20 Reasons Why Business Fail

Published: 31st August 2010
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To ensure sustained growth in every economy, small businesses play a vital role and a high rate of failure consequently leads to an adverse effect on the economy, particularly developing economies with a limitation of capital. This is exactly what is happening in Nigeria despite an establishment of government programs to aid entrepreneurs. Structured interviews in addition to data gathered through surveys from almost 500 small business ventures in Nigeria was carried out to seek the principle constraints hindering success, which include:

• Poor management

• Corruption

. Inadequate capital

• Weak infrastructure

• Poor record keeping

• Multiple taxation

• Bad location

• Absence of a functional or good website

• Inadequate or total lack of planning

• Poor power supply

Unfortunately, a majority of the constraints are attributed to political climate and the educational progress. Small business ventures are generally considered to be Nigeria’s driving force to enhance economic growth, reduce poverty and create jobs. Small businesses have been the means through which rapid industrialization and a hastened economic growth have been realized. Though there is a general acknowledgment of small businesses in regard to contributing to the country’s development, numerous obstacles are faced by entrepreneurs and this adversely limits their long term development and survival.

Research carried out on the development of small business ventures indicates a higher failure rate in Nigeria as a developing country in comparison to countries in the developed world. Data collected from different sources on self employment in Nigeria shows that more than 50% of self-employed people result to working for others within a period of seven years with only a minority remaining self-employed. In regard to new firms, only 45% of them last 5 years, while only 30% last 10 years.

The most recent statistics from Nigeria’s SBA (Small Business Administration) indicate that 67% of all newly established business ventures hardly survive the first two years, while 44% only manage to survive the first four years. There are plenty of expert opinions regarding the means through which Nigerian business owners can ensure new businesses are kept floating in the entrepreneurial sea’s perilous waters. After examining the reasons that lead to business failure, it is easier to start comprehending that a majority of these failures are actually preventable. For instance:

Statistics in Nigeria clearly indicate that the chances of the average entrepreneur failing are high because for instance, the survival of average new businesses would consequently mean a failure of the existing businesses. This relation is clearly attributed to the failure of a majority of new businesses.

Everyday countless aspiring entrepreneurs in Nigeria seek the latest means or trends of getting rich quickly and end up starting business opportunities for inappropriate reasons. This inadvertently limits the chances for entrepreneurial success especially in the long run. A lot of the failure cases related to starting up new business ventures in Nigeria are similarly attributed to entrepreneur’s failure to account for the required time commitment before the new venture can start running sufficiently.

A majority of entrepreneurship opportunities in Nigeria will not necessarily aid in making money, but rather, they offer ideas of meeting these ends. Lack of a suitable support system including help forums, good leaders, marketing tools and ongoing training leaves the entrepreneur handicapped to run the business efficiently. Many entrepreneurs in Nigeria make the fatal mistake of commencing on a business venture with inadequate operating funds. By underestimating the financial requirement of the venture, most business owners are forced out of the market before even getting a chance at success.

Indulging in any Nigeria market that is not viable is catastrophic because despite having a brilliant idea for products and services, lack of customers is bound to lead to the demise of the venture. This is the consequence that most of the start up entrepreneurs in Nigeria who simply plunge into new business without confirming the market availability face.

A considerable number of business owners in Nigeria lack marketing expertise and due to this ignorance, most consider marketing to be a pointless expense. These entrepreneurs fail to find effective means of marketing themselves through trade shows, direct marketing, exhibitions and advertising hence leading to a missing communication link between them and their targeted customers.

Small businesses in Nigeria require efficient management skills as well as the right attitude in order to succeed. Acquiring these skills is imperative to ensure that these businesses can be run in a better manner. Skills in enterprise development are mostly learnt or acquired. Entrepreneurs in Nigeria should maximize their beneficial opportunities through training exercises to ensure they become fully armed and capable of handling their future economically. With the use of Ansorf’s 1965 classification framework, it was possible to analyze the decisions required in starting and maintaining a thriving business and similarly examine the common problems that business owners face. This framework was capable of categorizing the problems of small businesses as:

• Personnel issues

• Financial issues

• Management issues

Lack of proper management structures ranks high with many Nigerian business owners. A majority of these entrepreneurs are deficient in relevant and current information in purchase, finance and selling, hiring, production and employee management. Proper Management structures are vital once a business attains a critical stage to ensure optimal information flow and work flow without lose of dynamism by the business. Lacking funds for reserve is a shortcoming that has greatly hindered the development of much entrepreneurship in Nigeria. Most business owners lack preparation for the volatile market in Nigeria as well as uncontrollable costs such as increases in energy rates, labor, materials and natural disasters which similarly lead to business failure.

An unfavorable location for business in Nigeria may consequently lead to its demise in this expansive land. An ideal location can be determined by considering key factors including competition in regard to the positioning of similar businesses and accessibility by foot traffic, freeways and public transportation. Lacking a website in Nigeria’s modern business world is simply an understatement as well as a viable reason why many businesses with this shortcoming fail. All business ventures in Nigeria require well-designed and professional looking websites to enhance the means through which users can gain access to issues pertaining to their business while availing their services and products.




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