Challenges of starting a business in Nigeria are restrictions that could pose as threats to the success of entrepreneurs/aspiring entrepreneurs.
According to Nigerian bank Stanbic IBTC over 80% of Nigerian startups fail within their first five years.
In fact, startups have a greater chance of failing than succeeding.
As if that is not enough, these risks and challenges of starting a business has either increased, or added more weight.
Making it almost impossible to start and run a successful business in Nigeria.
For example: one of the major problem or challenges of doing business in Nigeria is the obvious POWER FAILURE.
And despite all the works officials claimed to be ongoing behind the scenes; there little or no improvement on the surface.
Furthermore, studies from the United Nations Industrial Development Organization’s Investment and Technology Promotion Office in Nigeria show that only 20% of SMEs manage to survive in Nigeria.
“Although everybody in Nigeria desires to become an entrepreneur, only 40% of the dreamers get to start, but no more than 20% survive.”
Based on my research and experience, these challenges are almost unending.
So in this article, I be focusing more on a those often overlooked/not too talked about challenges of starting a business in this part of world.
A third-tier country.
Without any delay, allow me walk you through those challenges right away…
The 7 risks and challenges of starting a business in Nigeria.
See, counterfeit goods and low quality products didn’t just become the norm in Nigeria overnight.
It’s dated way back.
And was innovated as a result of the financial crisis amongst majority of masses.
Judging from the population of Nigerians, you could say confidently they’re more than enough buyers for my product. Which is true.
But how many are willing and able to pay for the high product quality you want to deliver?
Very few of them.
It’s why many companies result to reducing the quality of their products as time goes on.
Why can’t businesses confidently increase their prices to maintain high quality?
They can simply do that…
But because they’re aware the population that will patronize them after that change won’t be enough to keep them in operation; they’ll rather reduce the product quality for the same price.
I’ve seen small businesses fold up by doing the right thing. Which include, but not limited to offering credit facilities to consumers.
Credits their customers can no longer pay back.
And because they know they owe you, they’ll rather patronize your competitor in other to avoid you by all means.
This isn’t an obvious problem until it get to the point you want to re-stock.
And right there, you notice your balance isn’t accurate. You’re either short or out of cash completely…
…simply because your customers are too broke to pay up for goods collected on credit.
Is that not a big enough challenge to start a business in Nigeria? You decide.
Possible solution to “poverty” as one of the challenges of starting a business in Nigeria.
People don’t pay up because they can’t afford to pay up.
Here’s how to curb falling into the nest of those that can’t repay credits.
Engage your customers in some deep meaningful conversations.
The purpose of this is to know or have a clue of the type of person you’re dealing with.
For example, you ask someone how is work and he insinuated he doesn’t have one.
How can someone like that afford to pay for goods collected on credit?
If you let 100 customers owe you just ₦1000 you’ll be short of 100k. Not every customer is worth your goods on credit.
It doesn’t matter if he’s fellow gunner or blue.
You want to deal with someone with the potential of paying you back as at when due.
Payment can also be scheduled to be done on a monthly basis or otherwise; depending on what’s best for both parties.
While trying to build a mutual relationship to encourage repeat purchases, be very professional. Or else your business won’t survive.
A young internet business founder blocked me recently. What’s your #1 piece of advice for startups in Nigeria? Without missing a beat it was simple. Just F**king Survive. That’s it. Impossible for me to go deeper than that in my brief encounters. But whatever you are doing. Just f**king survive. – Jason Njoku, founder of iRoko.
Another one of the major challenges of starting a business in Nigeria is security. Not of lives this time (don’t get me started on that); but of properties.
But don’t take my word for it…
Check this out:
On the 25th of January 2020 (Saturday).
Punch.ng reported the incident of a fire outbreak in a popular market in lagos called Amu market.
The incident didn’t just affect traders and residents. For me, it’s beyond that.
…and that’s because it affected my girlfriend’s business.
According to reports, the fire lasted for hours and was slowly spreading before it eventually ravaged stores inventory worth millions of naira.
My girlfriend’s place of work included
Bringing to one, a three-story building containing goods worth millions of Naira.
After hours upon hours…
The Acting Head, Lagos State Fore Service , Margaret Adeseye , who confirmed the incident, said ,
“We are still trying to put out the fire.
“ We received the call around 1 am and as I speak to you, the fire is raging . No casualty has been recorded and we are yet to ascertain the cause of the fire incident .”
Arguably, the Amu market saga is just one of many examples that has left numerous business owners devastated and in a state of consternation.
All thanks to the level of security in Nigeria.
So what do you think?
Is security not one of those key challenges of doing business in Nigeria that is often overlooked?
Think about it.
Possible solution to this menace.
To curb this particular challenge of doing business in Nigeria, what I can think of is that you indulge proactive measures by
Owning a personal fire extinguisher.
As the saying goes, little drops of water makes a mighty ocean. I believe the same applies to fire. It doesn’t usually start big. So by having a fire extinguisher around, you could help in preventing the spread that is likely to affect you if such happens.
Get numbers of your state fire service department.
According to reports, the incident at the amu market came out of the blue. It happened at mid night.
But notwithstanding the time of the incident, the Lagos I know is a place things seldom go unnoticed.
It’s possible someone did notice that fire; but, either never imagined/thought it could result to such…
…or didn’t have quick access to professionals that could help.
3. Loyal employees.
While good employees can take your business to the next level, bad can literally take out of business in no time.
In summary, your employees can either make or break your business.
Lately, getting the right employee is one of the major challenges of starting a business in Nigeria.
And that’s because majority of the young labour force, are either unqualified, hungry or scammers.
What do expect from a country where by young people apply and gain admission, get into school and focus more on scam schemes than their education.
