No one starts a business to fail but for any venture to thrive, there are lots of sacrifices that are made to make it outlive their founders.
Statistics indicate that most businesses collapse within the first year after they begin, painting a gloom reality for those interested in entrepreneurship in Kenya.
The Small Business Administration (SBA) says that only about 1 in 3 businesses survive ten years or more.
In statistics published in 2018, the reality is that 1 out of every 5 businesses fails in the first year. If they survive this, then about half of the businesses fail within five years.
There are several reasons why businesses fail. But, tendencies show that small and new companies are forced to close due to the same mistakes.
Some of the reasons why businesses fail include:
- Most people venture into business not to really have an enterprise that outlives them but to fend for their families. This means that those businesses will most definitely fail because the idea is not growth but daily bread. A person who starts out to feed their family will not have strict discipline in maintaining capital and most of it will go to subsistence expenditure.
- The other reason why a business may fail is that some start out because they have no jobs and they have to find something to do. The high unemployment rate means that one could be out there not because they are passionate about the venture but because they are trying to make do. While vision and passion may be found along the way, more often than not they come a bit too late when all the mistakes done are beyond salvaging. This is where most people in entrepreneurship in Kenya fall.
- And then, in Kenya, for instance, we have a tendency to copy and paste business ideas. The motive behind this is not to ruin the one that is being copied but it is because they are doing well in a certain field. Instead of complementing and providing value addition, a person will start a business in second-hand clothes because a neighbour got into it and they are succeeding. But, how often do those starting a similar business understand the challenges experienced before the business became a success? This is the nature of entrepreneurship in Kenya.
- Another challenge is that most people do not do business in their areas of expertise. The probability is that if someone has excelled in quail farming, another may just decide to dive into it headlong even without conducting due diligence or understanding the landscape. It can be messy!
- While expertise comes from practice, many start-up businesses will not hire experts. This means that the entrepreneur will be navigating uncharted courses. If by sheer luck the business becomes profitable, they will think they are good at doing business. In case there are bumps along the way, the business may fail because it is being run on autopilot. Navigating some courses may be tough for such a mind-set.
- Most new businesses are started by people with poor financial literacy and probably a poor financial discipline. Financial illiteracy and indiscipline are the biggest threats to a new business. Because most new businesses thrive from out of pocket expenditure before they become self-sustaining, lack of financial discipline and knowhow could send an entity crashing.
- How in touch are you with customers? All businesses thrive or fall depending on how the customer is treated. Customers are created through constant and deep dialogue where an entrepreneur gets to know where to improve in their businesses. But, some businesses are just transactional (moneywise) and no deep customer-entrepreneur relationship. If an entrepreneur fails to cultivate a relationship with their customer, the reality is that the customer will sooner or later find another business worth investing in their money for the product or service they get in return.
When success comes, however little, most entrepreneurs will be on the lookout for the next big thing. Once their entities start picking up, they are on to tech hubs, real estate and other ventures which may distract their attention from their new businesses.
While it is advisable to be a risk-taker as an entrepreneur, being cocky could be the beginning of the business’ downfall.
Another danger is being too risk-averse. If one is not willing to stake out anything for a venture, then the opportunity available may just go by untapped.