In any region of the world, business failure is not new. The most surprising observation, however, is that startups and small businesses encounter this difficulty more than large corporations. There are various statistics available on the failure, cause of failure, and survival rate of small enterprises, and the results are pretty frightening. Anyone considering starting a business should conduct extensive studies on the industry. However, let us look at some of the most typical causes or reasons for business failure in Nigeria.
Types Of Business Failures In Nigeria
When it comes to business, failure is all too common. But perseverance and trying, again and again, is a mindset that the average Nigerian entrepreneur lacks. There are two types of business failures: preventable failures and unforeseen failures.
As the term implies, avoidable failures are business failures that could have been avoided. The sole responsibility for this type of failure rests with the business owner. Internal forces are typically at fault in this case. Failure arises as a result of the entrepreneur’s weaknesses. He or she may have broken particular rules, lacked necessary knowledge, or just was not paying attention to what the business needs, resulting in failure.
Unforeseen failures are those that occur as a result of uncontrollable events. These failures are difficult to blame on the entrepreneur because he or she had little or no influence over them.
Common Causes of Business Failure in Nigeria
Why do SMEs and even start-up businesses in Nigeria have such a limited lifespan? What factors contribute to Nigeria’s high percentage of business failure? There are numerous reasons that contribute to the poor rate of business survival in Nigeria. They are as follows:
#1. Wrong mindset
Nigeria is a country full of strife and hustling, and everyone is seeking any way to make ends meet. While some people believe in working for a corporation, others consider it as servitude and slavery and prefer to be their own boss. The desire to be one’s own boss should not be the major motivation for beginning a business. You should start a business because you have identified a gap that needs to be filled or an issue that needs to be solved.
Starting a business simply for the sake of money is a similar mistake that is a primary reason why many firms fail. Value creation should be your primary motivation for beginning a business, not money. What solution are you developing, and how will your product affect the lives of your customers?
#2. Lack of strategy
You do not start a business without a well-thought-out plan. A strategy is essentially a course of action designed to achieve a specified goal. A vision or a desire alone will not make a business successful; an actual plan, properly spelt down, is required. For example, if you want to open a boutique, how, when, and where will you purchase your products? All of this should be stated. Who will be in charge of procuring and selling the goods? Make the mistake of starting out without a clear plan.
So many entrepreneurs and SMEs simply start their business without a strategy, and as a result, their business often collapses before it really begins.
#3. Lack of needed finance
One of the most common causes of failure for Nigerian entrepreneurs is a lack of necessary financing. You need finances to keep your business functioning whether you run a service business, a manufacturing business, or a tech start-up.
Some individuals believe that when beginning a business, there is a lot that can be done without a lot of money. Technology has made it possible to conduct business with little or no capital.
Consider an entrepreneur who wants to open a beauty boutique. Instead of hunting for money to rent a shop and money to buy products for the shop, he only needs to register an Instagram account, download and post sample photographs of the items, and list their prices on the website.
Once an order is placed and payment is received, he might go out and purchase the item to sell to the consumer. This is an illustration of how an entrepreneur does not always require outside funding for his business.
Other types of enterprises, on the other hand, may require a large sum of money to start and, more crucially, grow. One important reason for the majority of firms in Nigeria going down early is a lack of such necessary finances. One of the most common causes of business failure in Nigeria is this.
#4. Poor Management
A business will undoubtedly fail if it is poorly managed. To be able to govern both human and material resources, the business owner should have good management abilities. Communication skills, emotional intelligence, human resource management, good planning and execution skills, project management, and so on are examples of soft skills that might help with this.
#5. Incompetent team
Who are the members of your team? Are they capable of carrying out their various responsibilities? Many Nigerian SMEs’ business failures can be traced to incompetent teams.
What causes a team to be inept? Mismatched talents, inexperience, and so on. These Talentlyft recruitment tactics will help you select the best workforce for your business.
Select the best squad. Hire guys with the perfect combination of top soft skills and technical talents, using your goals and objectives as a guide. The most crucial soft talent to look for is emotional intelligence.
#6. Accountability
Many business owners and entrepreneurs fail to recognize this. A business should be conducted independently of you. As a result, there should be a high level of accountability. Cash flow should be meticulously documented and monitored. Many business owners make the mistake of combining personal and business funds, making it impossible to oversee cash flow and business finances. This will certainly lead to the failure of the business.
#7. Poor Execution
The execution of your plan, like every other part of our lives, is what will ensure your success in obtaining the desired goals.
Many Nigerian firms fail due to poor execution or implementation of strategic goals. Deploy technology where it is required by your business to achieve specific outcomes in your strategic goals.
If your business needs a specific type of skilled team member, do whatever it takes to recruit them. If your business requires specific money to reach certain goals in your strategy, inject the funds.
Whatever a business needs to do to carry out its plans should be satisfied. This is what it means to execute.
