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Main Cause of Failure of Established African Businesses
With the collapse of nearly all the African-owned stock broker companies at the Nairobi Stock Exchange in a manner similar to the banking crisis, the question again arises: Why do businesses owned by Africans fail? To write this analysis we interviewed, non-African Kenyans who successfully manage companies in Nairobi.
WHY AFRICAN BUSINESSES FAIL — PART TWO
According to statistics, most businesses die in the first three years of starting up. Once a business passes that stage, it is fair to assume it has what it takes to become a key player in the business scene. But alas, African owned businesses remain vulnerable, whatever the stage.
Stages in business development
• A business goes through stages similar to that a human being. The first stage can be called the conception stage. The business is just an idea in the mind of the entrepreneur. Enterprise and creativity are the key qualities needed to move the business at this stage.
• The next is the start up stage. Just in the case of a baby, at this stage, the business has moved from the mind of the entrepreneur and become an entity. Professionalism, skills and enterprise are required. A typical entrepreneur will have a variety of skills and knowledge. Product knowledge and marking skills are a must. Determination and courage, an inordinate ability to overcome frustration and yet keep focused are important qualities.
• In growth stage, your business is booming. Customers or clients are coming, money is flowing in and you are a happy entrepreneur. Unfortunately this is the critical point. With more clients, you need more employees. And you need to train your employees and you need to delegate so that as an entrepreneur, you can concentrate on the core functions of your business. This is the moment you need to make a transition from an entrepreneurial enterprise to a professionally run enterprise.
The theory of organizational management puts great emphasis on transitional behavior. In deed, the model shows us that transition is usually accompanied by crisis. Structural conflict occurs which often poses a threat to the continued existence of the business. The entrepreneur has little knowledge and respect for formal structures which can allow professional management to take over. The qualities that were essential in starting the business are now the same qualities that are killing it.
The entrepreneur has taken considerable financial and personal risks to set up the business. Typically, he therefore continues to be actively involved in the day to day running. He is unwilling to relinquish it to a professional manager in which he has little trust.
Qualities and styles of management of the entrepreneur and the professional manager have been analyzed. Some of the key differences are that a professional manager works with well-developed administrative structures and has a long term strategy.
• The final stage is the established stage. You have overcome all the challenges and handed your business to professional manager who has developed long term strategies and proper administrative structures. Unlike what is assumed, the professional business manager is a better risk taker than the entrepreneur.
Conclusion
My argument is by now obvious. When African enterprises pass the initial danger stage, the transitional stage becomes a killer. Count the businesses that you know that have failed and you will confirm this. And look at the businesses that are existing and you will again be convinced of this argument. Some people call it “The Crisis of Trust.”
What do you think yourself? Let us hear your views.
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