10 reasons why African businesses fail
It’s no secret that many African businesses fail because of an unprofitable business model, poor management, or simply bad luck. But why do some businesses fail while others succeed?
I’ve realised that it’s a complex issue that requires a deep analysis of the African business environment, culture, and economic instability. By studying business failure in Africa, we can learn from the mistakes of others and identify successful strategies that can help propel businesses to success on the African continent.
Common reasons for failure
There are many common reasons for business failure in Africa. One of the most common is a lack of understanding of the local market. Without an adequate understanding of their target customer base, African businesses can struggle to remain competitive. In addition, failed African businesses often suffer from a lack of strategic planning, inadequate market research, and insufficient capital investments.
Raising money in Africa can be difficult due to a challenging business environment that is characterized by limited access to capital, high-interest rates, and a lack of investor confidence. Countries also face political and economic instability, which can make it difficult for businesses to secure funding.
Additionally, the absence of a well-developed capital market makes it difficult for companies to access alternative forms of financing, such as bonds and equity. Here are ten concrete reasons that I’ve discovered from working with African businesses as to why some fail:
1. Insufficient Planning ⭐
Having a solid business plan is essential for any business, especially in Africa. African businesses that fail to plan appropriately are more likely to suffer from weak sales pipeline, poor time management, lack of innovation, and inadequate customer service.
By having a well-defined plan, businesses can more easily identify potential problems and create strategies to mitigate them. You should contact Excel Master who has worked with numerous founders locally and from the diaspora to create thorough business plans. Many members of our team are XNTJ’s, so planning is innate to us. A business plan conducted by Excel Master will include 10 highly detailed sections:
- Executive Summary: A high-level overview of the business, including its mission, products, target market, and financial projections.
- Company Overview: A detailed explanation of the business structure, ownership, management team, and history.
- Market Analysis: An analysis of the industry, including market size, competition, target market, and trends.
- Product and Service Offerings: A description of the products and services offered, including their unique selling points, production processes, and packaging.
- Marketing and Sales Strategy: A plan for how the business will reach and acquire customers, including advertising, promotions, and sales channels.
- Operations Plan: An explanation of how the business will operate, including the location, equipment, supply chain, and staffing requirements.
- Financial Projections: A projection of the business’s revenue, expenses, and profitability over a period, including detailed assumptions and calculations.
- Funding Requirements: A discussion of the funding required to start and grow the business, including a breakdown of costs and the sources of funding.
- Risk Analysis: A discussion of the risks associated with the business and a plan for mitigating those risks.
- Conclusion: A summary of the key points made in the business plan and a call to action for potential investors or partners.
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2. Financial Struggles ⭐
Financial struggles are another major factor that can lead to business failure in Africa. Access to resources is limited and African businesses may struggle to find the capital they need to start and operate their business. Additionally, African businesses often experience economic instability, making it difficult to anticipate and plan for the future.
For example, the high inflation rate and depreciation of the Naira in Nigeria can have a significant impact on businesses, making it more difficult for them to succeed. The rising cost of goods and services can reduce consumer purchasing power, while the weaker Naira can increase the cost of imported goods and raw materials.
This can lead to reduced profits and difficulty in keeping up with the increasing costs of doing business, eventually causing businesses to fail. The fluctuating economic conditions can also create uncertainty, making it harder for businesses to plan and operate effectively.
3. Lack of Innovation ⭐
Another common reason for business failure in Africa is a lack of innovation. The African market is highly competitive and businesses must strive to stay ahead of the curve in order to remain successful. By failing to stay current on trends and technologies, businesses may miss out on opportunities to grow and remain competitive.
For example, there is a lack of innovation in Nigeria’s fintech sector. It hinders the growth and competitiveness of the industry. Many fintech companies in the country offer similar products and services, leading to intense competition and low differentiation.
This lack of innovation can result in limited growth opportunities, lower market share, and reduced profitability. To address this challenge, fintech companies in Nigeria need to focus on developing unique products and services that cater to the specific needs and demands of their target customers. This will help them to stand out in the market and drive growth.
Excel Master offers FREE Needs Assessments that give you Business Intelligence and Financial Health scores. To have this session, please book your consultation here.
4. Ignoring Online Presence ⭐
In today’s digital world, having an online presence is essential for businesses to succeed. African businesses that don’t take advantage of online channels to reach their target customers are likely to miss out on potential leads and sales.
Ignoring an online presence is a common mistake made by many businesses in Africa, despite the growing popularity of e-commerce.
According to recent reports, the e-commerce market in Africa is set to grow significantly in the coming years. By establishing an online presence now, businesses can tap into this growing market and reach a wider audience. A strong online presence can also help businesses increase their visibility and improve their customer engagement, leading to increased sales and revenue.
Excel Master has worked with numerous companies to develop a dynamic Sales Strategy that covers multiple sales channels for all your revenue streams. You can kickstart this process with us today.
5. Neglecting Customer Service ⭐
Providing excellent customer service is a key factor for success in any business. African businesses that neglect customer service are likely to experience high customer churn rates and low customer satisfaction.
