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10 Reasons Businesses Fail In Nigeria

This article attempts to proffer some underlying reasons why quite a number of start-ups and businesses go under within a short period of time.

Ever heard the phrase: Too big to fail? Guess you have!

Strangely, the rate at which businesses fold up these days calls for much concern. Let us look at some available statistics:

*A recent Harvard University study carried out by Shikhar Ghosh claims that three out of every four venture backed firms fail.

*More than one-third of businesses today will not survive the next 10 years.

                                                                                                                   -John Chambers                                                                              (CISCO’s CEO)

*According to the US Bureau of Labour/Statistics, about 50% of all new businesses survive 5 years or more and about one-third survive 10 years or more.

*The Small Business Administration (SBA) says ‘’close to 66% of small businesses will survive their first 2 years.” What that means is that only about one-third of total businesses will fail during the first 2 years!

*The US Census Bureau reports that 400,000 new businesses take off every year in the USA, but 470,000 are dying.

As if that is not bad enough, Fortune Magazine believes that 9 out of 10 startups fail!

Naysayers might be asking these questions: where do these folks source their data? What parameters are used for these claims? In addition, if there is, how accurate is it?

Sure, you too might be asking: Is it that bad? Truth be told, it’s that bad.



Ours is a country with poor record keeping and unverifiable data. Despite these deficiencies, it is extremely easy to predict the number of businesses that fold up on a daily basis.How?Its not complicated.Recall that exquisite department store which sprung up over a year ago in your neighbourhood?Chances are either they’ve folded up or they have plans to move elsewhere no thanks to either the epileptic power challenge,multiple taxation or extremely high costs of running the business.

Over the last twenty years, we’ve had tons of companies that came into the scene,pulled their weight for some years and just when you thought the worst was over, they suddenly fizzled out like gas escaping from a soda drink. In the west, it is commonplace to see companies that have transited from one generation to the other. Some began as minor family start-ups before evolving into Fortune 500 companies today.

According to an investigative  report published by the Bank of Korea on May 14,2008 it discovered that there were 41 countries which had 5,586 companies older than 200 years.Of these,3,148 are in Japan,837 in Germany,222 in the Netherlands and 196 in France.As expected,Africa did not make the list.Few years ago,a nationwide Japanese Survey successfully counted more than 21,000 companies older than 100 years as of September 30,2009.

Why are such feats not replicated here? What’s the staying power of foreign firms who have thrived for centuries and even a millennia? What can we learn from such companies?You might have also noticed that some of the ‘oldest’ companies in Nigeria are actually multinationals.

It is even worse for startups in this new era of entrepreneurship.Many begin with so much promise and after a while,fall by the way side. In this narrative,we’ll explore possible  and likely reasons why businesses have high failure rates in Nigeria.

1.FAULTY BUSINESS MODEL:No business can thrive without a workable business model.In business,one size does not fit all.It must be bespoke:made to measure.What’s your strategic plan for your business?Is it implementable and time tested?Are you using it because a friend tried it and it worked?Run a test on your business model,watch the indices and see if it adds up.

2.TAKING OFF WITH UNSUSTAINED HYPE:This readily brings to mind a top notch telecom company which ran into troubled waters.They kicked off by giving billions of naira worth of airtime to subscribers with the hope that it will ultimately rub off on their subscriber base .Their marketing strategy never added up.Rather it backfired and they were on the brink of receivership from a consortium of banks they were indebted to.While running a business,forget the hype and be real.If you thrive on a hype,people will definitely still see through you.What happens when you can no longer sustain the hype you earlier created?

3.POOR STRATEGIC PLANNING: Its often said that if you fail to plan,you inevitably plan to fail.This is over and above the usual deficit in financial planning.It involves deficiency in feasibility studies,poor due diligence and inadequate financial intelligence.Tesla CEO,Elon Musk is well known for his mantra:”The business world is a jungle.Be prepared for whatever comes your way by planning,planning and planning.”

