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Why Startups Fail in Ghana

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Here is a statistic for you. According to the Minister for Business Development – Ibrahim Awal Mohammed, speaking to the media in June 2017; about 75 percent of small business startups in Ghana fail within the first 3 years. Even where they exceed the 3 year barrier, most of these businesses disappear within 10 years of operation. Yet, small businesses in Ghana constitute about 90% of all businesses in the country. Think about this for a minute. 90% of the businesses in this country are likely to fail within 3 – 10 years. This could mean that every 10 years, the enterprise backbone of this country starts afresh, without much continuity and with either disappointed or inexperienced entrepreneurs. I am sure the reasons for this incredible phenomenon has been discussed for many years and it is likely that the reader knows these reasons like the back of her hand. These will include lack of capital, high interest rates, lack of infrastructure and government and regulatory ineptitude. With these, I should think my article is done because in reality the above reasons are the major culprits in killing Ghanaian businesses and this is universal knowledge. If only we could find the solutions to these problems, we should have a better return on the hard work and sacrifice of the entrepreneurs who undoubtedly have what it takes to build world-beating enterprises in Ghana. It should take only the right government to work the magic and make these happen. However, in this instance I am a pessimist. I do not have a choice after successive governments have failed to have any systematic plan to address entrepreneurship in Ghana. Simply put, I do not believe that in the next 10 years, Ghana is going to solve the capital problem for entrepreneurs, have lower interest rates and more access to credit, build the requisite supporting infrastructure for enterprises and have a business friendly public and civil service. So, I want to look at other reasons for business failure in Ghana that are probably less evident and that I believe are better targets for both government and individual entrepreneurs to minimise the failure rate and guarantee a better chance of success. Small Markets Most Ghanaian entrepreneurs set up to cater to a very small market. This is in terms of whether it is to do with a niche market or just focusing on customers in an area, region or Ghana. Unfortunately, in a globalised world, that is a sure-fail strategy. For whatever services or product that you provide as a Ghanaian entrepreneur, your next door neighbor can get a similar product from China or the USA cheaper and better. If your aim therefore is simply to capture your area, the likelihood is that you will ultimately fail. There is also the issue of double jeopardy, in that, if you even began to have success in your business; you are merely likely to awaken giants both locally and internationally who will simply diversify and crowd out your niche without too much efforts on their part. Thirdly, targeting a small market only ensures hand-to-mouth survival in most cases because the entrepreneur is unlikely to get sufficient revenues to expand aggressively. High overheads involved in doing business in Ghana also means that there are no idle earnings for innovations and experimentations that is the bedrock of great entrepreneurship. Thankfully, this is a mindset problem for entrepreneurs rather than a structural one. To tackle this problem, Ghanaian entrepreneurs must be challenged to dream big and to look beyond their horizons. We must understand that enterprises are just as likely to fail small as to fail big and it will take the same amount of work to capture a small market as it will take to capture a bigger one. If you are going to do entrepreneurship, go for a big market else it is really just a waste of time for a lot of us; and while it seems prudent and ‘common sense’ knowledge to set our sights low; the reality of business in today’s globalised world is that there are no more ‘local champions’. Elitism Stories abound of Ghanaian entrepreneurs who have moved on from rags to riches and there are many names to go around. I however, contend that the only reason these stories make the headlines is because they are few and far between. The Asoma Bandas and Osei Kwame Despites are, in reality, outliers in terms of success in business in Ghana. Rather on a day to day basis, the persons with the capital and the connections to facilitate businesses in Ghana are elites and they are only helping other elites in entrepreneurship. There are very few known and accessible angel investors in Ghana. If you are able to name more than one, you are probably an elite. But for the average Ghanaian entrepreneur, he knows almost nobody who is both able and willing to put his capital at risk for a new venture. I am not, of course, calling for a change of heart in our rich men and women. Far be it from me to believe in fantasies. I am rather advocating incentivising high risk venture investments through favourable tax policies and protections. Government currently has a tax holiday for entrepreneurs for their first few years, knowing very well (or probably not knowing) that such businesses are unlikely anyway to report any significant taxable profits during this period. Will it not be a better policy to grant such tax holidays to the people who put their capital at risk for young enterprises to flourish? Lack of Collaboration Business is fundamentally a collaborative process. It involves three main groups of persons; employees, shareholders and customers. Failing to understand the importance of each of these parties to a business is the bane of many Ghanaian enterprises. The typical Ghanaian entrepreneur assumes the role of a benefactor (rather than a partner) to his or her employees. The downtrodden workers suffer the mental abuse and sometimes psychopathic domineering behaviour for years because there are no jobs. However, in reality, the entrepreneur will have been better off working on his own because when he is not watching, his employees will be consciously or sub-consciously sabotaging his business. The Ghanaian entrepreneur also wants to own the entire business. I have come to understand that this is not necessarily out of greed or a lack of appreciation of the benefits of synergy and the pooling of capital. It is rather a result of trepidation at having to engage with others in building the business. It is a skill set problem rather than a matter of avarice. We must therefore train our entrepreneurs on managing business relationships, delegation, corporate governance and conflict resolution. Thirdly, the customer of any business is not meant to be a short term exploitable resource, but a partner in building the business. Entrepreneurship should not be about making the hard, quick buck that has become the standard for doing business in Ghana across the board. Such businesses are not sustainable because ultimately, the customer will see through the hard sell and move on. Fighting Failure Finally, failure itself is the biggest enemy to success for the Ghanaian entrepreneur. Our preoccupation with avoiding failure at all cost results in taking overly risky bets or not taking any risks at all. So, we put outrageous amounts of money into a business that at the onset is really just an idea; believing falsely that just having a lot of money to start a business will guarantee success. Then in other instances, we whittle down an idea to its barest bones, depriving it of any sense of ingenuity or risk, in order to start something that is so simple (i.e. buying and selling) that it can’t fail. In both instances, failure eventually is almost inevitable. The culture of experimentation as a part of the development of businesses is foreign to Ghana and yet it is the only way to build truly great businesses. The concept of embracing failures, ‘failing fast’ and ‘failing forward’ must be encouraged in our discourse about business start-ups. These things will not solve the problems of a lack of capital, high interest rates and governance inertia; but will give 90% of Ghana’s enterprises a fighting chance to make it pass their 10th birthdays.

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