The 10 things that can kill your business
In 2013, Bloomberg conducted a research into the failure rate of business startups across the world. The results were startling: Eight out of 10 entrepreneurs fail in their first 18 months of operations. In effect, 80 per cent of businesses collapse in their first one and half years of operation.
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Although the findings are heartbreaking for most American entrepreneurs where the research was conducted they also represent the harsh and fundamental reality in Ghana, where majority of businesses crash out after few months in existence.
But knowing the reasons behind the failures is as important as counting the failure rates of entrepreneurs.
It is for this reason that the weekly motivational radio talk show on Joy FM, Springboard, Your Virtual University, dedicated the fourth session of its new series on entrepreneurship to the topic: ‘Why businesses fail’.
The aim was to help explore the factors that cause new businesses to run aground after a few months of their existence.
The Chief Executive Officer (CEO) of Eden Tree, Ms Catherine Benson, and the Head of Corporate Communications at Ecobank in the West Africa Monetary Zone (WAMZ) area, Rev (Mrs) Patricia Sappor, who were the resource persons, held different opinions on which challenge was the topmost cause of business failure in the country.
While Ms Benson, who has been in business for the past 13 years, said external factors were the most pressing, Mrs Sappor sided with leadership failure or breakdown, including founder dysfunction, as her number one on a list of 10 factors that cause businesses to fail.
Given that the leader is the one who drives the business, the head of Ecobank’s Corporate Communications explained that the leader should be the one to plan, anticipate and manage crises that confront the business.
“So if the leader is not able to do that, the business will go down. I believe that if a business is successful, you will credit it to the team but if it fails, it lies right on the table of the leader and that is why I think that everything is at the doorstep of the leader,” she said.
The top 10 causes
Earlier, Reverend Albert Ocran, the host of the show, recounted the top 10 causes of business failure worldwide as suggested by various research findings.
The factors includes setting up a business for the wrong reasons; leadership failure; failure in defining a clear mission or value proposition for the business; attitudinal failure, including not responding to the needs of customers, and an unprofitable business model.
Commenting on some of the factors, the two corporate executives agreed issues relating to finance were key to the success of the business.
Mrs Sappor said when applying for loans banks often looked out for the cash flow of the business, its ability to generate enough revenue to cover the interest and principal of the loan as well as the credibility of the entrepreneur and the track record of the business.
She bemoaned the situation where most enterprises only looked out for loans when they could actually recoup their debts, avoid selling on credit and/or sell off their assets to raise money.
Top 10 causes of business failure globally
1. Setting up business for the wrong reasons
2. Leadership failure or breakdown, including the founder dysfunction
3. The failure to define a clear mission or value proposition for the business
4. Attitudinal failure, including not responding to the needs of customers
5. An unprofitable business model or business without a proven stream of income to cover cost of operations
6. Poor financial culture or management
7. Rapid growth or over-expansion
8. Skills and staffing deficit
9. Technology and systems failure
10. Inability to respond effectively to external factors such as change, competitor actions, environmental threats, among others.
External factors
Using the current power crisis as an example, the founder and CEO of Eden Tree said most businesses, especially the small and medium enterprises (SMEs), were forced to operate under strenuous conditions, which if not properly checked, could lead to their extinction.
On how she was steering her enterprise to cope with challenges in the system, Ms Benson said the company was looking at cost effective ways of operation, including cutting down on its distribution routes.
“Because we are into food, we get income on a daily basis, but I do not know how other businesses in other sectors are managing,” she said.
Ensuring business sustenance
On what entrepreneurs can do to ensure that their businesses stand the test of time, Mrs Sappor said although many factors accounted for that, not being complacent, drawing a succession plan, product differentiation and augmentation, and insuring the business were the most important.
She explained that business people needed to keep improving on their operations because “people patronise your business because of that uniqueness so when you compromise on that, then you make people not to patronise it again.”