they perceive to be more profitable and then they abandon their earlier business to pursue the new business in town. You cannot succeed this way. You need to stay with a business for at least five years if you are to make anything meaningful from it.
6. Lack of funds
When you don’t have funds needed to keep your business running, the business your business operations will encounter a dead lock. As an entrepreneur you should be on the lookout for new sources of funds for your business. Don’t wait until you completely run out of funds before you start sourcing for funds. See how to raise start-up capital for your business.
7. Lack of Product improvement/development
If you don’t seek and strive to continuously improve your products and services, you will be out of business soon. You should be ahead of your competitors in product improvement and development. Continually seek for news ways to improve your product quality and delivery.
8. Lack of succession plan
When a business stops to exist, people lose their jobs and the dependents of those that lose their jobs are indirectly affected. This is not good for the economy of the country and should be guarded against. In Africa, a lot of businesses die or begin to die once the proprietor of the business dies. This is not supposed to be so. There should be a deliberate plan to training competent staff that can take over the efficient management of the business in the event of the demise of the managers of the business.
9. Inadequate marketing
Marketing is the soul of business. Marketing is one of the most important part of your business. Marketing should be consciously done. Marketing should be the responsibility of all staff including the senior management and not only for the marketing department. Market your products using all available avenues within your reach and budget. Seek for more creative ways to reach your customers and clients. Seek to get your customers to like your products more than those of your competitors. Many entrepreneurs don’t give much priority to marketing and that’s why their businesses fail. Keep a database of all your customers and send them periodic reviews of your existing products and new products. Get a website for your business. This helps you to showcase your business to the world without any geographical limitation. You can contact us to help you develop a professional website for your business.
10. Bad customer service
Customer patronage keep you in business and so you should do everything humanly and legally possible to keep your customers happy with your company and your products. Customer service and satisfaction includes seeking for customer feedback on your products and services and attending to your customer complaints. Carry out periodic customer satisfaction surveys and ensure that you close all findings and gaps identified. Do not ignore the needs of your customers. Appreciate your customers when they patronize you. Buyers are always happy and are more likely to come back when owners of grocery stores say ‘’thanks for your patronage’’.
11. Failure to build a good team
Any organization is as strong as its team. Your team is one of your greatest assets. Your goal as an entrepreneur should be to build a great team that would take your business to greater heights. Every member of your team matters and has an impact on the success or failure of your business. John Maxwell said that every team is as strong as the weakest member of the team. He said ‘’ Everyone on the team needs to produce at a high level of quality; otherwise, the weakest link will pull everyone down.’’ Therefore, you should consciously develop and motivate your team via training, commendation, incentives, delegation etc.
12. Poor business Location
Many entrepreneurs fail to take this into consideration before establishing their businesses and this is one of the reasons their businesses do not succeed. If you are starting a manufacturing business, your factory should be located close to the source of your raw material. If your business has to do with sales or trading, you should locate your business very close to where people who need your products can easily reach you. A business that is close to the consumers has more chance of success. Avoid locating your business at a place where there is poor security or where there are hostilities. Give deliberate consideration and thought to the security of your business when planning to start your business.
13. Poor Financial Management
Finance is arguably the life blood of your business. Many businesses have failed because the proprietors of such businesses did not draw a clear line between the business assets
and finance and their personal assets and finance. It is a very bad practice to use the company finance for your personal interests even if you are the owner of the business. There should be proper accountability and record keeping for all company assets, finance and transactions. Employ an accountant if you can. At the least make use of the basic financial record books like the ledger, journal and the petty cash book. You can even make use of accounting software and applications to make your record keeping more easy and accurate.
14. Premature Expansion
Many entrepreneurs are in haste to expand without maximizing the potentials of their current business and markets. As an entrepreneur your aim should be to build, develop and maximize existing systems and products first before venturing into new frontiers.
15. Little or no business profitability
Your goal and efforts should be geared towards making your business to be profitable directly or indirectly. Your business cannot survive for long if you are not making profits.
If you are not making profits, you would not be able to keep your staff and you would not be able to grow or expand.
16. Reluctance to partner
A lot of businesses in Africa do not grow beyond the sole proprietorship level because the proprietors are too reluctant to partner with other more experienced or more capable people. They don’t want to give up a part of the ownership of their business in exchange for the growth of their business. I always tell entrepreneurs that 50% or even 40% ownership of a big business is far better than 100% ownership of a small business. Imagine having 20% stack of a business worth millions of dollars. Is it not better than having 100% stack of a business worth thousands of dollars? When you give up a part of the ownership of your business in partnership, you stand a chance of getting more finance into the business, you access more knowledge and skills, the business is more likely to expand and grow as a result of shared efforts and resources.
Just make sure that all necessary legal frameworks are established, also ensure that profit-sharing formula is agreed and all responsibilities are defined before embarking into any business partnership. Ensure that any partner you allow into your business is bringing something useful into your business like more finance, knowledge, skill, experience and expertise.