Why Do Businesses Fail Even When Funded
For every successful business there many more businesses that have
failed. Lack of funding can be one of the biggest obstacles to business
success, but what about in the instances where entrepreneurs have
received funding and have still failed?
The world of start-up entrepreneurship is an enormous jungle. Many
who start get lost. It is understandable that times are hard across the
South African economy and our challenges may affect the general
weakening of many businesses.
At the same time business owners would expect a macro-level
stimulation of activity through the empowering effects of BEE Supplier
Development and
Enterprise Development legislation which has more than made available funding for small businesses.
In addition to funding, this legislation augments market access
opportunities through a deepening of the relationship between larger
corporates and SMEs, while also encouraging corporates to revise their
procurement strategies, even formalising these for those who never had
procurement plans.
For many small businesses, there is room for new markets, and at the extremes possible innovations through opportunities or methods of business previously not thought of.
However what is happening today is nothing new. The last few years
have shown failures in Black Economic Empowerment and an imbalance in
the colour of the beneficiaries of BEE. The funding also always creates
consultants overnight, who preach various recipes for advancing
entrepreneurship.
Many such are individuals who themselves have no comprehension of
small business challenges, running a business or the make-up and
psychology of the entrepreneur they will be consulting on.
Although funding and market access are some of the obvious concerns,
which may to an extent even have easier solutions, social capital and
personal capital are lacking. For every successful business, there are
many that have failed, and more with permanent bad credit against
funders.
Some of the reasons for these failures, even when funding was made available, include:
No Trade Skills
Many individuals starting businesses do so in fields they have no
exposure to or any working skills. Distribution of products is one of
the most common, including retail businesses.
The challenges of retail business are greatly undermined and many
businesses never plan enough and the numbers never stack up, with some
businesses never seeing profitability from start to end.
No Opportunity
It is arguable that some of the most successful businesses would have
looked crazy to a normal person, whilst some were not initially
conceived as businesses but became businesses by default.
This is because they would have been revolutionary, path-defining
businesses. Whilst these are exceptions, the majority of businesses
started are the run of the mill businesses, and really have no
exceptional proposition to the market.
Related: 10 Tips for Finding Seed Funding
Mismatch in Priorities
Most funding programmes in a legislated environment may not be
business centric. In addition, with wrong implementation partners, and a
general tendency towards confusion between business development and
corporate social responsibility, interventions tend to water-down
enterprises than intervene for growth and sustainability.
Leaving Business Administration To Others
Even the most educated of entrepreneurs make this mistake, to leave
the business and its operations to accountants and administrators who
may not have an equity incentive to see the business soar.
Wrong Vocabulary
Some businesses are started to help, and they tend to bleed from it.
The few that are started to make money do make money a priority –
attracting it, acquiring it, managing it, and multiplying the money.
The greater misunderstanding of entrepreneurship, and the fact that
it is more personal than it is policy, leaves even policymakers
dumbfounded about what to do. The following could be some of the
solutions:
Teach Entrepreneurship Early
There is no better, simpler, material than “The richest man in
Babylon” by George Clason. This is an applied version to life and
entrepreneurship and not Economics 101. The book also teaches something
higher than entrepreneurship, the concept of man.
Leverage
When starting a business, it is important to involve as many capable
people as possible. Keeping ideas to oneself delays success. Leveraging
off others is a realisation of masterminds.
Understand Funders and their Priorities
Should you be able to match a funder, it is not what they can do for
you, but what you can do for them. Better a funder with profit motives
than a grant with no objective. Most grants derail entrepreneurs from
their plans, because of lack of accountability.
Most funders have visions to become specialist and preferred providers for the markets they serve. As Identity Development Fund Managers we are defined by our demographic focus on businesses started and owned by black South Africans.
We have over 70 investments delivered in the last five years and have
left lasting goodwill in many entrepreneurs we have interacted with.
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