#8. Tough Competition
Do you remember that well-known household brand that was once quite popular? What became of them? They appeared to be doing well at the time, but soon they were nowhere to be discovered.
There are numerous examples of well-known failing businesses in Nigeria, but I will not identify any of them here for obvious reasons. If you conduct your research properly, you will discover that there was nothing internal that went wrong; instead, tough competition drove them out.
Nigeria has a population of more than 200 million people. So, whatever business idea you have, chances are that someone else has something similar up their sleeve.
If your opponent has more money, a more capable team, and a well-executed strategy than you, and is overall more aggressive, they may send you packing.
#9. Inadequate market research
Businesses that fail these days were most likely not thoroughly investigated before they began. Before you establish a business, you must understand your target market. Conduct customer surveys to determine what and how your potential buyers want to buy. This will offer you an idea of how your business should be constructed appropriately.
#10. Inconsistency/Lack of passion
So many businesses fail because the individual who founded them is unable to persevere. The “Why” behind your business should be the driving force that keeps you going even when things are going wrong. Challenges and obstacles will undoubtedly arise on your path to success, but you must develop resistance to anything that may seek to distract you and prevent you from accomplishing your objectives. If you intend to create a business, you must pay close attention to this aspect.
#11. Lack of Focus
Many business owners desire to perform multiple things at once. This will not work because when your attention is diverted from the main thought and purpose, a flood of irrelevant information enters, diminishing the energy that could have been used to pursue your goals. Create a brand identity, pick a niche carefully, and stick to it. Although it may be challenging when you see other businesses succeeding, you must choose to be renowned for something distinct.
#12. Incorrect Product Pricing
Many business owners fail to set acceptable prices for their products and services. Some businesses charge exorbitant prices for their goods and services, discouraging clients. Other businesses, in an effort to attract and retain clients, set their pricing too low, causing them to lose money. These two extremes are a prescription for failure in business. When determining your service costs, you should strike a balance.
#13. Poor Customer Care/Support
Customers that are not treated or appreciated grow unsatisfied, submit negative evaluations, and patronize others. Small firms that do not provide excellent customer service will perish as a result of the loss of many clients and prospects. Customers leave a business when they feel unimportant because they believe they are not important.
#14. Poor Treatment Of Staff
Many business owners have no notion of how to deal with their personnel. When it comes to personnel difficulties, many Nigerian bosses come to appear overly severe. They show little or no consideration for their employees. They treat them poorly and make disparaging remarks about them both privately and publicly. Such employers are tough to work with, leaving staff unable or unwilling to give the business their all.
#15. Unfavourable Government policies
It is good knowledge that Nigeria’s government policies discourage small-scale firms and young entrepreneurs. Many regulations and standards not only inhibit enterprises, but have also caused many to fail. Unfortunately, some of these rules are beyond the authority of most business owners; yet, it is critical to be aware of them and plan for them. Be aware of the policies that govern your specific sort of business and account for them in your calculations.
#16. Lack of patience
Nigerians are among the world’s most impatient people. We are always too eager to see results and celebrate our accomplishments.
Businesses, on the other hand, require a specific time limit in order to grow and succeed. Unfortunately, if you are not patient enough to let your business run its entire course, you will fail.
The unfortunate reality is that many businesses fail on the verge of success, unbeknownst to entrepreneurs.
What is the Main Cause of Business Failure in Nigeria?
There are numerous underlying reasons why businesses fail, but among the most crucial elements are the founder’s or owner’s lack of knowledge or experience, poor management or leadership skills, and inadequate structures, procedures, and processes.
What Percentage of Businesses Fail in Nigeria?
The failure rate of firms rose to 31.4% in the second year (2019) and 39.3% in the third year (2020). By the fourth year (2021), 44.5% had closed, and by the fifth year (2022), the new business failure rate had risen to 48.4%.
What are the Solutions to Business Failure in Nigeria?
One of the solutions to business failure in Nigeria is to have appropriate capital. The enterprises that ran out of the business sector primarily lacked funds. A new business should not be expected to start on its own; rather, it should be supported by outside investment.
What are the Symptoms of Business Failure in Nigeria?
Business failure warning signals include:
- Lack of funds
- Your clients are paying late.
- You are unaware of the financial status of your business.
- Constantly dealing with ‘firefighting’ issues
- A key customer was lost.
What Economic Struggles Does Nigeria Face?
According to the most recent National Bureau of Statistics data, unemployment and underemployment reached an all-time high of 56.1 per cent in 2020, forcing 133 million Nigerians into multidimensional poverty.
Conclusion
Starting and running a business successfully is difficult, and the owner of a business has a significant part in its success. Failure should never be considered an option. So, if you can manoeuvre your business around those 13 big problems while still having the correct mindset, desire, and determination, you’ll be well on your way to developing a great business.
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