Failed start-ups and the Nigerian business environment

In recent times, there has been an increase in major news platform capturing seemingly promising start-ups who arguably started out somewhat well or so it seems but would turn around to join the long list of failed starts up. Even more worrisome is that some of those start-ups would end raising considerable amount of capital to not only stay afloat but shore up through venture capital and private equity firms. Rather unfortunately and barely had such start-ups ‘broken through’ with the new capital infuse from investors, than such start-ups start to lose touch what makes business profitable, not only for the short run, but also to remain in the business game for years, decades and even much longer.

While existing literature on this topic has attempted to explain away what could have accounted for this rather disturbing occurrence and though not unaware of the challenges posed by the unsustainable foreign exchange rates and Naira depreciation as well as the seeming hostile business environment in Nigeria, this article seeks to narrow down on an aspect of business often overlooked or neglected in the rush to float a new venture – particularly one that is largely consumer driven.

In a 2011 Harvard Business School publication by Carmen Nobel on ‘Why Companies Fail – and How Their Founders Can Bounce Back’, Nobel notes that while it is not news that a good number of relatively new companies fail, experience gotten from running a company that failed could actually come in handy to help one in better advancing one’s entrepreneurial journey, provided such persons “are willing to view failure as a potential for improvement.” Failure, as used in this context could mean all assets of the start-ups being liquidated and investors losing most, or all the funds put into the company.

Carmen Nobel (in the 2011 Harvard Business School publication) would go on to cite Shikhar Ghosh, a senior lecturer at Harvard Business School who is credited to have made the point that “Very few companies achieve their initial projections…Failure is the norm.” While the assertion that only few companies go on to actualise their initial projections and failure being common among start-ups might not be farfetched given the statistics in this regard, the present writers are largely concerned with how best to reasonably reduce the number of failed start-ups, particularly, in a society like ours.

Perhaps, a good start in fixing the problem of why a good number of start-ups fail in this clime is to examine first why Start-ups fail generally. Writing on this, Carmen Nobel notes that most ‘’Start-ups often fail because founders and investors neglect to look before they leap, surging forward with plans without taking the time to realize that the base assumption of the business is wrong.” Further highlighting the problem with most entrepreneurs and a good number of them fail, Nobel writes: “They believe they can predict the future, rather than try to create a future with their customers.” The point made by the need for entrepreneurs to ensure goods and/or services they are offering customers are customer friendly or client-centric cannot be over emphasised. The ultimate test of any successful venture is not about how much of investors funds can be raked in but rather how much of customers patronage and turnover is secured from sales be it of goods or services. Better put, the success of any business enterprise would largely rely how much of customers or clients can repeat patronage and perhaps also go on to make referrals, further to excellent customer service enjoyed.

It would appear a good number of entrepreneurs jump into the execution stage of a business idea before such is even fully formed and properly tested through initial test phase

While a good number of entrepreneurs ‘tend to be single-minded with their strategies’ as rightly noted by Carmen Nobel in the Harvard Business School publication, the popular saying that consumer/client/customer is king could not be more right as such the customer/client can make or mar a business. Put differently, a truly happy and satisfied customer would make a successful business as such business stands a lot to gain in repeat patronage and possible referrals. On the other, a dissatisfied customer or disgruntled client is unlikely to repeat patronage of such good or service and would likely go on to make negative remarks about the good or service paid for but for which expectation was below that expected. Hence, why it is critical that when opening any profitable business enterprise, the target customers must be decided on, carefully studied, and well understood.

What the present writers have seen happened a good number of times in the Nigerian Business Environment is some business enthusiasts cutting across different sectors and industries alongside some specific industry centred investors or private equity firms deciding to float and fund the idea of a business enterprise before a seasoned and highly pragmatic business feasibility audit phased plan capturing: (a) the execution of the business idea through carefully thought and customer-centric phases; (b) understanding of the patronage culture of the target customers or clients alongside long standing industry culture for such good or service; (c) more sustainable route to keeping the business afloat through increasing cashflow for the business enterprise by repeated customers patronage, as opposed to focusing solely on the investors fund. The earlier businesses can realise that going the extra mile and putting in the work to secure customers patronage consistently and not realising too late that revenue generation through sales is the most sustainable way to keep such business afloat, the better.