Customers expect prompt, efficient and professional service, and businesses that fail to provide this are likely to lose customers to competitors.
Inadequate training, high staff turnover and a lack of investment in customer service infrastructure all contribute to poor customer service. This not only impacts a business’s reputation but also leads to decreased sales and profitability. To succeed, businesses must prioritize providing high-quality customer service and invest in the training and development of their staff.
6. Inadequate Market Research ⭐
Having an understanding of the African market is essential for any business to succeed. Without adequate market research, businesses may struggle to understand their target customer base, competitors, and industry trends.
Conducting market research in Africa can be challenging due to a lack of reliable data sources, a low rate of literacy and education, limited access to technology, and cultural barriers that may impact the accuracy of survey results.
The market is also highly fragmented, with limited resources for collecting and analyzing data, making it difficult to obtain a comprehensive understanding of the market and consumer behaviour.
Excel Master has special access to tools and communities that can make conducting market research easier. We have successfully helped many business owners gain greater insight into their value chain, competitors, ideal customer profiles and market trends. To find out more, book a session with us today.
7. Insufficient Capital ⭐
Access to capital can be difficult for African businesses, which can lead to financial struggles and eventual business failure. African businesses should have a plan to secure adequate capital to operate and grow their business. Many of our clients have come to us with a cash runway of under 3 months. This is incredibly stressful for Founders and Employees.
Many businesses in Nigeria struggle to secure financing from traditional sources such as banks due to high-interest rates, stringent lending criteria, and limited availability of capital. This lack of access to funding can limit their ability to invest in new equipment, expand their operations, and hire new employees.
As a result, businesses may have to rely on personal savings or other unconventional sources of funding, which can be risky and unsustainable in the long term. This lack of resources can impede the growth and success of businesses in Nigeria.
If you’re a Nigerian business that is looking for funding, then you would sincerely benefit from this comprehensive list of where to get funding via VC funds, PE firms, Angel investors, Grants, Loans and more.[/vc_column_text][/vc_column][/vc_row]
8. POOR TIME MANAGEMENT
Time management is essential for any business, especially in Africa. Without proper time management, businesses can find themselves behind schedule and unable to meet their goals.
In Nigeria, a culture of tardiness has become a common issue in both personal and professional settings. This lack of punctuality can negatively impact business operations by causing delays and reducing productivity.
Meetings and appointments may start late, causing a domino effect of delays throughout the day. This not only wastes time but also impacts the reputation of the business and its ability to effectively collaborate with other companies.
It’s important for businesses to foster a culture of punctuality and establish clear expectations for timing in order to maintain a professional and efficient work environment.
9. FAILING TO ADAPT TO CHANGES
The African market is constantly changing and businesses must be able to quickly adapt and adjust their strategies to remain competitive. Businesses that fail to do so are likely to find themselves struggling to compete.
An example of a Nigerian business that failed to adapt to changes is Nigerian Telecommunications Limited (NITEL). NITEL was once the largest and dominant telecommunications company in Nigeria, providing telecommunication services to the government and consumers. However, the company failed to keep up with the rapid advancements in technology and changes in the telecommunications industry.
As a result, NITEL became outdated and inefficient, losing market share to newer, more technologically advanced companies. Despite multiple attempts at restructuring and privatizing the company, NITEL was unable to compete and eventually went bankrupt.
This demonstrates the importance of adapting to changes and staying competitive in a rapidly evolving market, particularly in the technology sector.[/vc_column_text][deeper_link][vc_single_image image=”9210″ img_size=”full” alignment=”center”]
10. LIMITED ACCESS TO RESOURCES
Access to business resources is limited in Africa, making it difficult for businesses to find the resources they need to operate and grow. Businesses must find creative solutions to access the resources they need to succeed.
An example of a lack of resources that Nigerian businesses may face is the shortage of skilled labour. The unemployment rate in Nigeria is high, but there is a shortage of skilled workers in certain industries, such as technology, healthcare and engineering.
This makes it difficult for businesses to find qualified employees who can help them grow and compete in their respective markets. As a result, businesses may have to invest more time and resources into training and development, which can be costly and time-consuming.
Additionally, the high turnover rate of employees can further strain the business, as they have to constantly recruit and train new workers. This lack of skilled labour can hinder the growth and productivity of businesses in Nigeria.
top ten takeaways
1. Have a solid business plan to identify potential problems and create strategies to mitigate them.
2. Understand the local market and stay current on trends and technologies.
3. Have an online presence to reach potential customers.
4. Provide excellent customer service to reduce customer churn and increase customer satisfaction.
5. Conduct adequate market research to understand your target customer base, competitors, and industry trends.
6. Have the plan to secure adequate capital to operate and grow your business.
7. Implement proper time management to ensure goals are met.
8. Be able to quickly adapt and adjust strategies to remain competitive.
9. Find creative solutions to access the resources needed to succeed.
10. Understand common African business failure patterns in your country and create strategies to prevent them.