Why Many Small Businesses Fail in Their First Five Years
Why Many Small Businesses Fail in Their First Five Years
It is the dream of everyone to be his/her boss, to make something out of nothing, and to make a profit out of it and passion. You imagine a new storefront, a promotional entrance sign and an optimistic business owner rife with passion. Five years later, however, the same street can be deserted. The store might be closed down and another dreamer start up.
The numbers are easy to understand and the same under all locations: the majority of small businesses are closed within their fifth year of operation. The same situation is observed in Nigeria, Ghana, Kenya, and South Africa, where there is an optimistic beginning and a silent ending. They do not work hard and are not passionate about their work because the failure is rarely caused by this. Those are often plentiful. The actual issue is a group of unpleasant, foreseeable realities that a lot of people are not ready to encounter.
This is the essence of the first five years being a gauntlet, and why so many dreams are brought down.
The fallacy of Build It and They Will Come (Market Problem).
This is the first fatal error. Most business people are in love with their product or competence, but not the pressing issue of the customer.
Reality: You can make the best cakes in town, however, have no market in the place where there are already bakeries or where people want cheap bread rather than the artised cakes. You made a solution seeking a problem.
Problem: There is no market validation and there is no distinct unique value proposition (“Why should they shop with me?). The result is vacant shops and day one silent phones.
The Cash Flow Chokehold (Financial Mismanagement)?
This is arguably the number one execution killer. Revenue with profit, profit with cash in the bank is one of the major confusions of many entrepreneurs.
Fact: You bring in a big order, but the customer makes payment after 90 days. Suppliers, staff and rent are due within 30 days. That negative cash flow difference suffocates you. You are on record a profit but on the ground, you are bankrupt. Stick in bad records keeping, business money covering school fees in person, no money to cover taxation, and the mess is impossible to control.
The Business (Lack of Systems and Delegation) Owner.
Small companies are very dependent on the superhuman effort by the founder. The founder is the chief salesperson, accountant, marketer, and delivery person. This is a job you can’t quit.
Reality: When you become ill, the business ceases. You cannot scale due to the fact that you are the bottleneck. You burn out. No processes and trained members of a team are documented to delegate to. The moment you get tired business collapses.
Underpricing trap (Bad Pricing Strategy)
In the case of service-oriented businesses and craftspeople, there is a habit of charging what people could afford or underestimate your time to receive the first client.
Reality: You sell handmade furniture at prices marginally higher than material cost so it will look affordable. You disregard 40 hours of work, rental of shops, equipment, advertising and taxes. The problem is worsened, as you are busy yet poor. This model mathematically is doomed at the initial invoice.
Marketing invisibility (Silence)
In the modern world, it is impossible to be not on the Internet, as a store in the backyard without an entry. Word of mouth alone to begin with is a gradual murder.
al-Reality: You may have the best tailoring shop, but how do you know young professionals do not know that you are there when they cannot see you on Instagram or Google Maps. Without a clear and similar consistency in marketing strategy, the potential customers will never hear you open your doors.
Inability to Pivot: The Rigid Founder.
Feedback is provided on a daily basis by the market. There are complaints of customers, certain products fail to sell, a rival has come up, but the struggling entrepreneur does not notice it and sticks to the initial vision.
Reality: An effective owner is a listening, changing owner. A restaurant that dictates on its entire menu and clients can only request three dishes will not work. One that cuts down, doubles its hits, and perhaps a delivery option as demand allows, is going to survive. Inability to pivot is inability to listen.
The Lone Wolf Syndrome (Going It Alone).
Entrepreneurship is being projected as a team sport that is a solo heroic endeavor.
Fact: When you attempt to do everything yourself, you will be an average at most and a specialist at nothing. Having no mentor is like committing unnecessary errors. The absence of a peer group is an echo chamber of doubt or arrogance in making decisions. The absence of a support system only exacerbates all the problems.
The ability of businesses to withstand the gauntlet of five years does not always mean that the business has the most revolutionary idea. They are often the ones that:
* Resolve a genuine, agonizing issue to the definite category of people.
* Control cash inflow as though their life depends upon it (because it does).
* Sell them at their value to develop a sustainable model.
* Develop simple systems in the beginning, as the business can survive without them.
* Be quite rigid on their vision but loose on their strategies.
The dream is not wrong. The romantic entrepreneurship is a trap, however. The initial five years are not the years of glory, those are the years of bloody survival, of never-ending learning, of adjusting until you create something that is not a job to you, but a functioning, sustainable unit of the market. It is a long distance race of endurance, not a short distance race of fierceness.
Did this resonate? What do you consider to be the largest problem small business are experiencing? Use your intuition in the comments.
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