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From our experience, it would appear a good number of entrepreneurs jump into the execution stage of a business idea before such is even fully formed and properly tested through initial test phase as proposed. What we observe is missing in some cases, beyond the other sundry factors, is the involvement of seasoned locals who understand the business terrain well and able to help the business achieve longevity through a customer-centric feasibility study done detailing target customers and past behaviour of patronage of such good or service as well as possible future predictions of patronage. Our position finds great support in a 2020 Vanguard publication where the point was made thus: “Despite the many possibilities and potentials in the Nigerian market, not so many new businesses are able to scale through the fundamental stage, and as such are either forced to relocate or perhaps fold up…many of these businesses share similar key issues that led to their respective failures, including a lack of proper research before entering the market, spending investor funds and never hitting the profitability mark…Sadly, a couple of existing Start-ups with seemingly great potential are still towing this familiar path to failure.” No doubt, the importance of a carefully implemented market research capturing the essentials we highlighted in the preceding paragraph cannot be overstated.

In our view and had such business enterprise done their research well in enough or at least, in advance of opening their spaces, they might have been saved the touching story of becoming other statistics in the growing list of failed start-ups. Realising perhaps the poor execution done on the market research particularly as it pertains to customers preferences, a good number of these entrepreneurs find out once they open their doors to the public for patronage that their offerings are not so much in tandem with what the customers truly want. Putting it simply – once doors are opened to the public, it is a wrap! Less can be done to save the brand at such time as the first impression a customer gets from such experience is likely to account for whether the customer comes back or makes referral. It would take a miracle to turn things around and more reason it is advised to study your customer behaviour for the goods or services to be offered in such a new business outlet. Taking a restaurant or bar for instance, it is imperative to understand how the prospective customers eat, drink and other choices or tastes that are likely to influence their habits. Gone are the days when you open for opening sake. competition is heavy, understand business. It applies to any and every business set up. It is always imperative to know who one’s target clients/customers are, so one can be saved touching stories. These restaurants and bars putting in millions of dollars investments and failing at the opening.

In an August 2022 Business Day publication by Timi Olubiyi addressing predictive causes of business failures in Nigeria amongst other things, Olubiyi writes: “…at least 1.9 million SMEs have been lost since 2017…business closures persist at an alarming rate… Convenience shops and grocery stores, dry cleaning and laundromat services, taxi services, trucking and transportation businesses, beauty salons, local restaurants, and several other small businesses operate with no data sets or registration databases…The worry is that many of these business operators are inexperienced and pay no attention to business structure, technology, skill sets, accountability, or the importance of business continuity…Poor and negative customer relations; poor pricing techniques; lack of innovative drive, ignoring product or service innovations and new ideas; ignoring competitors’ pressure and offerings; resource mismanagement…in the business operations can kill businesses.”

Riding on the back of some of the points made by Timi Olubiyi in the 2022 Business Day publication, the present writers could not help but assert that the failure of start-ups and SMEs (running into millions) might have been best saved by a sustainable business or ensuring business continuity, good customer relations and a customer-centric product or service innovations that is built on a solid foundation of a properly researched market need as well as sound understanding of customers behaviour. Lending credence to the above stated position, Bernard Marr, in a 2022 Forbes publication on “The Top 10 Reasons Why Businesses Will Fail Over The Next 10 Years” notes that some of the reasons explored businesses fail include: Not prioritizing sustainability’; Not putting Customers first; Not relentlessly innovating and; Not treating data as a key business asset and realising that data is the lifeblood of successful companies as ‘data helps to make better business decisions, understand customers and market trends, create smarter products and services… improve…business processes.’

While Nigeria may indeed be a volatile business environment to float a successful start-up on account of the uncertainties permeating the foreign exchange market, galloping inflation as well as recent Naira depreciation, quite a lot can still be done with smart entrepreneurs and investors who are keen to thrive in Nigeria by floating start-ups that can stand the test of time and add value to stakeholders. For one, engaging the services of seasoned market research experts who understand the Nigerian business terrain well enough and able to help conduct an impartial study of the customers behaviour in the specific industry or sector will go a long way. Beyond the cutting-edge market research will be having in place a management team that understands the need to prioritize sustainability, putting customers first, pragmatically pursuing innovating and interpreting relevant data to day-to-day operations, with the understanding that satisfying customers continuously through great value offerings is the lifeline of a sustainable business in a business climate like ours.

George-Taylor is the CEO and Founder of boutique Public Relations Firms – The Bobby Taylor Company and Invicta Africa and be reached via [email protected]

Onele is a Partner with Primus Grace LP and can be reached via [email protected]