10 Reasons Why Nigerian Businesses Fail
Why do small businesses fail in Nigeria? This post will bring to the limelight the key reasons why Nigerian businesses fail. Sometimes, a failing business may be in such a way that the entrepreneur founder or the business owners are unaware of this failure happening until it is often too late.
Without doubt, most business professionals know that lack of good management system in a firm’s structure has many negative ways of affecting the success fortuity of most businesses.
Thus, the leading causes of business failure in Nigeria may include not knowing how to provide leadership for human and material resources, poor marketing skills, lack of business capital, starting a business ‘to make a lot of money’ kind of mindset, choosing the wrong location, among many other limiting factors.
For example, product marketing doesn’t only start with learning how to use the right advertising channels and promotional strategies; or having the budget. It starts with business branding and product development efforts that differentiate your company from other competitors.
Aside being a Nigerian business owner or entrepreneur, listed here are the major reasons why most micro, small and medium sized businesses fail within the first 2 or 3 years of start-ups in any emerging markets and how you can avoid them.
10 Reasons Why Nigerian Businesses Fail:
#1. Poor Product Development
Product knowledge is an essential sales skill. And it’s key to having a clear definition of the product or services you offer. Without a clear product definition, you will be unable to effectively develop, market, and sell your products.
A good product or services is about being helpful, solving existing problems and providing value; even if it doesn’t immediately fetch you money. Understanding your products’ features allows you to present their benefits accurately to the prospects and your target customers.
If your team understands your customers and the products, then customers would definitely respond to skilled sales staff that is passionate about your product and eager to share its benefits with them.
#2. Wrong Business Location
Poor feasibility studies and wrong business location are also among the main reasons why some businesses mostly fail. Setting up your business at a wrong city or demographic location where your product is not in demand might be too much a risk of oversight.
If your business relies on foot traffic for its sales and customer patronage, location should be of strategic necessity to you. Some of the factors influencing your choice of location are: raw material availability, environmental safety, labour supply, transportation, and power supply, etc.
#3. Lack of Focus
Most young entrepreneurs in Nigeria are easily distracted with too many minor tasks and wishful offers. As a business owner, if your product focus tends to shift, your thinking will also shrink.
A good entrepreneur or business person should never lose focus on what is important and where his/her priorities are. Trying to do it all or ‘being everything for everybody’ is the worst mistake you would ever make in business; one that will cost you resources in terms of time and money.
Another weakness is when you got caught up in trivial diligence in the tasks which can and should ordinarily be left to others. Startup entrepreneurs and businesses should learn to delegate tasks, outsource and focus on those things they know how to do the best – managing and marketing their products.
#4. Poor Leadership Skills
One of the real reasons why Nigerian businesses fail is bad leadership and mismanagement. Most failed Nigerian companies over the years; whether private of public ventures experienced this situation. Poor leadership can impact on the company’s employees; as well as the business itself. This is because a leader is not just a figurehead but a responsibility.
Quality leadership are valuable part of every successful businesses like First Bank Nigeria, Coca-Cola Nigeria, Nigerian Bottling Company, MTN Nigeria, Nestlé Nigeria PLC; among others. Leaders are the ones who determine the pace and progress of work. And effective leadership starts with integrity, attitude and business ethics. For no one ever get to the top without starting from somewhere.
As the business owner or manager, you can easily get lost among many things when you understand what competitors do better than you. However, if you fail to differentiate and build your team, you will fail to build a brand that would sell.
According to Forbes Magazine, “a poor brand generally means leadership has failed’. Bad leaders affect a company’s ability to higher, retain and motivate employees; and manage the company’s financial and material resources efficiently.
As a leader who occupies a position of authority in Niagara, you should be able to show good leadership to your citizens, company’s customers, stakeholders and employees.
#5. Lack of Effective Marketing Strategies
Another important thing that makes businesses fail in Nigeria is the poor marketing and advertising strategies used. It is said that marketing is a business function that is aimed at identifying potential needs, promoting and selling of products or services to target customers at a profitable price.
Not knowing the right place to go showcase your products and connect with your potential customers, using poorly designed marketing collaterals; and not implementing effective local and online marketing techniques are also big problems to many Nigerian businesses.
Digital marketing is now an effective marketing tool that can generate the most qualified leads, drive offline and offline traffics; and communicate your brand promise; anytime anywhere in the customers’ buying journey.
If you have a business website, then you need an effective online marketing/SEO plan. This is because no one can start or remain in business unless he/she is able to secure the attention, as well as the patronage of the ready to buy customers.
As a startup business or established firm, there are so much you can do with the knowledge you and your team gained in understanding the chunks of marketing management. You can enroll to our next Digital Marketing Training and learn more on how to market your brand online and advertise your business in Nigeria.
