Nigeria is a rough terrain for entrepreneurs. From regulatory issues, to obtaining permits, to a myriad of other issues, Nigerian entrepreneurs face several issues that challenge their growth and operations. Given that the business stratosphere in the country is unique and quite challenging, many startups find difficult to scale through since a lot of odds are stacked up against them. It is worthy to note that the startup world in Nigeria is definitely seeing some positive changes, particularly with the exponential growth of startups like Farmcrowdy and Kobo360 who provide unique services across Nigeria. In spite of these, startups are beset with a myriad of problems that hinder their growth. These include:
Startups find it difficult to secure external funding which they need for their growth. Banks ask for collateral security that can cover their loan instruments which they intend to advance to the potential debtor; the entrepreneur running a startup. Unfortunately, this requirement of collateral by banking houses halts the startup from accessing the funds they’re looking for as they cannot cover the loan instrument with adequate collateral. . .in most cases. Sadly, if these startups already had these monies, they won’t have the need to go to the banks, and since they may not have the collateral that can cover the potential loan sum they are asking the banks to advance to them for business growth and development, the banks will not part with their money. So, they’re stuck in a rut as the banks will not lend to them and they cannot get funding through other conventional means.
Furthermore, these startups have difficulty getting venture capitalists and Venture finance Firms to inject needed funds into their startups. The reason is simple: unless the startups can show that they offer a truly unique solution to a business problem, venture firms and potential partners usually are reluctant to finance these ventures. From Faster Capital, to Y Combinator, there are requirements startups have to meet for pre-series, series A funding, and other advancement funding options, and they are usually stringent. Many cannot meet up, so they are dropped. Even some that meet up may have to be dropped since the competition for funding is usually fierce.
The Solution: Dip into personal savings and rely on the investment of people with like minds who believe in your startup. But in order to do this, I personally advise that you have a strong business plan in place; you have to take out the time to streamline your business plan and set down all potential areas that may need coverage. Prepare your business pitch decks; get ready. Don’t know how to prepare your business plans and pitch decks? There are advisors who can help with this. But the point remains that you have to be ready if and when investors come calling, and your business plans/pitch decks can come in handy.
Nigeria lacks infrastructure. Take electricity, for instance; it’s epileptic, to say the least. For businesses that rely on electricity, this lack of electricity drives their operating overhead up, so they have to use generators. The transportation systems are poor too; we don’t have a functional railway system in Nigeria. Water transportation in water-dense areas like Lagos are under-utilized. Roads are crumbling into disrepair and there is no maintenance for a lot of them. Under these harrowing circumstances, startups fail to thrive, as the existing infrastructure can’t properly guarantee a good operational environment.
Furthermore, the infrastructural deficit affects the decision of potential investors. Thus, costs increase. The business environment become seemingly more hostile to entrepreneurs. With time, many are eased out of business because they cannot cope.
This can be better explained using a scenario. Mr. A has a great business idea that is unique. Mr. A implements it and set up shop in Lagos. Before long, other startups will start springing up all over the place, offering exactly the same unique services that Mr. A is offering, with their target demographic being the exact client demographic Mr A carters for. In other words, they have joined Mr. A in the red ocean of competition, and Mr. A will have to compete for market share with them.
The Solution: Create a blue ocean strategy. The blue ocean strategy is a strategy guideline that is implemented to create a unique offering that is completely removed from what others are offering, such that the competition becomes pretty much non-existent [think Apple].
Many startups have a problem with hiring. Some hire too few staff, which leads to more work load and over-extension of workers. Other hire too much staff, leading to the mandatory creation of a bigger payroll. Sadly, and in many cases, members of the extra staff aren’t really required. How then do they strike a balance? Many are stuck in this rut. How do they hire? Who do they hire? What are the factors that determine who they are to hire for their startup?
Perhaps it’s because of a lack of awareness, but many startups face the challenge of not having enough to cover a marketing budget. Many aren’t even aware of the need for marketing. Those that are aware don’t have adequate know-how of which marketing channels to use. Many startups are not aware of the need for the personal and individual marketing of the members of their staff to target different potential customer/client demographic. They fail to understand the importance of marketing themselves and the members of their staff to gain Brand awareness for their Brand as part of their Brand strategy to become known in their target niche. This is a problem.
Question: what can we do to change the startup scene in Nigeria? How do startups and entrepreneurs in Nigeria surmount the challenges that beset them in order to scale? How do they keep afloat? It is obvious that the entrepreneurial scene in Nigeria is bumpy, particularly given the operating environment many Nigerian businesses find themselves in. However, for any business that is able to understand their challenges and find out their unique selling points, plus perseveres, there is no doubt that Nigeria offers a lot of opportunities.
Are there other challenges you think startups and businesses face in Nigeria? Do you run a startup as an entrepreneur in Nigeria? Do you face challenges? I would love to read your thoughts below in the comment section.
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