November 19, 2024
Written by Alexander Mtembenuzeni
It is sad that 80% of businesses fail in their first year of operations in Africa. Imagine. You have thought your idea through and spent a lot of money on it just to have it crumble in front of your eyes.
Considering how difficult it is to raise funds to start a business, this is a horrible thing to happen to you.
Unfortunately, in Malawi, these tales are very common and the reasons for the failures of small businesses are almost the same.
In this article, I will outline 9 reasons why businesses fail in Malawi.
1. Mixing business finances with personal finances
This, unfortunately, is the most common reason why most businesses in Malawi fail.
Most people who start businesses have not gone through any financial management training that will help them with knowledge and insight to better organize their finances.
Coupled with lack of financial discipline, most entrepreneurs find themselves in the trap of using business finances to fund personal spending until the business collapses.
To ran away from this trap, business owners must be trained in financial management.
As an entrepreneur you also must know that it will take a considerable amount of time for your business to give you enough returns for you to start drawing from it without affecting your operating capital.
Be true to yourself and be patient.
2. Over-diversification
There is this business pandemic in Malawi that I call the General Dealer Pandemic.
Everyone wants to trade everything.
Most business owners are busy chasing the shiny things – venturing into just about every area they think their friends are making it big.
With this overdiversification, your operating capital will be thinly distributed until all your businesses fail.
The solution? Stay in your lane.
Put in laser-sharp effort in one area until a sustainable business comes out of it.
Expand only when your first business is mature enough to sustain and grow without your constant oversight.
After that, you can move to other (preferably related) areas and do the same thing there.
3. Starting a business with the wrong reasons
If you sample 10 business owners and ask them why they started their business, you will mostly get answers like:
I saw that it was a profitable business
My parents have been in the same business for a long time
My friends told me that I should start this business
These reasons are not that bad in themselves.
However, any business, if it’s not connected to the owner’s passions and goals in life, has high probability of failing.
Better reasons for starting a business include:
Being a teacher for 30 years, I saw that most teachers lack better teaching and learning materials. It’s my goal to ensure that teachers have better tools for effective teaching and that’s why I started this business.
I am a nurse and I saw that there were not enough clinics to serve the people here. So I opened up my own private clinic to fill the gap.
I am a big Arsenal fan. I have many Arsenal friends so I though selling original Arsenal jerseys would help my friends enjoy being fans of the team.
Whatever business you decide to engage in, make sure it is connected to a why.
4. Failing to do market research and validate the business before venturing in it
Sometimes people get very excited at a new business idea that they just thought of or they have read somewhere that they plunge head first just to realize 3 months down the line there is no market for the idea.
Unfortunately, this is very common in Malawi.
Before you start a business, make sure that you have done extensive research to ensure that a market exists including the preferences of the said market.
That will affect how you will go about the product/service and the business model you are going to use.
5. Failure to manage change and adapt
This is a big problem for businesses that have been running for a considerable amount of time.
Times are changing. What worked 20 years ago may not work today.
If a business is not ready to adapt to the change in business climate, failure follows.
Such changes include marketing strategies and consumer purchasing behavior.
6. Relying on political connections
It is a common thing that most break-out businesses in Malawi use shady tactics connected with politicians and other powerful individuals in elected or appointed seats.
Most of these businesses fail as soon as the individual they were relying upon is no longer occupying the said seat.
I believe there are many noble ways of getting business and growing your venture at a normal pace than heavily relying on political connections and shady business.
The far away from shady business you are, the more resilient and successful your business will be in the long ran.
7. Lack of a sustainable business structure
I have fallen pray of this error for the most part of my business line and unfortunately that’s true for most small businesses in Malawi.
Most businesses in the country are ran by sole entrepreneurs who believe they can do everything by themselves.
While being a sole proprietor has its advantages, the disadvantages are way heavier – which include poor resilience to personal shocks and failure to scale.
Don’t be a loner. Make sure that you have a solid structure around your business.
8. Lack of a growth plan
This is a huge problem for loner entrepreneurs.
Not only do they lack foresight on how they can scale their businesses, they even fear growth itself.
This is usually caused by lack of training in business management.
Once you acquire skills for managing your business, your people and all other components that make the business tick, scaling, whether going to new markets, making your own raw materials or expanding into related or unrelated business should not be a problem,
9. Employing your friends or family
Most small business owners, for fear of being robbed by strangers or to help their friends and family think that employing people they are related to is the best idea.
It would be if all formal contract procedures are followed. However, there is a danger that this person would not be professional enough.
I have seen businesses fall because a sister, son or nephew took things too far and made customers go away.
Conclusion
It is sad that many businesses in Malawi fail. If 80% of the businesses that were started last year had survived and thrived to this date, the economy could have been affected in a positive way.
With better training, small business owners will be able to avoid these pitfalls and succeed in their businesses.