Business Management

21 Reasons Businesses Fail In Nigeria

Reasons Businesses Fail In Nigeria

Businesses don’t just fail. Some things are responsible for such failures. In Nigeria, I have reviewed some of the reasons businesses fail and what you can do to prevent your own business from failing this year.

Investopedia also listed 6 reasons new businesses fail in a report on its site. While those 6 are valid, this post explores many more reasons, which are also peculiar to Nigerian businesses – whether they are startups or existing businesses.

The idea of Reasons businesses fail is to create watch lists for entrepreneurs who are looking to grow their business can avoid. Most of what causes businesses to fail are in the businesses itself. They could be what should have been done or not to have been done.

This report would seek to explore these watch lists, explaining how they could impact negatively on your business, and what you could do to prevent those negative outcomes.

✅ Understand Reasons Business Fail

Sometimes there’s erroneous belief that once a business is successful it can never fail again. Those perceptions are fallacy. One should think about Nokia phones and relive their experience. Nokia was leading the mobile phone industry, but all of a sudden it vanished and lost all of its market.

Successful businesses can fail. Business failure can happen at any time in the life of a business. Even when sales seems to be increasing, it may nor be so for your repeat sales volume.

If the business is failing to retain existing customers, it won’t be long before potential customers starts seeing the same problem.

It’s not only unsuccessful businesses that fail. A business can fail at any level. But it’s within your power to quickly identify those signs that’s pushing your business into failure.

✅ Understanding Business Growth

The idea of starting any business is so that it would grow. But sometimes, growth can be deceptive. It’s not all growing business that is growing to be successful. Some growth are just trends that would fade out with time.

Any business that’s not built on a long term human problem would eventually fail – unless it changes its direction towards something else along the line of business.

Growth can be exhausted. Some kind of growth can also be a sign of an end. That’s why some businesses fail even when they seem to be doing well at the time. You have to understand what kind of growth your business is experiencing. Because failure is often found in growing businesses.

If you are wondering what could cause business to fail, here’s a list of my pick below, and you can add yours in the comment section as well:

🔹️No Business Plan
🔹️No Marketing Plan
🔹️Not Understanding Your Real Business
🔹️No Adequate Experience
🔹️No Proper Funding
🔹️Low Customer Retention
🔹️Hiring the Wrong People
🔹️Wrong Choice of Location
🔹️Targeting the Wrong Customers
🔹️Using Social Media Wrongly
🔹️Not Understanding Your Best Marketing Channel
🔹️Not Managing Cashflow Properly
🔹️Too Much Overhead Cost
🔹️Not Having Appealing Brand Image
🔹️Poor Quality Products or Services
🔹️Over Pricing and Under Pricing
🔹️Bad Customer Reviews
🔹️Selling With Fraudulent Intent
🔹️No Customer Support
🔹️Bad Service Delivery
🔹️Using Wrong Data

✅ No Business Plan

A lot of Nigerian businesses overlook writing a business plan when starting their business. Maybe because they don’t seem to understand the most important reason for writing a business plan.

However, for those who had a business plan, it’s mostly outsourced to a consultant. That in itself is equally not good enough. While the purpose of business plan is to give direction to your business idea, it also conveys the spirit of the business.

If you must outsource it, let it just be the writing of it and not the concept and direction of your business.

Moreover, it’s a great business sin not to write a business plan when starting your business. It doesn’t matter how small the business is – every business needs a plan to give it the best direction possible.

Failure to do so means you have a business without direction – and starting out without proper direction is prone to failure. Not having a business plan is in itself a plan to fail.

✅ No Marketing Plan

The most important success factor of any business is marketing. Without marketing you don’t have a business. If you don’t plan your marketing you are not expecting any form of success in your business.

It’s either you are doing trial and error or you are just an ignorant startup. If you are hoping that customers would walk in to buy from you, then you have to position your business where customers can walk in and buy.

But if your marketing strategy is not to target walk in customers, which in itself is a marketing plan, you need to plan how you intend to market your business to potential customers.

