Small Enterprise

Why many businesses fail shortly after launch

Shanga Zetu trader Thomas Muli at his shop in City Market, Nairobi. PHOTO | ANTHONY OMUYA | NMG
Shanga Zetu trader Thomas Muli at his shop in City Market, Nairobi. PHOTO | ANTHONY OMUYA | NMG 

Have you tried your hand at some small business but it failed to see its second or third birthday? You could be among a handful of would-be entrepreneurs who have tried and failed. But you were not alone.

A 2016 survey by Kenya National Bureau of Statistics reveals that almost 400,000 micro, small and medium enterprises (MSMEs) did not see their second anniversary in the last five years. And 2.2 million MSMEs closed shop during the years under review. This results in loss of jobs and tax revenue.

The survey reveals that most of these businesses collapsed because of declining income and losses incurred from increased operating costs, tough economic environment and faulty business decisions.

But what could have been done to grow these ventures to the next level?

SME Centre of Excellence chief executive Susan Macharia acknowledges the rough terrain startups walk growing their businesses.

She, however, says budding entrepreneurs should embrace the culture of involving experts, especially coaches and mentors as this will cushion them from faulty business decisions and losses that eventually cost them their vision and investment.

Ms Macharia says ideas never come out fully formed and that’s where a coach comes in — to help the entrepreneur discover their strong and weak points.

“A coach is more like a referee during a football match, he’s able to see more than the players can see happening during the match,” she says.
Ms Macharia says startups owners also need to network as research has shown that “referral based business systems” create opportunities to survive hard times, create a strong clientele base, enabling them to withstand the turbulence and establish stable businesses.

Ms Macharia adds that networking skills are key to establishing trust — a key pillar for meaningful business referrals.

“Don’t walk alone. Entrepreneurship can be such an exhausting and draining walk if embarked on as a loner. Join an entrepreneurs club, an organisation for entrepreneurs, a group of investors or a support group,” she says.

Roofings Group of Companies managing director Sikander Lalani says making painful decisions and avoiding the ‘copy and paste’ approach is the best strategy for growing a micro-enterprise.

He says when he was starting out in the 1970s, he would work from 8am to 3am.

“I would have breakfast, lunch and dinner at the factory. The family missed out on a fatherly figure,” says Dr Lalani.

On planning to venture into business, Daniel Ohonde, former chief operations officer at African Development Bank says one should ask: Do I really have the necessary skills for running this kind of business? This, he says, helps an entrepreneur address local business challenges before thinking global.

He asserts that most SMEs are founded as ‘side-hustles’. The owners run them alongside their formal jobs hence fail to give them the attention they deserve for systematic growth.

“With time, such businesses die since they lack the professional structures required to run a serious venture”.

However, Kenya National Chamber of Commerce and Industry chairman Kiprono Kittony says entrepreneurs should lay out a plan on how they want to grow the business to the next level to avoid premature collapse.

He shares sentiments with Dr Lalani that most SMEs die out because they copy business ideas, styles and approaches from one another. This, he says, floods the market with the same products making it hard to sell.

Kenya Association of Manufacturers chief executive Phyllis Wakiaga says most startups never look beyond their noses — they are interested in quick cash.

She advises entrepreneurs to put in place a basic system to record daily operations. This, she says, gives an insight into any business developments or drawbacks to be addressed.