Reasons start-ups struggle and what can be done to steady them

A laptop display of an online startup business. [Courtesy]

In the journey of entrepreneurship, challenges are not roadblocks but rather the raw materials for building a resilient and successful venture. It is in overcoming obstacles that we discover the true strength of our ideas and the depth of our determination.

In recent years, Kenya’s start-up landscape has experienced both notable successes and setbacks. Approximately 70 per cent of ventures face closure within the first three years of operation, a statistic that underscores the dual reality of triumphs and failures. Illustrative of this stark reality are examples such as Sendy, the on-demand delivery platform, and Zumi, the tech-driven e-commerce platform. These once promising ventures, despite initial potential, have faced challenges leading to closures, leaving employees without jobs and investors wary.
Start-up failures often result from a complex interplay of factors, including poor market fit, inadequate planning, intense competition, and mismanagement, collectively contributing to the downfall of ventures that initially showed promise.

A deeper understanding of these potential pitfalls is crucial for entrepreneurs to identify warning signs early on and implement corrective measures. Addressing these concerns becomes imperative to showcase the resilience and potential of the start-up ecosystem, attracting and retaining investor interest. Recovering from a start-up failure, a daunting prospect within an environment where the majority face closure in the early years, is challenging but not unachievable. Entrepreneurs facing such setbacks can take strategic steps to rebuild and emerge stronger. Conducting a thorough post-mortem analysis, identifying key contributing factors, and learning from mistakes is the first step towards recovery.

Reassessing and refining business strategies to align with market needs, customer preferences, and industry trends is imperative. Additionally, rebuilding trust with stakeholders, including employees, investors, and customers, is a critical aspect of the recovery process. Transparent communication and a genuine commitment to rectifying past errors are essential components in regaining confidence. Moreover, seeking mentorship from experienced individuals who have navigated similar challenges can provide valuable insights and strategic advice.

Understanding the various stages of business failure is crucial for entrepreneurs looking to learn from past mistakes. Warning signs such as declining sales, customer dissatisfaction, or operational inefficiencies should be recognised and addressed promptly. As operational challenges grow, encompassing financial mismanagement or internal conflicts, interventions become even more critical. If a start-up fails to adapt to changing market dynamics or faces increased competition without innovation, it risks rejection by consumers, leading to declining revenues.

Investor withdrawal often follows persistent challenges, exacerbating financial strain and hindering the start-up’s ability to recover. Moreover, high operational costs, coupled with substantial taxation burdens imposed by the government, stand as formidable challenges that can contribute significantly to the closure of businesses in Kenya. Entrepreneurs grapple with soaring expenses related to rent, utilities, labour, and raw materials, creating a precarious financial environment. Simultaneously, the weight of taxes imposed on businesses, ranging from corporate taxes to value-added tax, adds to the financial strain.

This dual burden often leaves start-ups and small enterprises struggling to maintain profitability, stifling their ability to reinvest in growth initiatives or weather unforeseen challenges. The critical interplay of high operational costs and government taxation creates a precarious landscape, where businesses, especially those in their infancy, face an uphill battle in sustaining operations and achieving long-term viability.

As policymakers seek to foster a conducive environment for entrepreneurship, addressing the complexities of operational costs and taxation emerges as a pivotal step towards nurturing a resilient and flourishing business ecosystem. Another significant cause of business failure is the practice of bringing in unqualified relatives or favouring close associates over employing professionals. While loyalty and trust are paramount in business, it’s equally crucial to ensure that key positions are filled by individuals with the necessary qualifications and expertise. Neglecting this balance can lead to ineffective decision-making, hinder innovation, and ultimately contribute to the downfall of the business.

The inability to distinguish between entrepreneurs and management roles also plays a key role in business failure. Entrepreneurs are visionaries, driving innovation and creating the initial business concept. Management, on the other hand, is crucial for executing that vision, ensuring operational efficiency, and sustaining day-to-day business functions. Clarifying these roles and recognising the importance of effective management is pivotal for long-term success.

Understanding the different stages of growth as the business evolves is equally crucial to prevent stagnation. Businesses often face challenges when owners fail to recognise the evolving needs of their enterprises. From the start-up phase to expansion and maturity, each stage requires unique strategies and management approaches. Adapting to these changes ensures continued relevance, innovation, and sustained growth.

Julius Kipngetich is the Group CEO, Jubilee Holdings Limited

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