Despite several incentives to support small businesses, most of them still fail in the first year, IFE ADEDAPO writes on factors that contribute to this
Owing to worsening unemployment in the
country, which stands at 54 per cent, going by the statistics released
by the Nigerian Bureau of statistics, many Nigerians have had to start
their own business.
However, business failure has been a
common phenomenon in a developing economy and it has been discovered
over time that small businesses fail more than large scale enterprises,
although the latter have their own challenges.
Experts say business failure starts
gradually and if the owner is not aware of the early sign, it may have
devastating effect on the survival of their businesses.
Experts have identified common pitfalls facing young proprietors in Nigeria, to guard against persistent failures.
Lack of objectivity in decision making
Experts say most people are subjective
about the way they respond to the people, circumstances, and events in
their individual lives. This is because they care so much about other
peoples’ opinion rather than what is right.
According to an entrepreneur, Andrew
Bolis, caring about what others think may lead to a disappointing and
unfulfilling life. When such people look back on their life, they feel
terrible when they realise that most of the choices they made were
strongly influenced by the opinions and judgments of others instead of
their own preferences.
In the same vein, the Faculty Director,
Soar & Heritage, Sola Adeyiga, says the primary responsibility of
every business leader is to make decisions. Business owners at times get
too emotive in their decision making and take critical business
decisions subjectively rather than basing them on facts.
For instance, he says initially when they
start their businesses, they employ over five members of staff, some of
them out of pity. Eventually, when business operations don’t go as
planned, they have no choice but to lay off some of them in a bid to
reposition their businesses.
The same staff who are employed out of
emotion still challenge companies to pay their outstanding salaries when
they are being sacked, even when it is clear that the company ran at a
loss throughout the period in question.
Adeyiga says business leaders should be
very frank, objective and fair in making decisions. They should be ready
to fire any employee that is consistently under-performing; be ready to
move their account if bankers do not deliver reliable services; be
ready to change a supplier if he/she is not giving them a competitive
rate. According to him, the best decisions that favour the company most
must be taken at all times.
Wrong parameters for measuring business success
The faculty director says most
entrepreneurs are under pressure to succeed. This is partly driven by
the pressures their families, ex-colleagues and friends directly or
indirectly put on them.
He says,”There is a myth that once you
work for yourself, you must ride a very big jeep to show for it and if
this is not the case, your business is not doing well. Unfortunately,
business owners also key into this psychology. They do everything to
live big even at the expense of their businesses. They just need to give
the impression that business is good, even if in the real sense, it is
not.”
For instance he says, “I heard of how an
hotelier inflated the cost of completing a building project which he was
proposing to use for his hotel business and eventually succeeded in
seeking a debt from a commercial bank on the inflated budget.
Immediately he received the first disbursement, he bought two brand new
SUVs and everyone believed business was good. However, after few years,
the hotel was taken over by the bank as the cash flow from the business
became insufficient to meet the monthly obligation on the facility. This
was because the hotel was expected to pay back a debt that was never
invested in it.”
Entrepreneurship, according to Adeyiga,
should reflect in all decisions as regards investment, family, life and
other areas, not just in business. Every kobo spent must create value.
The fact that ex-colleagues who are still in paid employment now drive
big cars is not enough reason why small business owners need to strain
their business in order to get one.
“I want to grow fast” syndrome
Experts say if a business grows too
quickly, or expands too much, it can experience financial, legal,
staffing, resource and supplier problems. Therefore, for business growth
to be successful, it should be sustainable.
To guard against this pitfall, Adeyiga
says businesses should grow organically. Growth should be pursued only
when the business has the capacity to withstand shocks. When you pursue
growth by all cost, it simply puts pressure on the finances of the
business.
Citing an example of a potential business
partner who opened up to him on how he got a facility of over N60 m
from a commercial bank to purchase brand new trucks to expand his
haulage business, he says while the bank advanced the credit on the
merits of the contract and the financial projections, it failed to
consider the operational capacity of the company to effectively utilise
the assets. Due to operational inefficiencies, the business could not
meet the monthly obligations on the facility, while the bank continued
to charge various penalties on the loan.
Although, the faculty director says he is
a strong proponent of business growth because a lot of benefits come
with size, he does not support forced growth. According to him, a growth
that is forced on the business will not last. From his experience, the
best time to grow is after the business has survived its storming stage.
At that time the entrepreneur is likely to be a master and every
additional investment will bring the desired results.
