Why SMEs in Kenya are Shutting Down
The rate at which new businesses in Kenya are falling is alarming. As a matter of fact, it is a global crisis – not just a Kenyan one, so we can rule out the probability that it has anything to do with the shortage of ugali. Many small and medium businesses start each year – some highly innovative, but very few make it out alive beyond year one. We obviously have the brains and the entrepreneurial spirit, but why are our SMEs not working out? Let’s look at 5 reasons why.
- Lack of uniqueness
Something quite unusual in Kenya is how much business people love to copy each other. And it’s not just copying in a subtle sense – I mean even simple things like logos and catchphrases. Turns out we may not be as creative as we think. Matatu owners do bodyworks that are identical to the other matatus on the same route. Restaurants serve the exact same food that is served by every other restaurant on the street.
Many SMEs in Kenya often lack unique selling propositions that boldly distinguish them from competitors. A business that is destined for success should create its own path and play by its own rules. SMEs should focus on offering unique value propositions that will set them apart from the rest of the pack.
- Poor management
One of the main reasons that can be attributed to businesses failing in Kenya is poor management. Most entrepreneurs often lack the relevant management skills in areas such as accounting, managing employees, selling, production, etc. Businesses are very complex entities with specific components that need to be managed a certain way. While it may not be possible to have the skills to manage every little component, entrepreneurs can establish strategic alliances which comprise of partners, skilled employees, mentors, and all the people whose association compliments specific aspects of the business. Now, with such in place, if an entrepreneur’s weakness is in financial management, a strategic partner may be able to cover that basis.
- Money issues
Capital is often a headache for most SMEs. It is also the reason why many business ideas only remain as ideas – the prospects of raising funds in order to implement them are too daunting to even attempt. Money is essential to get the venture up and running, and to enable it build sufficient business momentum so that it can sustain itself through the cashflow that it generates. The challenge is acquiring that initial capital in the first place. Many entrepreneurs end up wasting so much precious time looking for money in the wrong places, forgetting that there is a business that needs all their attention.
- Poor planning
Ventures that are destined to fail are the ones that do not do their homework in terms of researching and planning comprehensive business growth strategies. Many entrepreneurs in Kenya hardly take the time to sit down, research, brainstorm, consult, put ideas on paper, brainstorm some more, research some more, etc. Planning does not end after a business plan has been laid down, it should be an ongoing activity for the lifetime of the venture.
The key to building a formidable business empire is plans which are highly strategic – even if the actual business idea is mediocre. There was once a company called ‘Potato Parcel’ in an episode of Shark Tank whose entire business was writing and sending personalized messages on potatoes. As ridiculous as it may sound, the company was making $20,000 per month and even got an investment from the shark Kevin O’Leary. The business itself was mediocre, but the entrepreneurs had planned it out perfectly.
- Poor customer services
Customer service is an area of weakness that is common across many SMEs in Kenya. For instance, reaching out to a company on phone often means calling their lines several times before someone picks up. And the person that answers usually sounds like they hate their job and hate you for calling. There is nothing that kills customer experience like poor services. A bad experience means that there will be no repeat business from that customer. Given the fact that the cost of acquiring new customers can be up to 10 times more than retaining them for repeat business, SMEs would reduce their marketing costs by simply mastering customer retention and focusing their resources to providing a superior all-round user experience.