Let’s face it, 80% of new businesses and startups will fail for one reason or another within the first three (3) years of getting started. Why is this so?
New startups are coming up everywhere throughout the nation with Lagos and Abuja being the Silicon Valley of the majority of these startup businesses. Nigeria has the largest startup ecosystem in Africa coming ahead of Kenya, South Africa & Rwanda. There are plenty of positives however the reality remains that 80% of these new startups and businesses fail within the initial three years of starting.
Venture-backed startups have been around in Nigeria for half a decade now, but there still has not been a significant breakout success in the ecosystem. Notwithstanding the fact that the market valuation of Nigerian startups has grown significantly over the past few years due to the population of the country and the total addressable market.
It’s unforgiving yet a reality. There are various reasons why startups fall flat and in the wake of experiencing a significant part of the web. Here are 5 reasons why the majority of startups fail in Nigeria;
1. Poor Marketing.
The effect of marketing on the success of a startup or business cannot be overemphasized. There is this old saying that says “If you build it, they will come”. Which is the no longer the case. Most Nigeria founders (especially in the technology scene) are more fascinated by building a great product rather than finding a way to sell it.
Knowing your target audience, knowing how to get their attention and convert them to leads and ultimately to a customer is one of the most important skills of a successful business. As much as you need a great product to win, you also need a great marketing strategy to convert that product into a continuous source of revenue.
2. Building the wrong product.
Building a product without really validating if that is the right product for the market is a total roadmap to disaster. When building your product, you have to greatly consider who your potential users are, what skill sets do they have and what are the existing solutions they are familiar with.
For most startups, it is almost impossible to build a perfect product from the start. This is why you have to adopt the Lean Startup Methodology that says Build ~ Measure ~ Learn. First, build a Minimum Viable Product (MVP), push this product out to a few users and measure how they interact with the product. From your learnings, you are able to determine what the user really wants and prevent your startup from burning excess cash building a sophisticated product that nobody wants.
3. Running out of cash or investment offers.
It doesn’t matter how much cash you raise, without revenue generation you will eventually run dry. A typical Nigerian startup founder believes raising money is a key determinant of success. Even though raising money can provide you with a much longer runway for your business, mismanagement of this funds is the key reason why major startups fail in Nigerian.
When a Nigerian startup gets a VC fund, the first thing that comes to mind is setting up a fancy office, scaling the team too quickly and paying for unimportant PR. Cash isn’t everything when it comes to starting a business, but when you run out of it, there’s not much that can help. Many startups that have failed in Nigeria, aren’t insolvent or even unprofitable, they just ran out of cash. The biggest mistake to be made is carelessly spending money on features that are not needed or spending your marketing budget with no control in measuring what you are getting back.
4. Thinking short term and not long term.
Take it or leave it, building and running a credible business is one of the most difficult things you can do in your lifetime (on average it takes longer than expected). Business Owners and Startup Founders need to know that they have to be able to stay persistent, committed and not lose focus too early in their entrepreneurship journey to be successful.
Most founders get started with one of these intentions; 1) Been titled as a CEO. 2) Make quick money within a short period. 3) Escape working under a difficult boss. Very few founders start because they are passionate about solving a problem that no one else is willing to solve. Hence, when things are not working as forecasted within the first few months of starting, they easily lose focus and passion needed to carry on.
5. Weak team and poor leadership.
Another common business killer is a not having a great team or the leadership experience to assemble one. A typical example of a poor leader is one who cannot recruit and motivate the most talented people for the jobs on which the startup’s success depends.
Accessing good talent in Nigeria is difficult that is why as a founder, you have to be able to sell yourself and your idea for people to come work for you. The best talent out-there prefers to work for a standard corporation than working for a startup with a 20% chances of success. The simple reality is that if you are not a great leader, it is hard to learn to become one.
Moreover, the leadership skills you need to get a business to 10 employees are different than what a 100 person business requires.
Avoiding the above-listed mistakes, making extensive research and finding the right business mentors, will go a long way to ensuring your business is able to survive the early death trap most startups find themselves in.
If your startup has lasted the first three years, you’re lucky. You’ve been able to do something that 80% of new businesses haven’t been able to do.