Why Many Small Businesses Fail Within a Year-Steve Obiakor


Having lost a lot of money in business and investments, I had this impression that I was not a very good business man; I decided never to do any business again. When I started reading and researching, I discovered I had brought a magnificent ignorance into the small business enterprise. I discovered I would make progress in nothing if I had continued the same method I was applying. All over the world, it is believed (through researches) that only about 50% of new small businesses survive the first year. And only about 20% remain after 5years. This tells you that I was not alone in this ignorance. Aside the harsh business environment of many societies ranging from infrastructural deficit to harsh economic policies, more problems are caused by the business owners themselves. In Nigeria today, for instance, a lot of small business owners blame “change” for all their failures and woes.  It is like the regime has given everybody the license to fail. Well, whilst we have a lot of reasons to complain and fail, it is important to note that difficult times also present business opportunities. Difficult times present problems and businesses are established to solve problems. Therefore, difficult times should present a businessman with new opportunities.  Let us look at various ways we contribute to the collapse of our small business so we’ll be able to avoid this failure when next we think of going into business.

  1. Doing Business for the Wrong Reason:

The very first reason many of us start business is to make money. This impression makes us pounce on the business and start eating the fruits even before they’re ripen. We become easily discouraged when millions do not flow in as expected within the first year. We start business because we want to be the boss and not because we want to provide services and solve needs. We, therefore spend our presence in the business being the boss rather than developing strategies to grow the business. The best reason to start a business should be a form of a dream- come -true purpose. We must start a business we have passion for; a business we love and an activity we enjoy doing. Those who love sports do sporting businesses. Those who love hospitality do hospitality businesses. If you have passion for teaching then you must do educational businesses. If you love ICT, see what you can achieve in it. If you love farming or poultry, do it.  Do not start anything because you think the man across the street is making money doing it. Do it because it gives you joy; you’ll see your skills flourishing making you create value and upon that value, money comes to rest.

  1. Lack of Feasibility Study:

Even when you have passion for something, you must study the business to understand the other underlying factors in it. You must find out the particular aspect of the business that can favour you. This you can do by studying the value chain of that industry. For instance, in the study of Agricultural value chain, you’ll discover what is lacking; you’ll discover what most players need. Find out if you’re expected to provide seeds, machinery, fertilizer, animal feeds or whether to go into planting itself. Feasibility study entails finding out how achievable your plan is; this means you must have done your planning.  It entails looking at the market and ascertaining the possibility of the business failing or succeeding. How many players are in the business? What’s the average need of the product in the market? Is the business in need of more people or is it saturated with players already? This will help you think better before locating your business.  It also involves looking at all factors including sustainable funding, infrastructural needs etc. If you do not carry out a feasibility study even with a good plan, the tendency that the business will fail is high.

  1. Lack of Funding Plan.

Many of us seek the initial fund to start up a small business without planning for further bailouts. It is obvious that every business has a gestation period before it breaks even. The initial capital most times does not lead a small business to a break-even point. We must set aside extra funds to recapitalize the business until it is strong enough to take care of itself. Most rents for small businesses are on annual basis; it is not expected that the small business can pay its rent in the next one year. Many who do not plan for this, coupled with other vicissitudes and challenges that plague every new business, are compelled to close down after one year. This is where most of the businesses are shut down within one year. There must be concrete plan to continually sustain the business with funds until it becomes obvious that it has come to stay.

  1. Location:

Many do not look at location before setting up a small business. You need to be sure that you locate your business close to its market. You need to be sure that those who need your product or services are available in that area. You need to be sure you are not exposing your business to environmental or security threat. Nearness to raw material market is also another point to consider when setting up a small business. Location plays a very vital role in the growth of every business.

  1. Failure to Identify Customers’ Need:

This involves finding out what exactly people are looking for. You need to understand the need of the customers and pay attention in that direction. For every business we do, there’s a need we try to satisfy. We may have many needs to satisfy but it is important that we find out the ones that are really important to the clientele.  Some customers come to your shop because it is neat, some come because they get fresh products, and others come because you create credit facilities. When we identify the customers’ need, we leverage on it and those customers will do the marketing and advertising. But, if we fail to identify their needs and what exactly brings them, we may lose them the moment we cut off such attribute and that’s a downward trend for the business.

  1. Dysfunctional Business Management  & Leadership:

As a leader of a small business, you need to apply all effective approaches to ensure that results are produced. You must be on ground as presence speaks a lot. You might have one or two staff working under you; they must be able to understand the mission and vision of their boss and work towards it. He who applies an acceptable level of acumen in leading a small business can actually lead a medium business. Applying proper management leadership skills by formulation of policies, chatting the way forward with bright and feasible ideas driven by bright sense of initiative and sense of direction would see the business flourish. As Stephen Covey puts it;  “management is doing things right while leadership is doing the right things”.  Management ensures that the resources and facilities, raw materials, production processes of the business are properly and efficiently utilized. Leadership skills help you ensure that the business team is headed towards the right direction; that everybody is on the same page with the standards, the mission and the vision of the enterprise.

  1. Lack of Competitive Advantage Mechanisms:

There is no business without competition; a good business leader must develop a competitive advantage mechanism to attract more customers. Competition is the consciousness that there are other rival businesses around.  A rival business may have higher market coverage because it is older. But, a new business with a competitive advantage mechanism would soon be the leading product in the market. Your mechanism could be in the area of a better product, a lower price, a better packaging, after sales services, home delivery, etc. My new laundry firm took the business from the previous one simply because they have a free home pick up and delivery services.  When you start a new retail outlet for instance, reduction in prices can increase sales and soon your buyers will start increasing. There must be something about your business that makes it better than others. If you do not have a competitive advantage mechanism, create one today.

  1. Advertising:

Many of us believe that small businesses do not require advertisement. Awareness is key in every business. People must be aware of what you are doing. You cannot just sit and expect people to just have an idea of what you’re doing. In this era of communication boom, we can easily use the social media to increase awareness for what we are doing. We can employ other traditional advertising methods such as handbills, posters, banners etc. The use of souvenirs is also a credible means of advertising

It is actually important to note that small businesses are credible means of augmenting our incomes. Think of what you can do today; check our article on this blog, http://www.steveobiakor.com talking about businesses you can do with little income. Some of them you can do from the comfort of your homes.

4 Replies to “Why Many Small Businesses Fail Within a Year-Steve Obiakor”

  1. Like you rightly pointed out in point 1,many of us who go into biz go solely for d aim of making money abd as such “pounce on d fruits before they get ripe.Its probably because the essence of setting up d biz in d first place is cos of d need for extra income

  2. Any business dat puts d aforementioned points to practice will flourish but how many have dis knowledge & what it takes 2 success? Beautiful & insightful writeup!

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