✅ Not Understanding Your Real Business

One of the biggest mistakes for most startups is not understanding their real business. I want you to do a brain game. If you are sick, where do you go to? When you are hungry where do you go?

You must be able understand your business like this. If you don’t understand your real business you will be trying to sell to the wrong customers – and they won’t be interested in your offer.

Another scenario for a brain game is this – What’s the business of a hotel? A hotel primary business is to provide hospitality. If your hotel is not competing to provide customers with hospitality services, then that hotel doesn’t understand it’s real business.

If a startup or any business fails to understand what it’s real business is, it’s a business likely to fail.

✅ Not Defining Your Business Properly

If you understand what your real business is, you are now able to define it properly to your target customers. You will be able to use the right words to attract the right customers. You will see what your competitors may not be seeing in your industry. It will Position to think ahead, plan ahead and introduce futuristic products that beats any competition.

This is so important because every business has a niche. The clearer you can define what niche you are serving the easier for customers who needs you can identify your business in the midst of the crowdsourcing market.

But, if you can’t define your business, it’s left for each customer to try to guess what your business represents. And that could cost you more customers and might likely cause your business to fail.

✅ No Adequate Experience

Experience is the best teacher, but most startups lack this very vital ingredients that could make their business very successful.

If you study the Igbo traders in Nigeria, one thing that distinguished them from other tribes is their apprenticeship program. This program helps to groom successful entrepreneurs . The success of this apprenticeship program has been a case study in Harvard.

You need the right experience in any business you want to engage in. If the Igbo’s could employ apprenticeship in common buying and selling business, there’s no business that doesn’t require apprenticeship.

If you lack the right experience it’s might eventually cost you time, money and success. Even if you appear to be doing well, little challenge can cause the business to fail.

✅ No Proper Funding

Money answers all things. Getting the right funding for your business is key to avoiding one of the pitfalls of business failures. The amount of funding available to a business can be directly responsible for its success.

Most startups lack this all important funding. They are either starting on a shoestring budget or struggling with low Cashflow. If your business lacks funding, it’s like lacking oxygen.

Get proper funding or you could be risking your business failing. It shouldn’t be too much or too little funding – non of it is good for your business. What you need is the right funding to be successful.

✅ Low Customer Retention

Customer is the life blood of any business. Businesses exist for customers. Without customers you cannot have a business. So, you have to do everything possible, not only to win more customers but to retain existing customers.

If your customer retention level is low, your business is at the risk of failing. You have to watch how many customers you are retaining. It’s more important than how many customers you are wining.

You can say your customer retention level is good if your repeat sales is growing. If your customers don’t come back to patronize you, check what you are offering, and what your competitors are doing better than you.

✅ Hiring the Wrong People

Some people don’t deserve to work for you. It doesn’t matter whether they are family members or friends. Your business should have employee handbook that defines the roles, qualifications and character of the people you employ.

Three things that must define your employees are experience, intelligence and character. Note that educational qualification wasn’t part of the three. If the person is not experienced they make a lot of mistakes. If they are not intelligence they lack ability to make good judgments. Without character they chase away valuable customers and partnerships.

If you already have people working for you, revaluate them by these three factors. It may be time to fire and hire new workers.

Don’t allow your employees destroy your business. And if you have these three factors as your hiring watch word, it protects you from favoritism and wrong hiring.

✅ Wrong Choice of Location

Every business is based on location. Even an online business deals with location. If you ignore location choice in your business, you will be missing the target. Target-less marketing is easy road to failure.

Location helps you identify the right customers for your business and focus your marketing to eliminate waste and increase ROI per CAC (customer acquisition cost). If you have higher CAC its either increasing the cost of your product or service – or it’s decreasing the revenue of your business.

Don’t take location for granted. Businesses fail because they ignore the importance of location to their business. There are markets in Nigeria that are known for selling certain products. Those who sell or buy those kind of products go to those markets.

