Why Start-Ups Fail Within the First Year – Expert

Co-working office space
Co-working office space . FILE

Every entrepreneur's dream is to start a successful business. However, as it emerges almost 90 per cent of startups fail with nearly 10 per cent of them failing within the first year.

Failure is most common for startups during years two through five, with 70 per cent of the start-ups falling into this category across all industries.

According to Joram Mwinamo the Chief Executive Officer - SNDBX this is global phenomenon that cuts across. He also notes that a majority of the start-ups fail because the solution they intend to bring to the market may not necessarily have enough demand.

Workers at a Nairobi- based textile factory.
Workers at a Nairobi- based textile factory.

“People come up with ideas that may not necessarily have demand like the target market may not exist or the problem may not be big enough to create a target market that can sustain a business that’s being set up,” he intimated.

Victor Ogolla, the Managing Director Viffa Consults, however notes that the cost of registration of companies also eat into the capital that regular start-ups may have. He further cites the copy and paste mentality is another factor that entrepreneurs need to work on.

“One of the things you also notice with Kenyans, a majority of business in Kenya are dealing in wholesale retail, meaning that a lot of us buy to resale.  There is very little emphasis on manufacturing, agriculture etc so market becomes a real problem, because we are competing for the same market."

Financing models in Kenya are also said to be unsuitable to finance start-up insisting that the money issued may not be sufficient.

“We currently do not have suitable financing model. Majorly the only source of financing that can be able to help you a lot with value is banks because you can go get a long term loan, but with that lacking you have to rely on either your saving or profit, chama sacco etc or even mobile credit but you see the nature of those kind of financing is they are small ticket size,” he added

The turnaround period may also be one of the other factor why businesses fail which he says should be considered when coming up with a business idea.

“Businesses take time to catch on and a lot of people do not have the resilience to wait that long until the business catches on,” he told Kenyans.co.ke in a phone interview.

Business and management skill have also been cited as other reason that start-ups fail with the experts citing that most start-ups will hire depending on their budget and not necessarily based on the requires expertise.

Mwinamo also urged starts-ups to seek and have mentors to help them navigate, “mentors come in handy, somebody who has been in your industry could be retired or they are older and have gone through the issues in your industry so somebody preferably and entrepreneur themselves as well and can share their experience as well may help you think through the different aspects of the business.

Startups and MSMEs are among the biggest employers of Kenya’s work force after the informal sector which employs up to 80 per cent of Kenya’s population

An undated photo of workers plucking tea in Kericho
A photo of workers plucking tea in Kericho County.
The Guardian