Reasons SMEs Fail in Nigeria
Small and Medium Enterprises (SMEs) create and sustain national development in relation to job creation all over the world and for this reason, they are considered key players in modern-day poverty alleviation, economic emancipation and total well-being worldwide.
Most times, they do all these with little or no formal education, and while tackling various infrastructural challenges that make the performance of their day-to-day operations rather difficult. The relevance of SMEs cuts across every sector of a nation’s economy and this gives SMEs the leverage to contribute immensely to the development of their host community through the active engagement of unemployed individuals in the area.
Now your average small business owner does not necessarily factor in failure when setting up his/her venture so it might surprise you to learn that a majority of SMEs in Nigeria fold up shortly after they begin. According to the Statistics published in 2018 by the Small Business Administration, about one-fifth of SMEs fail in their first year while about half of all employer establishments succumb to business failure within five years. To further drive these figures home, other findings have revealed that about 80% of SMEs in Nigeria fail within their first years of operation.
The chances that budding SMEs in Nigeria would survive past their first 5 years is painfully slim and seven when they do, some of those businesses still fold up after having secured a market.
This is a harsh reality and even though these numbers and estimates appear scary, don’t let them demoralise you. Whether you already own a small business or if you are entertaining thoughts of starting your own thing, the central message here is for you to understand the real reasons why SMEs in Nigeria fail. Once you do, you will be able to navigate your own business and avoid becoming a victim.
There are various reasons why most SMEs fail in Nigeria but here I’m not just referring to the stiff economic situation in Nigeria, lack of funds, logistic challenges, inadequate power supply, lack of training, infrastructural deficiencies and the likes. I understand that these are very serious hurdles to the success of SMEs in Nigeria and seeing as these businesses drive our economy, our government needs to address them decisively.
In addition to these challenges though, there are other real issues that contribute immensely towards the end of many SMEs in Nigeria. Some of these are sometimes brought about by the business owners themselves and can only be handled by them as well.
Top on this list is the issue of inefficient Management. This is one serious reason why SMEs in Nigeria fail because a common mistake here is to hire someone you know (oftentimes a relative); not someone who can get the job done well. A business owner wouldn’t be able to do it all and so as the business grows he/she would need to hire the services of employees. The problem though is that most of these employees rather than aiding the business, go on to clog the wheels of its progress either by stealing from the business, by adopting a lackadaisical approach towards customers or both. Give this a few months and without proper supervision from the business owners, what started out as a viable business will crumble in no time at all.
Secondly, many SMEs in Nigeria fail not necessarily because of inadequate capital but because the owners mismanaged what little business funds they raised and there was no accountability. As a business owner, understand that you need to always account for the sales you make or what you use your business funds for. As your business grows, you’d need all the funds you can get to take on even bigger in challenges such as billing, resource utilization or technology needs.
If you need to solve a personal issue with your business funds, you can consider taking a loan from your business and paying it back later. You can’t just take and spend what cash you need simply because you founded the venture otherwise, your business will suffer. Accountability and personal discipline are crucial skills to acquire here because what do you figure your business would look like when the money meant for business has been lavished on non-business stuff?
Also, most small business owners expect money to start rolling into their business account immediately they open shop and on this, they couldn’t be more wrong. Building a business in Nigeria or even anywhere else entails a lot of hard work, continuous self-development and patience before coming out as a success regardless of the industry. This idea of starting a business with the wrong expectations and impatience has made many SMEs in Nigeria to collapse within a few months of operation because disappointment sets in sooner rather than later. And this makes the business owner feel that he/she has failed and so he/she packs up in resignation without realizing that the most successful businesses took a year or more to get going.
Moreso, locating your business in the wrong place is also one of the reasons why SMEs in Nigeria fail within their first year. Location is critical to the success of every business because a bad location means no or the wrong customers and this can only spell doom to even the best-managed enterprise. So when deciding where to set up your business, you need to consider a lot more than where your target customers are. You should also pay attention to the accessibility of your business (is the traffic flow in that area too much; would customers need to park their cars or is the location within a walking distance), the location of your competitors; the condition and safety of the neighbourhood and the provision or lack of local incentive programmes for SMEs in the area.
In addition to the foregoing reasons, many SMEs in Nigeria either have unclear business strategies or none at all. The problem with this is a simple one: when you fail to plan your plan is to fail. The management of your business must go according to your best-laid plan if you are to secure a competitive position in the market. You need to set out your business plan because it will ensure that you carry out your business operations, meet deadlines, satisfy your customers and achieve your goals for the business while staying afloat. You’d be surprised at the number of SMEs in Nigeria operating without a business strategy and most of these businesses fail badly.
Your business strategy is the set of actions and choices you make as an entrepreneur in order to achieve your specific business objectives. Put differently, a good business strategy is your master plan as a business owner. Avoid this by mapping out your business strategy. Think long term here and decide what you want to achieve for different levels of your business. Simplify it as much as you can, identifying the actions and decisions you’d need to achieve specific goals. Now try to stick to your plans as you go. Neglecting this step is the surest way for your business to flop before it even begins.
Starting and running an SME in Nigeria successfully is not easy but failure should never be accepted as an option. The good news is that you don’t have to know it all. You only have to be honest enough to acknowledge what you know -and work with it- while learning about what you don’t know. Focus on developing your skills and gathering the information your business needs to survive in an already volatile business environment. Hire an expert if necessary because if you don’t recognize your deficiencies and tackle them upfront, then you just might find your business amongst the 80% fated to crash in the near future.
