Research shows that nine out of every ten startups fail. Although Nigeria has the most valuable startup ecosystem in Africa, with Lagos at the forefront of the numbers, research also shows that 80-90% of Nigerian startups fail in the first three years.
Startups in Nigeria have to face Nigeria’s harsh economic condition while creating a name for their company.
According to the 2014 World Bank Enterprise survey, which surveyed over 2000 small businesses, here are some of the reasons why they fail:
Startups fail for several reasons, but in this article, we look at some of the most common reasons why most startups in Nigeria fail.
Wrong Business Model
A business model is essential for any startup. It identifies your sources of revenue, your customer base, your financial plan, etc.
It decides how you will run your business and connect with your target customers. Without a standard business model that is adequately written and spelled out, there is no clear path to tread, and that can be very tricky in an ecosystem where a lot of voices are vying to get heard.
When you neglect to create a business model for your startup for any reason, it leads to problems in the long term.
Creating a business model that is not explicitly designed for your own company and product then means your business model is faulty and will not serve its purpose in the long run.
You will probably have to keep changing and adjusting things every time something new crops up, which could spell disaster for a startup.
No market need for the product
Most startup founders create products or develop ideas because of life experiences and problems they experienced or someone they know did.
However, creating a product for this reason alone does not suffice. You have to make sure that your product solves a need that has a large customer base.
The customer base keeps the business afloat when there is demand and supply.
However, if the market is small or non-existent, there will be no demand, which will lead to the startup folding up.
Building the wrong product
It is not enough to just build a product. You also have to validate the product and make sure it is the right product for the market.
Building the wrong product can lead to many complications that make a startup fail. You have to keep your potential customers in mind while creating your product, think of their skill sets, the existing solutions they have, and how best to meet their needs.
Most startups find it almost impossible to build the perfect product on the first try.
Research and conducting a market survey to see how potential customers interact with the product will help you create the best product.
Lack of funding
No company can run without funds. Startups run mostly on investments from angel investors and grants.
It takes a while for startups to start making returns on investments and making their revenue, so they need to source funding elsewhere.
When a startup is unable to get investors or funding, the startup fails. Even when there are investors, the pressure to maximize investments becomes very high, and if investors do not get returns, they stop investing and funds dry up.
Poor leadership skills
It takes a good and experienced leader to manage a team of people and maximize potential. Most startup founders are inexperienced leaders who do not know how to manage a team.
A good leader should also know how to spot talent and recruit the best people that can help the company grow.
Finding the right talent is difficult in Nigeria, so you need to know how to sell yourself and make people willing to work for you.
Without that ability, you cannot get people who will help build your startup, leading to failure.
To navigate the challenging startup ecosystem in Nigeria, founders need to get exposed to the best and globally proven practices.
You can get this and more at Founder Institute Lagos. FI Lagos is a pre-seed accelerator that helps startup founders create a good business model, develop the best pitching technique that will attract investors, and create the right product.
FI Lagos helps founders build tech-enabled businesses that will scale faster than regular businesses.
Founders also get access to a network of over 50 startup founders that have gone through the system.
There is also a network of investors and mentors who teach founders the step-by-step process of building a great business.
Register today here for Cohort IV classes to beat the odds
About the Author
Seyi Sobowale likes writing and has an interest in entertainment.
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