Why Businesses ‘die’ before their 5th birthday By Serrainne Nyamori

The other day I was having a chat with my good friend about her son Tevin who just turned 5 years old and the family had an elaborate celebration for him. Now Tevin is a charismatic, dramatic, unadulterated, unapologetic sensitive child with an uncanny sense of humour! My friend narrated how prior to his big day he had 5 different thematic nights for all the 5 nights prior to his fifth, made visits to 5 places he had not been to before, was bought for 5 new educative toys, tried out 5 new foods/dishes, learnt 5 new skills including proper and safe use of scissors and glue and finally 5 cake cutting occasions for him and his friends. (I think the world needs to meet Tevin )

So what is so special about celebrating a 5 year olds birthday?

World Health Organization (WHO) under the Global Health Observatory (GHO) data reports that 5.9 million children under the age of five died in 2015, i.e 16,000 every day and 11 children die every minute. (http://www.who.int/gho/child_health/mortality/mortality_under_five_text/en/). More than half of these deaths are due to preventable and treatable conditions like pneumonia, diarrhoea, malaria and malnutrition. The priority here then is to end preventable deaths of children under 5 years of age. Like high child mortality rate, business/organizations barely make it to their fifth ‘birthdays’. Why?

Businesses and Organizations at risk

I chose to liken a new business/organization to a growing child. This is because, like a child, businesses at their infancy require attention, care and dedication. When one is starting a new business venture the last thing they want to focus on is its perennial failure.

A recent World Bank report shows that the world needs 600 million new good jobs for economic and societal development. Research equally points out that about 50% of new companies fail in their first five years. Another sobering fact is that not all start-ups /new companies create jobs. An even fewer number survive, grow, hire people and are sustainable. Is there a particular reason for this entrepreneurial failure? How can new businesses then meet the rising demand for good jobs in order to flourish?

The global burden of failing businesses is rapidly increasing and there is urgent need to address common reasons for failure upfront. There are, however key factors that, if not avoided, will certainly ‘kill’ your business. Several expert opinions abound on reasons for business failure. Thus I give you my top 5 reasons for business failure:

Reason 1 – The Entrepreneur

There’s no one particular reason for an entrepreneurs failure. Some run out of money, face challenges with regulatory authorities, markets change and they are unable to meet the new demands or simply, don’t have the talent, skills or the passion for the venture. Ultimately, the success of a new business has a lot to do with the person starting that business. This individual, who is at the centre of running the business in highly uncertain circumstances, needs to be equipped with information, knowledge and most importantly personal drive, creativity and the ability to take risks.

Reason 2 – Poor Management

Poor management is often equated to lack of experience. This might be true in most cases but not all of them. Poor management takes many forms including hiring the wrong people, lack of planning, poor management of finances, not studying the market or collecting customer data, lack of relevant expertise in production, purchasing, selling and not monitoring every aspect of your business, I know of many people who have all the right qualities of an entrepreneur but making poor management choices has cost them and their businesses dearly. Ultimately, a successful manager is also a good leader who has the ability to think strategically, actualize their vision, envision future possibilities for the business, be open to change and create a conducive work environment that enhances productivity.

Management’s failure to act, react, or plan is a sure recipe for any organizations failure.

Reason 3 – Location, Location, Location!

An amazing idea, housed in a great 5 star building but with poor location could be an impending reason for your business’ failure. It is important to find an address where customers and clients can visibly find you, walk in and enquire about your products or services. Some factors to consider when choosing a suitable location are: condition and safety of the building, location of your competitors and customers, accessibility, traffic, parking and street lighting. With the appropriate and right location, a struggling business can leverage on their visibility and thrive. Location is Key!

Reason 4 – Poor cash flow

Cash flow is the lifeline of your business and the last thing you want to experience is inadequate cash reserves or having it tied up in unpaid invoices. A common mistake of failed businesses is making unrealistic expectations of incoming revenue and operating with insufficient funds. One is often advised to have enough cash to run operations within the first six months to two years (depending on the nature of the business) or so before the business starts registering any feasible returns.

Reason 5 – Lack of Focus and Planning

Trying to be everything to everyone is a sure road to failure. It is important to create a niche for your business by focusing on what you do best. This way you will be able to provide better services and create happy satisfied customers.

Most businesses equally lack strategic business plans. This is a detailed document that shows what the business intends to achieve within an intended period of time (one year, three years or five years), how you intend to achieve the organizations goals, specific timelines and persons responsible. It is important that the strategic business plan be communicated to all key stakeholders so as to ensure everyone is working towards the same goal. Quarterly and bi-annual reviews are also encouraged to review progress and make required periodic changes.

Bonus Reason J – Failure to seek professional advice

Seeking professional advice can really help revitalize your business.

As you can see, all reasons support why you should consider hiring an organization development and sustainability consultant when starting or growing a business.

Happy 5th Birthday to all the businesses that have made it thus far. We celebrate you!

 

Serrainne Nyamori

 snyamori@sustainability-africa.com

The writer is the Founder and Lead consultant for Sustainability Africa, an organization Development and CSR/Sustainability Strategy firm based in Nairobi, Kenya.

 

For more advice, insight and best practice sustainability services for your business contact us:

Email: info@sustainability-africa.com , Website: www.sustainability-africa.com Tel: +254 732 396919

 

This content is editorially independent and has not been sponsored by any brand.

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