They go sleepless night on tricks and then use the proceeds to pay their way into decent grades.
With such act…
How can they be qualified?
If you unknowingly hire one as an accountant.
Do you think you stand no chance of loosing millions from your business?
And all you did was create employment opportunity.
However, they’re goods one too.
But it’s just unfortunate negativity spreads like wildfire. It’s one of those challenges we all have to over come as entrepreneurs.
I want to believe you understand capital to be the funds needed to start your business.
But it shouldn’t end there.
While seeking capital, you should look beyond the money you’ll be needing to just kick start your business…
Rather, it should also extend to the funds you’ll be needing to keep the business running for a while. Which the recommended time frame for this should be at least 6 months.
The reason this is very important is simple:
It’s almost impossible for any business to start seeing significant return of investments after a few months of launching or operation.
So the idea is to secure more than enough funds to keep your business running at her infant stage — in other to avoid circumstances which could lead to fold up.
If you are looking at the possibility of having employees, you want to work on their salaries and wages ahead of time. And also pay them when necessary.
Your upkeep is another necessity.
There are also other things to look at but last last, nah who Dey healthy and alive they do business.
Apart from the start up cash, make sure you have extra funds needed to handle other expenses to keep the business running for a while until things start getting better in terms of income.
However, while I am not sorry to chip the above information in, below are my main points on capital as one of the challenges of starting a business in Nigeria.
Availability and access to the capital.
Nigeria today is in debt. In fact, a lot of debt.
With that in the know, there’s a big question mark on whether there’s enough funds for an entrepreneur to borrow and get things done.
Notwithstanding, the country is still capable of supporting businesses.
But another hurdle is how do you get access to this funds without it costing an arm?
You’ll agree with me that Godfatherism has taken a toll on the nation.
You can meet or even supersede the requirements, but without a strong connection within or outside the organization, achieving your aim maybe pretty difficult.
In essence, whether the funds is available is one thing, now, having access to it is also part of the challenges of doing business in Nigeria.
But that’s not all.
When eventually there is an access to those funds, this comes up:
- High interest rate.
Have you tired collecting loans?
I wouldn’t want to mention names…
…but the interest rate of some banks while seeking loans from them is ridiculously high.
I tag it as SUICIDE.
This often discourages small business owners from attempting loans…
…and in turn, make them look towards job employment since starting a business on the right note is too tasking.
In my opinion, I think one of the ways to tackling capital as a challenge of doing business in Nigeria is to seek alternative money sources and be intentional about it.
What I am saying?
If you’re serious about running a business and you’ve got a job currently, you want to save some of your salaries or wages.
The essence of this is to have a strong finance foundation.
I know employees, who, with the intention of starting their own business, collected loans from their bosses.
The money was used to fund the business on the sideline while they work for the period of needed to cover their loan.
I understand all fingers are not equal. So this strategy may not work out due to the nature of your job.
But if you’re short of ways of raising money for your business, you can consider something similar.
Starting from scratch is pretty difficult, so you want to have something at hand you can easily build on.
And that’s why anything you can do to getting funds is highly welcome. Including seeking investors with your detailed business plan and reaching out to your family and friends for assistance.
5. Lack of basic amenities.
As you may already know, the environment in terms of amenities in Nigeria that aid the smooth operation of business activities is simply pathetic.
If you’re not faced with the regular issue of power supply, you’ll be faced with lack of good roads, security or even water issues.
All of the above are some of those things that makes life of running a business in Nigeria very stressful.
6. High credit sales.
This as one of the challenges of small businesses in Nigeria occur in a situation whereby business owners gives their goods to customers based on an agreement that the fee will be paid in the nearest future.
High credit usually occurs…
- When the business owner is in a hurry to make sales.
- When the business owner just want to impress the customer in other for them not not have the wrong impression of them.
Offering credit sales isn’t bad. But in a situation whereby it’s too much, it becomes a major threat to the survival of that business.
This is because…
… if a business is to pay its own bills regularly, such business needs to also receive prompt payment of the goods it sells or the services rendered.
However, when the payment isn’t coming in immediately, you as a business owner will mostly be out of cash yourself to properly carry out certain operations that requires finance.
In summary, credit sales occurs in a situation whereby a business owner let go of their goods based on the promise of a future payment. And this is a problem because too much of such “gesture” leaves a business financially handicap as some individuals tends not to payback at all.
So please, only let credit out sales when necessary. You can ignore this if you want to go bankrupt and be laughed at by the same set of people you thought you were doing a favour.
7. Lack of qualitative data:
Due to lack of proper and adequate market research, small business owners often carry out business operations with inadequate or in most cases, minimum qualitative data.
This in-turn leaves them handicap to other problems they might face while running a business and the possible solution.
Aside that, their lack of adequate data also makes them myopic to certain opportunities in that market which affects their ability to grow significantly.
Other challenges of doing business in Nigeria.
Electricity / Power Supply
Corruption & Bribery.
Misinterpretations of government policies.
High caliber employees.
Bad economic conditions.
Fear of competition.
I know of a business woman who was doing very well being the only person with a POS business in her area.
As time goes, a few others understood how profitable the business is and decided to go into themselves.
When she noticed the interest of others in the business, she became uncomfortable and switched businesses.
In other words, she stopped being a POS business owner because other people in her area decided to go into the business.
This is simply called fear of competition.
She was uncomfortable doing what others are doing. She wanted to be the only one running that type of business in that geographical location.
In essence, one of the challenges of doing business in Nigeria is the entrepreneur’s inability to handle competition.
This, in most cases is due to lack of knowledge, skill and experience on how to overcome competition.
So that’s it on the numerous deadlyx challenges of starting a business in Nigeria from my end.
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