Medium Enterprise

Why many small businesses fail to grow after launch

Most SMEs collapse before their 5th birthday. Growing a business is no easy feat and no two businesses are the same. There are of course the obvious external factors such as taxes, market size, competition and demand.

Why many small businesses fail to grow after launch

Many new businesses collapse for lack of proper leadership. FILE PHOTO | NMG

Small and Medium Enterprise (SME) businesses contribute over 70 per cent to the Kenyan GDP and taxes. Without them, we would be in trouble as an economy. Why is it then that the largest producer of jobs, taxes and GDP are the ones who find it hardest to grow? Most SMEs collapse before their 5th birthday. Growing a business is no easy feat and no two businesses are the same. There are of course the obvious external factors such as taxes, market size, competition and demand. There are consistent reasons why businesses struggle and which I will share with you. If you are facing some of these challenges and really want to grow your SME business, consider these points as a priority.

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One of the major reasons why so many SME businesses fail to grow is that owner/founder needs to wear too many hats and be responsible for all aspects of the business operations. The owner/CEO tends to concentrate on the things they like to do rather than prioritise the critical drivers for the business. Regularly as the owner knows they are not an expert, some areas of the business are simply left untouched until it is often too late.Most owners and managers lack clarity on where their businesses are at and more importantly where they are going. They don’t have clearly defined growth strategies, or clear business and revenue models. Without the right infrastructure in place, such as the right systems, procedures, processes, controls and overall quality in the business, it will stand still.Whether it’s for new technology, larger office space, more employees or equipment, growing companies require investment to really grow. Many owners don’t know how to go about finding investment for their business. It may require borrowing money, finding strategic investors or spending profits. Either way, unless you invest in your business your ability to grow will grind to a halt.4. Hiring the wrong people or refusing to hire at allThe right talent is paramount to the growth and success of any business. You cannot build a great company without great people. Hiring the wrong people can be expensive and seriously impact the rate of growth of the business.“Saving money” by not hiring or outsourcing is another common mistake. This means the company is under-resourced and the talent you do have will leave as they cannot handle the pressure. Bring in the professionals to allow the business to grow.Inexperienced or unskilled leaders will find it difficult to retain the best talent. They will find it hard to truly motivate their team and bring out the best in them. An uninspired team will underperform and adversely impact your bottom line. READ: Why many businesses fail shortly after launchRetention of key staff is vital for any business to survive. Nairobi’s Gikomba market has multi-million shilling SME business operating there, but due to lack of good leadership they never grow to big corporates. The very best businesses continue to delight their customers with new products and services and provide top notch customer services. This makes their customers huge fans; encouraging loyalty. Without excellent customer service and innovation any business will find it difficult to keep their repeat customers.Many SME businesses fail to invest in technology making it difficult to run an office and have instant access to much needed information. They piece technology together as they go, wondering why it cannot cope when they scale up. This leads to a lack of real-time business information such as a sales, leads pipeline, customers’ details and have little or no visibility on their finances. No supportive backend means soon it is impossible to manage any version of the front end.Many business owners don’t really understand marketing and its importance to their business. They’re not clear on their brand, brand values or their target audience making it difficult to engage the customer and laser-target marketing initiatives to speak to them directly. Bad marketing means the business will struggle to build a consistent sales pipeline. Inconsistent sales means a strain on cash flow and this throws the ability to survive into doubt.Doing the same thing expecting a different result. Whether you are talking about products or services the market is always changing, and products and services have to change with it. You have to consistently innovate, trying new things and ensure you don’t fall into habits that will take you away from your current core drivers.9. Living too close to the line Many companies struggle as their expenses seem to increase at a similar level to their sales. Further, there are many businesses operating on a margin of less than 10 per cent. It is very easy for that profit to be eroded with only one big invoice or unexpected event. Developing clear lean processes and managing costs carefully, with proper forecasting expense model is vital. This will allow business leaders to make better more informed decisions.

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