Why small African businesses fail, and how to avoid it

A short series, in very few words, that will save you big business headaches!  Reason #3: In the wrong business - By Kevin Bresson MBA, M.Eng

A little business joke, to start with a smile:

A shopkeeper was saddened when a brand new business much like his own opened up next door and erected a huge sign which read “BEST DEALS”.  He was depressed when another competitor opened up on his right, and announced its arrival with an even larger sign reading “LOWEST PRICES”.  The shopkeeper panicked, until he got an idea. He put the biggest sign of all over his own shop - it read “MAIN ENTRANCE”.

Even if your small business has addressed failure reasons 1 and 2 of my previous articles, there is still a possibility that the business will fail simply because you are in the wrong business!

Reason #3: In the wrong business

Cause: Human nature - too caught up in the dream of whatever business idea you have
How to avoid it: Learn how to ‘read’ the business environment & change accordingly

Do the following to make sure your new business idea or new areas that you want to take your business in are worth the risk:

1.    Learn how to do a SWOT analysis

Having been to business schools on 2 different continents and in 2 distinctively different business eras, I have been exposed to tons of business analysis tools.  The SWOT analysis is by far the easiest, most useful and most versatile of them all.  It involves simply analyzing internal factors (e.g. the new product or service you are offering, your pricing, your promotion capabilities, capability of your team of people, your finances) and external factors (e.g. the economy, government legislation, the competition out there, changes in consumer behavior, technological changes) as follows:

• Strengths: internal characteristics of the new business or new business area that give it an advantage over others.
• Weaknesses: internal characteristics that place the new business at a disadvantage relative to others
• Opportunities: external elements that the new business could exploit to its advantage
• Threats: external elements in the environment that could cause trouble for the new business or new business area

This framework helps you ask critical questions about your new business, before a banker or investor does.  Some of you may have seen the successful Dragon’s Den TV show, where entrepreneurs explain their ‘new’ ideas to successful business leaders and investors; these investors actually do a quick SWOT analysis to test how solid these ideas are!

I firmly believe that there is NO original idea!  It is therefore important to be brutally honest in your analysis.  Use a friend to help you with this as their ‘outsider view’ will ensure you are sticking to reality, and not a dreamy version of your business plans.  If you can, definitely find data to support your analysis.  Saying that there is a “big market for locally-made wooden cabinets” is nowhere as good as doing some research and getting data to find out that there is a “$5 million annual market for locally-made wooden cabinets”!

This is one of the simplest videos explaining how to do a SWOT analysis, in addition to the many articles about this tool on the internet.

2.    Get creative to position your business where it will succeed

Once you have done this analysis, come up with a game plan to improve your chances of success.  Capitalize on your internal ‘strengths’ and take advantage of external ‘opportunities’.  Fix your internal ‘weaknesses’.  Avoid those external threats.  More importantly though, CHANGE your business idea, if necessary, to improve its chances of success (e.g. find business partners if you do not have sufficient capital, amend certain elements of your product or service to make it more attractive to your target customers than your competition, etc)!
 
Speak to anyone who has been successful in business and many times they will tell you their main stream of current income was not part of their original plans – they changed & re-positioned the business, and they thus survived (just like our shopkeeper in the beginning)!

New businesses may start off successfully but business environments change constantly.   So, the “right” business today could be the “wrong” one tomorrow, as more competitors try to take your customers or new government legislation changes the business rules of engagement.  Be prepared for it, be able to recognize it and position your new business such that it has a better chance to succeed.  If you go into it blindly, better be prepared to return to being an employee – one day - soon!