Personal Finance

Why startups fail and what we can do to mitigate collapse

STARTUP-WHEEL

Starting and running a successful business venture is not for the faint-hearted. Successful business owners must possess the ability to mitigate company-specific risks while simultaneously bringing a product or service to the market and have a unique selling proposition that can be used for a company to build its competitive advantage.

Did you know?

According to a survey done by the Nation Media Group, 154,155 businesses are registered in Kenya and out of these it translates to an average of 428 businesses registered in a day.

Current statistics stipulate that in Kenya alone there are 7.14 Million SMEs in Kenya and 70 per cent of these fails. The government through allocation of the 2021-2022 budgets, set aside an additional  Sh2 billion for the credit assurance scheme for the SME sector. It is also projected that 70 percent  of employment opportunities come from the SME sector.

To safeguard a new or established business, it is necessary to understand what can lead to business failure and how each obstacle can be managed or avoided altogether. The most common reasons small businesses fail include the lack of capital or funding, retaining an inadequate management team, a faulty infrastructure or business model, and unsuccessful marketing initiatives.

Financial needs

To help a small business manage common financing hurdles, business owners should first establish a realistic budget for company operations and be willing to provide some capital from their own coffers during the startup or expansion phase.

Many of these companies need to opt for funding through investments such as angel investing or through venture capitalism. When the time comes to obtain funding, business owners should already have a variety of sources they can tap for capital.

Inadequate management team

Smart business owners outsource the activities they do not perform well or have little time to successfully carry through. A strong management team is one of the first additions a small business needs to continue operations well into the future.

It is important for business owners to feel comfortable with the level of understanding each manager has regarding the business’ operations, current and future employees, and products or services. This will make the working environment friendly and will be able to give the company more returns.

Faulty business model

A business model is basically the impact that a business has on a community or society. An example is a brand like Safaricom. Through its years of existence, it has a well-rooted business model and the main value it adds to the customers is uninterrupted network accessibility.

The business should be backed up with a sound, objective, and measurable business plan that will automate quality and quantitative results. This will help keep track of better and more substantive results.

Mishaps in marketing

When companies underestimate the total cost of early marketing campaigns, it can be difficult to secure financing or redirect capital from other business departments to make up for the shortfall.

Marketing is a crucial aspect of any early-stage business, it is necessary for companies to ensure that they have established realistic budgets for current and future marketing needs and to ensure they are adaptive and versatile.

Similarly, having realistic projections in terms of target audience reach and sales conversion ratios is critical to marketing campaign success.

And most importantly is the drive to achieve and prosper and provide value to its clientele.