#6. Hiring Too Early
Hiring the right people for the job is a good thing if planned rightly; however too many people have got this wrong while starting up their businesses.
Hiring too many people too quickly to open up nationwide warehouse can brake you into many scattered visions that usually result to premature scaling or over expansion.
When there is no vision of achieving targets rather than trying to jump to the scale, this can be wasteful and dangerous for a new business.
As the business owner or manager, don’t scale up your business too high at the starting point rather; put that efforts in bringing the vision to reality.
#7. The Wrong Partners
Partnership businesses that didn’t adequately define the real picture for existence beyond simply being an avenue to making money is bound to fail. Most Nigerian businesses are usually afraid of legal business collaborations.
People often initiate joint venture partnerships as a result of financial reasons or so; but leave abruptly because of business principles, careers or life goals misalignment.
It’s no longer secret that it is easier to succeed in business with the right partners. The wrong business partner will hurt, or at worst, destroy your company in the future.
To avoid such issues; solve problems before they happen by clearly outlining your individual responsibilities, signing dissolution agreement, involving an accountant and/or attorney that can help determine the revenue sharing formula.
#8. Lack of Investment Capital
One of the major and popular reason why Nigerian businesses fail is the lack of capital or insufficient business funding. Perhaps, this factor is an alarming sign of business failure in Nigeria.
In this part of the world, many business startups usually find it hard to raise money for their businesses. The lack of business investment and working capitals can lead to the inability of the business enterprise to attract good investors, offer quality products and/or grow its market share.
It also means that a business might not be able to pay its bills, access loan facilities (if available), and other financial opportunities. Insufficient capital makes it difficult to grow a business in Nigeria, get qualified employees and it also puts the business day-to-day operations at risk.
#9. Poor Cash-Flow Records
Most business owners that eventually fail repeatedly misunderstood between cash flow and profit earnings. These two are not the same. If you are not planning to fail, then forget sales; forget your revenue and; forget the total number of customers. Always be mindful of cash flow statements and profitability.
To succeed in business in Nigeria, you don’t just need cash flow, you need positive cash flow. However, it is possible for you to go bankrupt with cash flowing into your business every day. Staying profitable means you will solve many business problems and settle loans.
So the lack of profit could put you out of business even if you have recorded good sales. Any company that ignores good bookkeeping records will end up with unconstructive cash flow and this will always happens when the outflow of cash is more than your incoming cash.
Thus, always differentiate your personal money and the business; and never allow negative cash flow while keeping good accounting records. If you don’t have accounting skills, you can hire an expert to do the main work, and develop the best bookkeeping templates for your business.
10 Reasons Why Nigerian Businesses Fail
#10. Lack of Customers’ Feedback
Most businesses that fail create products or services without involving their customers in the product development stages. If you scale your productions without first understanding your market and the customers’ needs, then, this effort will always amount to nothing.
If you are serious about success, you should build your products with your customers’ inputs and recommendations. Most businesses in Nigeria fail because companies build products based on assumptions and expectation that customers would buy.
Let your customers be involved about your product or service development because they determine the business growth trajectory, sales increase or decline. If you’re out to bring solutions to existing needs, then you should have a clear definition of your customers and not building something that you hope they would like.
For businesses developing for the Nigerian online customers, we have blueprint copy of the Nigerian online shoppers’ buyer personas – a strategic marketing tool that will help you understand the Nigerian online business environments, customer segments and preferences.
Wrapping up: Reasons Why Nigerian Businesses Fail
Despite the current economic situation in Africa and across the globe, businesses fail as a result of many reasons. But here we have listed the main reasons why Nigerian businesses fail and how to avoid them.
If you’re just starting up a business in Nigeria or you’re already in business, you should take the time and observe some of these factors and find out more how they affect your own business success.
Some of these factors can make new startups and growing businesses fail within the first 3 to 5 years of existence and you need to evaluate your business to know where you need improvements.
Government policies are another big reason why Nigerian businesses fail. A business can fail as a result of high taxation, high interest rates, or excessive state of local government regulations.
Additionally, giving up easily can also affect your business success. If you cannot passionately persevere, you can seek advice from business experts or business coach in your industry and learn the necessary skills before you start any business in Nigeria.
For this reason, you must strive against all odds to make your business stand out – unlike many business owners who make the serious mistake of commencing on business without adequate operational skills and funding support.
Again, don’t you ever start a business for the wrong reasons! Because, if your sole aim of starting a business is ‘to make quick money’, then such businesses don’t last. The initiators will easily be discouraged especially when there are big financial deficits; or when the expected profits are not forth coming.
As a business man or woman, you will need to have and always have a positive mindset toward your business. That mindset will help you broaden your business range and eventual success.
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