5 Risks Involved With Starting A New Business In Africa
Scattered across Africa are opportunities for massive growth and development. However, this is coupled with other unfavorable factors like poor infrastructure, poor governance, insecurity, amongst many others.
In Africa, thousands of businesses spring up every year. According to research, startups between 2010-2018 in Africa had a shutdown rate of 54.20%.
Starting a new business can be exciting, but it also comes with several risks. These risks are inevitably part of starting a new business, no matter how much you plan.
Many questions arise- when will my business begin to make profit? Will my employees be productive? How do I survive in an insanely competitive market? These risks can be minimized but can’t go away.
Understanding the risks that come with starting a new business in Africa helps you set up a plan to manage the risks and thrive.
There are various types of risks that can affect your new business. In this article, you will discover five risks involved in starting a new business in Africa. Let’s dive in!
Financial Risks
Economic fluctuations can ultimately affect your business. They are changes that occur in what is called a business cycle. When an economy experiences a downward spiral, it is indicative of an economic depression.
On the other hand, an upward movement in the business cycle is indicative of an economic boom.
In Africa, economic fluctuations are common and can affect businesses. For example, Nigeria experienced an economic depression in the second quarter of 2020 due to the Covid-19 pandemic. For a business owner, this will mean a decrease in growth and sales. With day-to-day expenses, a new business is at risk of shutting down if these economic risks are not controlled. To minimize this type of risk, it is crucial to have adequate cash to keep your new business afloat until it becomes self-sustaining. You must have a steady cash flow for day-to-day operational activities.
Market Risks
Africa has a large market and easy product penetration. However, a deep understanding of your market is important when starting a new business. Not understanding your market is one major cause of business failure. Various markets differ in size, profitability, and risks.
To avoid falling into the trap of market risks, conduct in-depth research into your market. Do customers demand your product? At what price is your product acceptable in your market?
Make sure you have a unique selling point, and your product offers value to consumers.
Carrying out market research can also help you identify new market opportunities and get feedback on the most profitable business venture.
Competitors
Competition can become a major risk when starting a new business. Africa is becoming more digitalized, and information is now available to your competitors just as much as to you. Your competitors have their eyes on the market just as much as you do. It is important to study the competition. Are you venturing into a heavily saturated industry? Are there gaps in your industry? How can you set yourself above the competition?
Studying the competition will help you recognize what works and what doesn’t. It will also help you identify new market opportunities.
It is crucial to make your business distinct from your competitors to survive in today’s competitive market. If there are gaps in your industry, consider taking advantage of them and earn more revenue. Set your business apart through branding – create a unique brand voice and brand identity, offer immense value, and find a way to connect with your customers.
Execution Risks
A great idea is only the first step to starting a new business. In Africa, several factors could affect the implementation of your business idea. It could be technological or perhaps legal factors. It is crucial to consider the resources available to execute your business idea. Test run your product and see how well it performs in the market. Check for distribution factors as well.
Human Resources Risks
Starting a new business also means hiring new employees, and this is also a risk. Would these employees be able to catch the vision of your business? Can you trust them? Who should you hire? These are all risks you would need to take when starting a new business. However, you can curve these risks by training your employees and motivating them with incentives. You would also need to manage them by being an effective leader.
How can you minimize these risks?
To reduce the risks involved in starting a new business it is important to identify those risks, prioritize them, and have a backup plan to help you curtail them. Despite these risks, don’t be afraid to take bold steps towards building a successful business.
Do you have any questions or suggestions on businesses in Africa? Kindly drop them in the comment section below.
