Failure of Small Businesses

No doubt that successful small-scale businesses contribute to the growth of formal and informal economy, for the fact that they are entrenched across sectors of the economy, play vital roles in employment (formal and informal), create product and process innovation and provide many small-scale entrepreneurial opportunities.

Considering potential impacts of small businesses on sustainable development goals (SDG), government of several countries have come out with public policy interventions that confront employment challenges, disruptive challenges of technology and impediments to new markets and business expansion.

However, the rate at which small businesses fail is alarming. For instance, businesses that were started in 2017 in United States of America, have failure rates of 20.9% in 2018, 31.4% in 2019, 39.3% in 2020, 44.5% in 2021 and 48.4% in 2022, (US Bureau of Labour Statistics, 2022). In developing economy like Nigeria, failure rate of 70% to 80% was suggested for small businesses that were birthed 5 years ago.

Why small businesses fail generally?

Following reasons are adduced to the failure of small businesses.

  • Lack of economies of scale
  • Limited financial resources coupled with capability challenges to source for adequate funding
  • Perception of organisational identity as it relates to ‘ownership-business dichotomy’
  • Human capital resource constraints (skills, systems, expertise, bargaining power, etc.)
  • Weak entrepreneurial orientation
  • Impacts of environmental shocks, constantly disruptive industry, indiscriminate government policies, poor infrastructure and inefficient institutions

Any other failures that are specific to developing country like Nigeria?

Listed below are some of specific issues relating to failure of small businesses in Nigeria:

  • Heavy presence in informal market which lacks formal regulatory environment
  • Failure of institutions, poor governance and lack of supportive infrastructure
  • High cost of doing business and burden of high risk premium (e.g. sourcing for financial credit)
  • Instability of monetary and fiscal policies (FOREX issues, high tax incidence, high inflation and cash supply issues)
  • Lack of transparency and poor accounting system and inability to engage professionals/consultants to help business
  • Impact of global economic shocks, supply chain/logistics issues and heavy dependence on oil economy

Some of the above issues are also evident in other developing countries of Africa.

Price of Failure

There are huge price to pay for business failure, because ‘failure’ ordinarily carries a burden that cuts across financial, social and emotional consequences. On the other hand, such consequences of business failure are seen from two lenses; positive and negative consequences. Positive in the sense of key learnings from the failure to avoid future occurrence and block all loopholes. Negative in the sense of fear of survival/exit, governance/legal consequences, community rejection and shame.

At Knot Edge Consulting, How do we Help Small Business to survive?

One of our core competence areas is to diagnose small businesses of ‘failure symptoms’, detect real causes of failure or potential failure and help businesses survive, amidst competition/rivalry, industry disruption and environmental shocks.

We do these by:

  • Offering a ‘laser-like’ industry and market analysis that provides detailed perception about markets, industrial sectors, position and identity of a specific small firm within its industry
  • Providing guidance on strategies that focus on organisational and leadership resilience and strategic flexibility.
  • Helping businesses to build courage, vision clarity, long-range planning and forecasting (edging against uncertainty), negotiation ability and developing power of persuasion
  • Navigating small businesses on how to innovate, develop new product, business or process and build strong desire to win in a market
  • Helping small firms on finance sourcing, project funding, business, proper budgeting and resource allocation.
  • Providing scalable financial services such as proper bookkeeping and accounts, transactions audit trail, etc.
  • Serving as a conduit for securing good level of confidence from investors, suppliers and government agencies through our professional consultants and client-facing solutions.

Our consulting firm has a built-in database of various sectoral data that assist small business decision-making. We also have tailor-made survey questionnaires /statistical matrix modelling that are specifically designed for small business clients to help navigate, identify and solve existential issues.

Our technology solutions for business planning & forecasting, corporate treasury, project planning and management, market and industry data analytics, product costing and pricing models, are well-knotted for the edge of our clients.


Sule Omotosho

Principal Consultant