7 biggest reasons why Kenyan small businesses fail
Readtime:5 mins

Kenyan small businesses are likelier to fail before they start to stabilize. Official data shows that about 20 percent of small businesses in Kenya close down within their first year. We sought to know why Kenyan small businesses fail so often and how we can improve small business survival rates in the country.

The numbers just get gimmer as you read on. 3 in 10 of these businesses fail before the end of their second year. By the end of the fifth year, around half of them will have failed. And, at the end of the decade, only 30 percent of businesses will still be in operation, reflecting a 70 percent failure rate.

Granted, starting a business is not easy. It’s a massive feat in itself. Yet, it would help if you didn’t spend any spare time basking in the initial achievement. The prolonged excitement could also be why your business wobbles in the first place.

Why Kenyan small businesses fail

We sought to find out what factors contribute to the failure of many small businesses in Kenya. Read on to find out. 

1. Poorly-defined business vision

The vision of a business refers to the mental picture of what the founder wants for your business. It consists of goals, objectives, and aspirations. 

An excellent business vision helps identify gaps and strives to meet needs within the market. On the contrary, most small businesses lack this approach and are aimless from the start. 

They lack a strong foundation, and many start for the wrong reasons. It’s possible for someone to start a business with a herd mentality, replicating what others are doing and expecting similar results.

Perhaps the plan was to start with the intention of making a lot of money without putting in the necessary time, money, patience, and dedication. Unfortunately, that is not how things work.

For any business to succeed, it should have a well-defined vision. Sometimes, profit-making from the business may be secondary until it stabilizes and begins an upward trajectory.

2. Poor business strategy

A wanting business vision is directly related to a poorly developed business strategy. It is also probable that such businesses lack a strategy plan that evaluates the overall view of the venture. Such businesses can fail due to a lack of effective SWOT analysis and budgetary considerations.

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The strengths and weaknesses of your business are aspects over which you have some control and can make changes. Your team members, intellectual property and patents, and location are examples.

7 biggest reasons why Kenyan small businesses fail

Outside of your business, events in the industry create threats and opportunities. Opportunities and threats can be grabbed, and steps can be taken to prevent them, but they cannot be changed. Examples include competitors, raw material pricing, and customer purchasing patterns.

The business vision is also dependent on leadership. If your business lacks good leadership, how can you make proper management decisions? Poor leadership and being clueless about critical aspects of the business, such as operations and marketing, can quickly make it crumble. 

3. Inadequate business finances

Most small businesses in Kenya suffer from a lack of operational capital. Again, many new business initiatives underestimate the importance of the financial component before starting.

They quickly discover that overhead expenditures, employee salaries, and utilities consume more money than anticipated.

Small businesses can only succeed if they undertake a thorough financial analysis of their new venture. Only then can they develop a practical plan that satisfies their businesses’ financial needs.

The research will also show you how much money you need to put into the business before it becomes profitable. Most financial experts believe it would take two to three years for new businesses to stabilize and experience sufficient cash inflows.

With this knowledge, you set aside finances to keep you going until you have enough sales to support you.

The truth is that many businesses may be out of touch with their business outflows and inflows. This disconnect leads to numerous financial shortages, causing businesses to go bankrupt and cease operations.

4. Losing track of buyer persona

Some small businesses ignore key strategic aspects such as product specialization and niche building. Focusing on demographic groups and locations helps to identify potential customers, their bases, and critical interests. Knowing your target market will enable you to customize your products or services to meet their needs.

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You cannot understand what people desire until you have a specialization. For example, while some clients may like your products or services, you can only keep them if you supply the requested products.

People are naturally impatient; if you slug, they will swiftly move on to a competitor who responds and gives what they require.

Meanwhile, small businesses should be willing to go the extra mile to identify potential clients to thrive.

Create inroads, engage them, and bring them on board if they are on social media. If you are not implementing any of the above, your firm may be unable to endure market expectations and pressures. It will undoubtedly fold sooner rather than later.

5. Failure to address market needs

The best businesses solve a particular need in the market. The only way to know what the market needs is by conducting proper market research. And then developing and monetizing solutions to these needs.

But very few small businesses in Kenya bother to do market research. Being overconfident in one’s abilities can sabotage your well-laid plans, especially if you set up a small business for the first time. Conversely, research and exposure will help you to understand the market better. 

Here are some of the critical elements small companies fail to research that can lead to failure;

  • The level of local market saturation: oversaturation means that your products/services may not sell as well as you had hoped.
  • The costs of a new business venture: underestimating the costs is why many fail within the first year.
  • Customer and competitor profile ignorance: research can lead you to where and who your consumers are. It also indicates who your competitors are and what they are doing differently.

Ignoring the value of preceding research is bad for a business. The power of knowledge is critical to entering, remaining, and prospering in the market.

6. Lack of innovative ideas

What are you doing differently? What is your competitive advantage over the incumbent businesses? A business innovation involves a new idea and a new way of doing an existing business. You need at least one of these.

The thing about innovation and originality is that they allow you to stand out and be unique and easily stay competitive while capturing a sizable market share. Innovation allows you to carve yourself a market niche while standing out from the crowd. 

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An innovative small business can anticipate and capitalize on rapid changes. Without innovation, a company cannot grow as easily. 

Small businesses that fail to innovate quickly lose touch with their customers. They fail to create unique products or services on demand, making it hard for them to compete well in the market.

Sluggishness and failure to make an impression are enough to connect such a venture to the statistical data of failing businesses.

7. Poor marketing skills  

Planning early marketing campaigns is the trick successful businesses use to secure their market share. Proper product marketing creates referrals and repeat business clients. It also establishes customer loyalty.

Loyal customers are powerful. They will sing your praises and write the most amazing reviews about your business.

Small Kenyan enterprises, however, fall short in this regard. There are numerous reasons why marketing and business fail. Most small businesses start with a limited budget and prefer to perform their marketing to save every shilling.

But that shouldn’t be an excuse not to advertise appropriately. Essential marketing doesn’t have to consume a huge budget. 

Nevertheless, this should not be used as an excuse not to advertise appropriately. Essential marketing does not have to be expensive. It is basically about how you sell out your business. 

Some businesses fail due to poor customer relations, poor communication, lack of interpersonal skills, and a generally negative attitude toward potential customers.

What’s next?

Although business creation is at an all-time low in the history of Kenyan SMEs, that shouldn’t stop you from building a business.

A well-thought-out business plan, niche, and business specialization can help you hold solid in turbulent times. Again, the key is to begin small and learn the ropes as you progress.

About the author

Vani has a keen interest in investments, entrepreneurship, and small businesses.

Vani Ongaya

Vani has a keen interest in investments, entrepreneurship, and small businesses.