In a few days Abidjan will host its very first Start-up weekend to help budding entrepreneurs test their business ideas and find relevant resources. It inspired me to write this post on why I see business ideas and start-ups failing in Abidjan. This city is full of informal small businesses, but I’ve also seen a good number fail (including my own restaurant project!). Whenever someone tells me about an idea, I can usually think of several reasons why it will fail, and even if this can appear critical, I think it’s a useful exercise. So, here’s a collection of five key reasons why start-up businesses fail.
1. Starting big – I meet lots of people who want to start big, and that means mobilising huge funds and making the proverbial stab in the dark to see if the thing takes off. It’s the equivalent of building a Jumbo jet before you’ve got a single seater Cessna up and running. This may not apply to every business model, but for many my advice is – start with what you have or what you can afford now, to see if the thing might work. You want to start a magazine? Start a webpage first. You want to open a restaurant? Sell food at a friend’s place or on the street first. I’ve found many people don’t like this advice, perhaps because they dream big and find it humiliating to start small. But it’s a great way to reduce risk and test the water. You’ll also find it hard to attract investors if you haven’t got something up and running, however small.
2. Follow the ‘On dits’ – Ask an ivorian for a good business project and they’ll often propose the same list of things – importing a car, running a taxi, opening a maquis, hiring out plastic chairs… There are lots of ‘on dit’ (literally ‘one says’). On dit que ca marche (trans. it seems that it works well). It’s best to ignore or get behind these perceptions. Things are frequently not as profitable as they appear – how do you know that sort of problems and hidden costs there are? That’s particularly the case in sectors that have low-barriers to entry – if it’s easy to get into a business (i.e. set-up a maquis restaurant), then what makes you think you can succeed? Even if one business is thriving, you may not be able to replicate the success – if you’re copying someone else, than by definition they already have a head start. Do they have connections and knowledge that you’ll never have? Will the market conditions be the same when you’re up and running as they are now?
3. Linked to this is the tendency to ignore the capital expense. This is often because the capital comes from some rich boss type model – the big brother, Europe-based family member sends money to set up X business. The investment was a gift and any money made from it is seen as equivalent to profit. Hence say in the taxi sector, people see the returns from running a taxi but forget that the car will need replacing in a year or two. Things quickly grind to a halt, because money was not put a side to replace the initial investment. Study the concept of ‘opportunity cost’ – with any funds, you’ve got a very good chance of getting annual returns of at least 15% on the Ivorian stock market in a broker managed account with no work on your part – so make sure your business idea is going to at least make more than this (or benefit you in significant non-material ways).
4. Linked to all this is failing to study the sector. Dreamers are good, but realism also has its place. The people who point out the flaws in your idea are doing you a huge service. If you’re brave ask your friends to give you three reasons why your business could fail. Imagine not just your successful business in five years time, but imagine that it all fails in two years time and then ask yourself why. Put the following question – if in two years my business hasn’t taken off or has failed, what are the possible reasons this could have happened? If you don’t know anything about Google AdSense, don’t count on earnings from your blog/website covering your expenses – it’s very hard to make money from this. What are the taxes you’ll need to pay? How can you stop your employees stealing from you or simply stealing your ideas? How much do companies in the sector really make? What can you offer that’s different?
5. Finally, avoid the ‘inshallah‘ and the ‘ca n’a pas marche’ spirit. I see quite a few Ivorians launch business projects like people throwing money into a wishing well. The thinking is that it’s good to be trying something and then it’s up to the gods to bring about success. When people fail their school exams here, you often hear the phrase ‘ca n’a pas marche’ (it didn’t work out), rather than ‘I failed to study hard enough’. I see people applying for visas with absolutely no chance of success – but to tell them so is to be mechant (bad). If your business fails, it will likely fail for reasons that should have been apparent from the beginning had you done your homework. Much of success comes from hard work, planning and foresight.