If you locate outside those markets, you will be missing out of very important customer based – especially if you sell in bulk.

✅ Targeting the Wrong Customers

Your product is not meant for everyone. To think that anyone would buy from you is an expensive error in marketing. It’s not everyone that needs your product. Your business should have a niche market.

If you try selling to everyone you will be wasting your marketing resources and getting little or no results. This mistake is what makes businesses fail. The wrong customers won’t patronize your business.

Identify who your customers are and focus mainly on them. That would help you save cost, and also reach out to mainly those who are more likely to buy from you. While saving you from those who may like your product but may never buy because they may never need them.

Your target customers are only those who have immediate problem your business is providing solution for – and who are also willing to pay for it

✅ Using Social Media Wrongly

You can use social media wrongly. That would cost you a lot too. The reason for social media is to engage with your customers, and not really for advertising. That’s not to mean you can’t advertise on social media. But you should advertise the right way too.

Learn to explore social media marketing the right way. The powerful nature of social media helps you warm yourself into the hearts of your customers. If you do it well. It’s stronger and more effective than even advertising.

Many startups fail to explore this advantage and it’s costing them so much. And if you use social media wrongly it has its adverse effects, which including helping to fuel customers rejection that causes your business failure.

✅ Not Understanding Your Best Marketing Channel

Advertising is important to the success of your business, but you have to understand the best channels for your business. There are different types of marketing strategy that works that you can apply.

If you understand what works best for your business it’s better and would be more cost effective. It can also effect your business wrongly if you are expending resources on the wrong marketing channel.

How to know the wrong marketing channel is if the result is not commiserate to the kind of cost you are expending on a marketing channel. You have to identify what channels are giving you the most result at a reasonable cost.

✅ Not Managing Cashflow Properly

Cashflow is an integral part of business success. You must handle your Cashflow well. A healthy Cashflow means your business is healthy. And it’s vice versa.

Cashflow can be negative or positive. For someone who doesn’t understand Cashflow – it means how money comes in and goes out of your business. A record of how much goes out of your business for what purpose, should be followed by how Much comes in.

If Cashflow is not managed properly your business is at a risk of failing. Most companies fail because the money is flowing out into things that doesn’t support the growth of the business. If that’s your business situation, it’s bound to fail at some point – sooner than later.

✅ Too Much Overhead Cost

This one is directly related to Cashflow. But the reason I’m singling it out is because some startups tends to ignore it, especially if the Cashflow is seemingly healthy. They assume every overhead is part of the cost of business operation.

Some overhead cost could be too much and needs to be reduced. Being able to identify those overheads costs and cutting them down can save your business from failing. But where they were not discovered, a business can continue until these costs destroys the business.

✅ Not Having Appealing Brand Image

Image is everything. The kind of impression you create about your business has a way of attracting the right customer base to it. If your brand image is appealing to the target customers, they will not only patronize you but also refer you to their network.

If the brand image is not appealing, it might only be attractive to the wrong customer base. Your brand image tells your business story in a way nothing else can. If the story it tells is bad the result will be bad for your business.

Also, an appealing brand may lose its appeal over time. You have to constantly reappraise your brand appeal and reposition to trends driving your market.

✅ Poor Quality Products or Services

A Japanese proverb says – good thinking, good product. If the thinking is right, it will necessarily produce good product, which will equally attract good customers. We can say, good thinking will produce good products that good customers would patronize.

In the same way, poor quality products is bad business. While some may get away with selling poor quality products for a while, the business eventually fails as more customers discovers the scam.

The real business growth lies is repeat sales. But where the product quality is poor, repeat sales is difficult.

✅ Over Pricing and Under Pricing

Sometimes it’s difficult for startups to properly price their products. A little overpriced or underpriced could hurt your business in ways you never imagined. Pricing product is an integral part of successful businesses.

However, the problem is not really about the over price or under price, but how you come up with the price. If you deliberately priced your products, then you are then prepared for customers reactions and inactions as well.

