Why Do Startups Fail In Nigeria?
With lots of small businesses and startups springing up every day, a lot of them are also going under daily too.
Amongst the top ten African countries with a high rate of business failure, startup failures in Nigeria averaged 61% from 2010- 2018.
A lot of startups and small businesses are indeed failing in Nigeria and several factors are responsible for these failures.
Here Are The Eight Major Reasons Responsible For Startups And Small Business Failure In Nigeria.
1- Government Policies As A Reason Startups Fail In Nigeria
In Nigeria currently, we can’t deny how difficult Government policies have made the smooth running and day to day operations of small businesses hectic.
From so many Government policies that are a threat to the lifespan of small businesses to the different task forces engaged daily to disturb small business operations, unnecessary and illegal taxes, small business owners pay and difficulty to obtain some business licences and operation certificates.
All these disrupt the growth and success of startups, thereby shrinking their growth and making them make excess cuts from their profits, reducing their profit margins and making them fail at the very end
1- Nigerian Government officials should encourage the sprouting of small businesses by reducing taxes they pay to enable them to survive the fragile starting phase.
2- Nigerian Government officials should regulate the people they put out as a task force to curb illegal taxes they make business and startup owners pay.
3- Business owners should be told first-hand the necessary certificates they need to obtain to kick start a business and whoever doesn’t meet the requirements shouldn’t be given those certificates.
2- Insecurity As Reason Startups Fail In Nigeria
As of 2021 when this article was written, it’s so unsafe to start a business in Nigeria. This is due to the vast insecurity ravaging the country. From kidnappings, armed robbery, ritualists wanting to use people for rituals, Boko haram bombing business places and places of worship, banditry and a lot of other insecure things happening pose serious threats to the growth of small businesses and startups.
Small business owners are afraid to set up their businesses in Nigeria and even the ones that are currently set up in Nigeria are facing different losses and fear of the unknown.
From the fear of ex-pats being kidnapped to the fear of employee and employer kidnaps.
It’s a terrible situation because every business person at least wants stability where he or she has settled to start a business and not incur losses like loss of lives and hard-earned money as collateral damage to insecurity which eventually leads to the failure of that business.
1- The Nigerian Government should strengthen the security in the country
2- Insecurity and other vices in the country should be curbed totally.
3- Inconsistency As A Cause Of Business Failure In Nigeria
For every business to see incremental and active progress, that would mean they would be consistent in putting out their best to work and everything that concerns that small business or startup.
Lack of consistency in any business breeds business failure and this is one factor that every business that has gone under would attest to.
Inconsistency breeds a lot of doubt and ends up crumbling that business.
1- Business owners should be consistent in putting efforts into actualising their set goals for their company.
2- Business owners should encourage their employees to put in consistent efforts to also aid them to accomplish the company’s goal.
4- Having The Wrong Business Partner Can Cause Startup Failure
A lot of startup failures stem from wrong business partners.
From the wrong co-founders to the employees employed for the wrong reasons.
Some business partners do not fully understand or agree with the company’s goals and the processes that are going to be taken to attain them and this can cause frequent disagreements and when both founders are working against each other, that business is bound to encounter failure.
Not just wrong co-founders can cause business failure, most small businesses, at the early stage, decide to employ family members because of lack of funds to employ other people or they employ family members out of pity or because they are close to them and this ends up ruining their businesses. Some family members and friends have no clue on how to run different positions they are given and even when they do, they take advantage of familiarity and don’t give their best to every given project.
1- Every business owner should always partner with a founder that shares the same goal and views as them.
2- Employ people who are willing and ready to work
3- Do not employ anyone out of pity, always employ people that are qualified for the job and are willing to grow.
5- Targeting A Small Market Or Targeting The Wrong Audience As A Reason Startups Fail In Nigeria
Just like other countries, some small businesses in Nigeria would not do well. For instance, a small business that produces coffee in Nigeria would not thrive compared to a cocoa powder business. Not just because of their audience, also getting raw materials would be a hassle for them.
Factors like target market, the who, what and why that product is very important for every small business owner is a major factor that causes small businesses to fail.
Before every business is executed, the target market should be looked into and be sure the product would thrive in that market.
6- Lack Of Funds Is A Cause Of Startup Failure In Nigeria
For a lot of startups and small businesses, funding is a major challenge and a single factor that affects a lot of small businesses in Nigeria.
A lot of founders never get past the first phase due to a lack of funds in their business account and this causes a large number of businesses to fail.
1- Every business founder before going into any business should start very little, probably from a small space and source for investors when they are ready to expand, to avoid cutting their dreams of owning and properly running a small business shortly.
7- Bank Policies Is A Cause Of Business Failure In Nigeria
A lot of banks in Nigeria claim that they offer loan services to small and medium businesses but their policies are also killing a lot of startups and businesses.
I recently enquired about a bank loan for a new business and the terms and conditions attached would make a small business choke to death. One thing is this, their loan policies are too difficult and in the long run, make the small business struggle so much to meet up making the small business working solely just to pay up the loans.
Small businesses and startups due to the pressure to succeed during the early phase rush to banks to get as many loans as possible to grow their business to an extent with the hope that their hard work pays off before the due date for the loan expires.
But during that period, if they face a lot of challenges and are not able to meet up with paying back, they would have no other choice but to submit to the banks where they collected loans from causing the business or startup to fail.
It’s not new news that in Nigeria, electricity is in a dilapidated state.
A lot of small businesses can’t even boast of four to eight hours of steady electricity supply and this is a factor killing startups in Nigeria.
Every startup or small business needs electricity to perform basic functions like the operation of computers up to secondary functions like operating machines and equipment needed for daily operations of the business.
When there is no electricity supply, they make small businesses source for other means of power supply like the popular generators in Nigeria.
The cost incurred from buying fuel for these generators is no joke and they take a toll on the company’s income.
If that startup is not able to meet up and it becomes consistent, that startup ends up failing.
Poor electricity supply is a big factor for business failure in Nigeria and it has been helping so many businesses fail.
1- Increase in power supply would increase the rate of small businesses springing up and also aid the GDP of the country.
What Do You Mean By Startups
Startups are organisations, business ventures or new companies designed for rapid growth.
Startups are usually owned by their founders also known as Startuppers.
Do Startups Pay Well
Startups are new businesses and most don’t make a lot of money at that time so they usually don’t pay well until they are fully settled and gain good grounds in the business.