Anne is an accountant by profession. She is a hard worker, a very dedicated employee. She had worked for an international non-governmental organization for 12 years. Life had been a struggle though she always managed to get by. She is a single mom of one daughter, who is in primary school. She also pays school fees for her younger sister who is in high school.
Anne’s world was turned upside down when the company she had worked for all those years restructured. She found herself among those who were declared redundant. Her employer was supportive to those who were retrenched. They were taken through a series of seminars to prepare them for life outside formal employment. They also received 2 months pay as a send off.
Anne quickly registered a limited company with herself and her brother as the directors. She took a loan from a sacco, to supplement what she was paid by her employer. She looked around for office premises, ready to go into business for herself. With the cash she had, she paid 3-months office rent and bought basic equipment such as a desktop computer, a printer, a second hand desk and office chair and a phone. She started the work of building her own company. Anne knew what she wanted to achieve with her business.
There are very many small businesses in Kenya and many of them are not legally constituted and they lack basic structures such as book keeping. She was going to offer these services to that market. She approached all the people she knew and told them about the services she was offering. Many seemed excited about it and promised to get back to her but 2, 3 months down the road, none had made good their promises. The first month passed; no job. The 2nd month passed; no job. She was getting desperate because she had paid rent for 3 months and did not have much in savings, and she still had bills to pay.
Luck finally smiled at Anne…. A family member – a businessman who operated a tour company – sought her services. They negotiated and agreed on the scope of work to be done and the pay. Anne was to begin working on the project immediately and as per the agreement, she would be paid 40% down payment upon completion of some deliverables. The work was a lot so Anne hired an assistant. The two of them worked long hours to beat the deadline. She really needed cash and this was her lifeline.
Anne learned the hard way the challenges that accompany start-ups, especially if one does not have the necessary experience in building a business. She delivered the work on time but the client gave excuses and failed to pay.
Anne learned her first lesson. She had accepted the work on trust because the client was a family member and she had known him for years. She had not insisted on a legally binding contract before embarking on the work. She had also hired an assistant to work with based on the promise of pay and not on cash-flow in her business. Big mistake.
She and the assistant worked for 3 months. Anne was able to pay her salary the first month but now her employee’s 2 months’ pay was in arrears and it was big trouble. Anne already had a loan she was servicing and no cash-flow. The rent for the office was one month overdue and if she did not pay up by the end of the month, she risked being evicted.
Reasons Why 80% of Start-ups Fail In The First 5 Years And How You Can Avoid It
1. People who start their own companies are usually led by passion about something. Their start-up is likely to be based on their area of expertise and not a realistic research of what the market needs. Anne is an accountant by training so it was very easy to for her to start a business offering accounting services. She did not start with an honest research to find out what the market needed but took the easier route of offering the service that she was comfortable giving.
The product or service you are offering is definitely important, but have you done a market research to find out if there is a real market for it? Do you have a unique selling point? Are you going to do a better job than the competition such that you can dislodge some of the clients from your competitors? Will you go the extra mile to do what the competition is not doing?
2. Are you focusing on the right market? Do you know who is going to pay for your product/service and how much they are willing to pay for it? How will you communicate with your target market? If you target the wrong market, chances of success are nil.
3. Cashflow: Most people go into business with limited funds, hoping to make money from the business. One major mistake many make is to assume that the business will soon generate income and become profitable. Sometimes it can take a year or longer before the business becomes profitable. Will the product/service you are marketing deliver enough income to keep the business going when your seed funding runs out? What are your alternative sources of funds should your seed funding run out before the business becomes profitable?
4. Accounting and book keeping: Many people start their own company driven by passion about a great product or great ideas. They are so passionate about what they have to offer the world that they put all their energies there and neglect the tedious financial records. The wake up call is usually when the business owner realizes that there is no money to pay bills. And that signals the beginning of the end. Without money, there can be no business.
5. Staffing: A business owner is normally driven by passion to give something to the world. There are aspects of the business he is not competent to handle probably keeping accurate finance records, marketing, etc. Working alone cripples certain critical areas of the business. Hiring is scary for start-ups, especially because there is no assurance that the cash-flow in the initial stages will be able to pay salaries.
There are ways to get round this one. Hiring temporary staff (who work a few days a month) is one viable option. Giving students who are good at what they do internships and working closely with them is also workable for start-ups. Students on internship do not have to be paid salaries but can be compensated in form of some lunch and transport allowance and training. Give them very clear instructions and supervise them closely. Starting your own company is a rewarding way to take charge of your future. Pay attention to all aspects of the business and be ready to go the extra mile. It is not an easy road but it pays big time, if you will work hard without getting weary. Be persistent because success can take time to come by.
This article is written by: Susan Catherine Keter; life coach, personal development mentor and blogger