Not many businesses gets away with over priced products. It can only work if your product is high end and your target market is luxury goods customers. If you are dealing with mass market, over priced model will kill your business. Same way under priced model won’t help your revenue either.

✅ Bad Customer Reviews

Don’t do things that attracts bad customers review. A lot of buying decisions today are based on reviews. Like they would say, the Internet doesn’t forget. As online platforms provides avenues for documenting customers experience with your business, you should be careful what they are saying about your business.

I noticed that most businesses don’t take this seriously. You may not even know how much damage bad customer reviews are doing to your business. If you are offering any service that has online presence, always scan the net to know what customers might be saying about your business.

To erase bad reviews, try to create better reviews by creating better customer experience. Intentionally over pamper your customers and after a better service experience, ask them to write a review about their experience. If possible let be on the same platform you found bad reviews of your business.

However, don’t try manipulate customers to drop good reviews about your business. Rather, improve your service and let it speak for you.

✅ Selling With Fraudulent Intent

Don’t think people can’t read through your intentions. If you have a fraudulent mindset it will show in everything you do. It won’t be long before customers starts classifying you as dubious.

Words spreads faster than you can imagine. And before long people won’t like dealing with you. Businesses fail faster if the owner has a fraudulent mindset. If you are always thinking of ways to cut corners to make more profits, you have a fraudulent mindset.

There’s no way you can hide a fraudulent mindset for too long. It will always find a way to escape and find expression in what you do. And if you noticed that you have a fraudulent mindset, don’t try to deny it, rather create systems in your business that can help automate processes without your personal involvement or manipulations.

✅ No Customer Support

This one is a major problem with businesses in Nigeria. Support is never part of what they offer. Lack of customer support is a major reason most businesses never experienced repeat sales.

Customer support is not really about treating customers well but solving customers problems. They are two different things. If you solve problems customers will always return back to patronize you.

But if you don’t provide support, your customers will end up looking for solutions elsewhere and eventually find another business that provides same services as you. Each customer lost is additional revenue lost. More loses causes business failure.

✅ Bad Service Delivery

How your customers feel after transacting with your business can either be good, better, bad or worse. Choose your options wisely.

Most Nigerian startups fail for this singular reason. There services leave a bad taste for the customers. And most of them blame the economy and never get to know some of the reasons their business failed.

Although, part of the reason for bad or poor service delivery is hiring the wrong people. If you want to deliver better services, use the best in your industry. There’s a huge difference between an employee who works for the pay and one who works to be paid.

✅ Using Wrong Data

Businesses are built on authentic data. You need data to make realistic business projections and to perform effective marketing. Most startups are either not willing to pay for authentic data or ignorantly work with assumptions.

The easiest way for any business to fail is to work on wrong data. It will mess up your projections and mislead you in every way.

To avoid this, always hire the right consultants to do your work for you. Note that most of the information you find online are based on assumptions of the writer. Hiring a consultant that would conduct physical study when needed is a good investment. It will cost more but it’s ROI will far outweigh the cost.

✅ Conclusion

This list is to help you find what areas your business is lacking and how to correct them. I believe that anyone reading this article up to this point really wants to know how to stop the business from failing.

These are just symptoms. But it will help you diagnose the real problem in your business. Every symptom is a sign of a problem on the way. Dealing with the symptoms early would prevent the problem in the future.

You may also need a consultant to help you find better ways to protect your business from failing. Sometimes, you need someone else to take a look at how you do your business, to help you discover what you may have overlooked.

Chinedu David
About The Author: Chinedu David An inspiring writer with several years of experience in journalism, consulting and training. Worked with Success Digest magazine for over a decade. Founded MyStore - an online store in 2013. Trained several startup entrepreneurs in telecom sector, LPG (oil & gas), and on Cryptocurrency investment. A born again christian, who's committed to spreading the gospel of Jesus Christ with passion. Drop a comment below and he will respond to your query. He can also be reached via email: nedu@myblog.com.ng or Call/Text/WhatsApp: 07087770518
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