MOST great economies in the world have benefited from entrepreneurship and informal businesses that have managed to transition and graduate to become formal big corporations.
Zimbabwe has not been an exception when it comes to the rapid growth of the informal sector as the informal sector plays a very important role in terms of employment creation, and significant contribution towards national economic growth.
According to the 2024 economic year statistics, the informal sector contributed about 65% towards the Gross Domestic Product (GDP).
Now, every business model passes through several critical growth stages and or phases. These phases are the startup stage, growth stage, maturity stage, and contraction or saturation stage, with the final stage being the decline and or renewal stage.
Most businesses however do not go beyond the startup stage and this article will critically examine why most businesses fail at the startup stage.
Available statistics indicate that approximately 90% of startups fail completely.
The composition of the 90% startup business failures is constituted as follows: 21% fail in the first year, 30% in the first two years, 50% in the first five years and 20% in the first decade.
Why do most businesses fail at the startup stage?
Why do a few startups graduate and gravitate towards the growth stage?
What are the common mistakes that most startup businesses in the world and in Zimbabwe, in particular, have made or encountered?
The Zimbabwe startup landscape and ecosystem presents the following most common pitfalls and huddles: cash flow issues, poor marketing and or the inability to market and sell the products and services effectively, lack of market research resulting in lack of a market, underestimating startup costs, scaling too fast and too rapidly, failure to pivot, failure to strategize, hiring too early or too fast, failure or delays in employing the right people, lack of proper planning, and encountering sudden aggressive competition.
We now briefly explore and enumerate the common mistakes that most startups have made:
1. Lack of Market Research
Starting to run a business without an effective and adequate understanding of the targeted market and its priority needs may lead to products and or services that are not in demand. A business that is started without scientific and methodical research being done on what prospective clients and, or market really require or need usually leads to a startup failure. It is always advised to carry out thorough research before embarking on production and or commencement of a business operation.
2. Poor Marketing and Sales
Most startups fail to effectively market, advertise and sell their products and or services. The inability to reach out to the targeted audience has seen most startups struggling with getting a commendable market share. What matters most is building a customer base that enables the company to grow. All successful businesses have effectively marketed their products and services to the point of building a sustainable and reliant customer base. It is very important to note that without customers, there are no sales and or revenue, and without revenue, there is no profitability and cash flow to grow the business.
3. Cash Flow Issues
At the heart of most startup failures is cash flow problems. Most startups find themselves running out of cash mainly due to inadequate financial planning. Poor cash flow management normally leads to financial instability for most startups due to a lack of exposure and inexperience, it normally is the chief reason that has caused outright business failure.
4. Underestimating Costs
The failure to adequately capture and account for all expenses including but not limited to operational costs and other unexpected expenses normally leads to financial strain for most startups. Poor budgeting suddenly leads to the realisation that some critical yet necessary expenses may not have been adequately budgeted for.
5. Scaling Too Quickly
A lot of startups have found themselves rapidly expanding without proper infrastructure, without proper procedure manuals and or policies to provide rail guidelines and operational framework. Expanding rapidly without proper planning both in terms of capital and or human resources usually leads to the possibility of early startup failure.
6. Failure to Pivot
A lot of times most startups find themselves failing to adapt to the ever-changing market conditions or customer needs that may usually lead to a business becoming obsolete quickly or failing to meet its original goals.
7. Lack of Strategy and Planning
Starting a business without a clearly defined business strategy or plan may lead to a lack of clear direction, vision and guiding framework to work with. In most cases starting a business without a solid plan can lead to wasted resources and a lack of direction. This may make it difficult to achieve the business’s intended goals and objectives.
8. Hiring Mistakes
The hiring process should never be rushed. The startup business should focus on hiring at the right time, hiring the right people and forming a competent team that works well together. There should be avoidance of skills mismatches to avoid unnecessary disruption to company dynamics and corporate culture.
Most startups also tend to have one person individually doing all the various tasks alone without delegating to anyone. A startup should know that it is important to delegate tasks and hire people who can help the business succeed and grow.
Conclusion
It is important to note that the above list may not be exhaustive in highlighting all the common mistakes startups make. Enumerated here are only some of the most common prevalent mistakes our business management consultancy firm continues to deal with as we help startups grow. It is hoped that some of the ailing startups could use this template to cure the highlighted shortcomings and discuss pitfalls to help their businesses grow.
(These views belong to Shephard Kembo the Managing Partner at Globavelinternational Pvt Ltd)