4.EXTERNAL INFLUENCE FROM FAMILY AND FRIENDS:Never mix business with pleasure.If you want to mix business and family,set parameters.Each person’s role in the company must be stated in black and white.This can be via an organogram detailing job descriptions and ensure there are checks and balances.If you don’t,you run the risk of getting burnt.I recall a particular company where a certain CEO  hired most of his siblings to run his company.Need I say it was a fiasco!The entitlement mentality of his brash siblings who had no prior managerial and professional experience led to the collapse of that company.Remember,never mix the two and if you must,be business- like.Afterall,what gets measured;gets done.

5.FAILURE TO UNDERSTAND AND SATISFY YOUR TARGET MARKET:If you don’t understand your target market,you can’t satisfy them.Get to the core of your customers;segment them.You must have adequate knowledge of their needs,before knowing if you have the capacity  and capability to satisfy them.Failure to do this,would be tantamount to playing Russian roulette with your business.

6.FAILURE TO REINVENT YOURSELF & PREPARE FOR THE FUTURE:You either innovate or die.The business space has become tense and saturated.That blue ocean would soon become another red ocean.Failure to reinvent implies acceptance to diminish.The future is the next moment you are yet to step into.Cease applying analog solutions to digital challenges.Learn from the infamous errors of KODAK and YAHOO.Daily put your best foot forward.Engage in critical thinking.Create the future you want by ‘out-thinking and outsmarting’ your competitors.Ask yourself: ‘’What can I improve upon today?”

7.POOR CUSTOMER CARE:The newest fad is customer experience.Unfortunately this is the bane of a large percentage of businesses especially the service industry.Never take the customer for granted.Sooner or later,they will take a bow and seek better alternatives.Having a poor and inaccessible support system is like sounding your “Nunc Dimittis”.Tmes have changed.The customer is better exposed today.Its much easier keeping an existing customer than gaining a new one.Treat one customer right and others will hear,do the opposite and you’ll be done for.Endeavour to regularly interface and engage with your clients and customers.Once customers know you care,their business is yours.

8.FAILURE TO CARVE A DEFINED NICHE:Imagine a man who wants to sell TVs,CDs,clothes,cars,sneakers and food all in an attempt to have his hands in many pies!Friend,that’s unworkable and a smooth recipe for disaster.Good enough,this is the dispensation of specialization.Be known for something and be really good at it.Become an authority or go-to source for a particular service.The jack of all trades mantra no longer hold sway!

9.FAILURE TO SHARE RISK WITH OTHERS:Have you noticed most tech startups and Fortune 500 companies in the US are managed by Co-Founders as against MD/CEO as is the case in Nigeria.Facebook,Twitter,Google,Apple,Yahoo and other Silicon Valley giants are products of venture collaborations.These entrepreneurs understand the dangers of running all alone and the attendant benefits of sharing risks with others.In Nigeria and Africa many prefer being the Chairman/MD and CEO all at once.Designations do not guarantee success in business.Go beyond wanting to have controlling shares in the company;invite others to help grow your business.Your company should outlive you and not vice versa.

10.WRONG LOCATION:Why are some areas designated as Central Business Districts (CBDs)? Because its easier for businesses to thrive there courtesy... the location.Wrong location amounts to poor patronage.About a year ago,I noticed a boutique that suddenly opened shop in an extremely serene part of my neighbourhood.I wondered why the owner made such a decision considering the serenity of the area which was strictly residential.I kept watching that outlet till the tenth month when my greatest fear was cofirmed one bright sunny morning.In front of the entrance was a huge banner with inscriptions:70% OFF.WE’RE RELOCATING!You have to be out there where your customers and prospects can readily see and access you.

In a nutshell,there are a whole lot of reasons why businesses fail,but it is expedient that prior to and after launching your business, daily ask yourself: What can I do better? Remember,what gets measured, ultimately gets done!

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