According to a report , around 61% of startups/small businesses in Nigeria, Africa’s biggest economy fail within nine years from 2010-2018, mainly due different factors such as inconsistent government policies, lack of necessary skills, insufficient access to funding, and high business registration costs.
The top 10 countries that experienced the highest shutdown rates among start-ups/small businesses were Ethiopia (75%), Rwanda (75%), Ghana (73.91%), Zimbabwe (66.7%), The Democratic Republic of the Congo (66.7%), Tanzania (62.50%), Nigeria (61.05%), Senegal (58.3%), Somalia (60.0%), and Kenya (58.7%).
Globally, the failure rates for small businesses are quite high. In the U.S., approximately 20% of small businesses fail in their first year, 50% by their fifth year, and about 70% by their tenth year. Although these figures are from the United States, they give a general sense of the challenges faced by small businesses worldwide, including Nigeria and Africa.
In this post, we’ll discuss different challenges that small businesses/startups may encounter. Stay tuned.
1. Brand awareness and recognition
Brand recognition is crucial in marketing, as customers often need multiple exposures to a brand before making a purchase. This awareness can be built through various channels such as online and offline marketing, media mentions, speaking events, or word-of-mouth. However, building brand recognition is a gradual process, posing a challenge for small businesses.
A strong social media presence is a key strategy for increasing brand awareness, as is attending events and partnering with other businesses. Statistics show that 70% of brand managers prioritize building an audience over direct sales. This focus is because brand awareness fosters trust, associates your brand with your products, and drives sales and customer loyalty.
While it may seem that today’s big brands grew rapidly, their successes often involved significant behind-the-scenes effort. Small businesses can adopt strategies to spread their brand and build a strong reputation, ultimately leading to growth and recognition.
2. Lead Generation
Lead generation is a common challenge for small businesses, with 58% of marketers indicating it as a top priority and a significant obstacle. Generating high-quality leads is crucial for maintaining a steady stream of sales prospects. An effective lead generation strategy can turn website visitors into potential customers, providing ongoing sales opportunities. Finding the first customer can be particularly challenging for small business owners. Unlike big companies with established customer bases and networks, new businesses often start from scratch. Many new businesses find their initial customers among friends and family, leveraging personal networks to identify potential leads.
3. Difficulty in getting competent workers
A CNBC study found that 52% of small businesses consider labor quality their biggest challenge. This issue is critical because most business challenges can’t be solved without a competent team. Attracting quality candidates is tough, with 76% of hiring staff citing it as their primary concern. Onboarding costs average over $4,000 per new employee, which strains small business budgets, especially if turnover is high. Small businesses, which make up 30.2 million in the U.S. and account for 47.5% of all jobs, struggle to compete with larger firms offering better salaries and benefits.
Small businesses often need employees who can multitask, unlike larger companies that hire for specific roles. Additionally, these businesses require workers with the right personality to thrive in a dynamic environment. The difficulty in offering competitive benefits and salaries makes it harder for small businesses to attract and retain qualified, hardworking employees. Overcoming this challenge involves finding candidates who are not only skilled but also adaptable and committed to the small business’s goals.
4. Cash Flow Maintenance
Maintaining good cash flow is a major challenge for small businesses. With many expenses and not enough sales or clients initially, cash flow issues can arise. Both business and personal finances need adequate cash, and one often puts pressure on the other. To avoid this, small business owners need to be well-capitalized or find extra income when necessary. Many start by working a job while building their business, but this can make growth difficult. Running out of cash makes growth impossible. Small businesses are especially vulnerable to money problems. Unlike larger companies, they may struggle to cover bills if a big client fails to pay. Many small business owners sacrifice their own salaries to pay employees and vendors. Unfortunately, many small businesses fail due to lack of funds. Keeping a close eye on cash flow is crucial for survival and growth.
5. Maintaining growth and quality
As small businesses grow, challenges can outweigh benefits. Scaling up in business may refer to sacrificing quality, such as not managing every client personally or inspecting every product detail. Business growth brings growing pains, forcing choices between working long working hours or cutting corners.
What is the biggest mistakes small business owners make?
One of the biggest mistakes small business owners make is not creating a thorough business plan from the start. A solid business plan should be backed by extensive research conducted before launching the business. It should detail the business’s profit model, market research on local competition and product demand, operational strategies, sales and marketing plans, investment needs, and financial projections. This plan serves as a roadmap, guiding the business towards its goals and helping to anticipate challenges. Without a clear plan, businesses may struggle to attract investors, manage finances effectively, or adapt to market changes. A well-prepared business plan increases the chances of long-term success by providing clarity, structure, and a strategic approach to growth.
Disadvantages Small Business owners faced?
Small business owners experience different disadvantages compared to traditional employees. Having a business gives room for freedom, it also brings income instability and financial risks, especially if funding is through loans. Small business owners often work longer hours than employees and lack the structured support of a boss or manager. This can lead to feelings of isolation and uncertainty in the early stages of business development. Seeking guidance from mentors or consultants can be crucial during this phase, offering expertise and advice to navigate challenges. Despite these drawbacks, many entrepreneurs find fulfillment in building something of their own and the potential for greater rewards in the long term. Balancing the risks with careful planning and support can enhance the chances of small business success amidst these challenges.
Starting a small business brings challenges that can’t be ignored. Despite these obstacles, many entrepreneurs are driven by competition in which they see the challenge as an opportunity to succeed.
