After training and coaching hundreds of aspiring entrepreneurs in Africa, Asia and the Middle-East over the last 4,5 years, I have observed five common mistakes startups make.
Today I will share those mistakes and how you can prevent making those mistakes.
Research shows that 90% of startups fail. If you know why they fail, you can learn from these failures, plan to overcome them and become successful.
Let’s dive in.
Mistake 1: Start your business right away without doing market research
In 42% of the cases, startups misread the market demand. In my extensive travels in Africa, I have seen this to be true.
On a hot day in Balaka, Malawi, I asked 50 trainees if they did farming. 95% of them raised their hands. My next question was if they were making a profit. Only one or two hands went up. The majority of the people trained have a business idea, but don’t check the desirability of the product or service. They assume people will buy, because they have a great idea. Or they have been used to doing it for so many years. They don’t go out and actually TALK to potential customers.
We teach people to do market research FIRST by asking them the question:
“What product or service that you don’t have would you like to have?”
This question helps to understand:
- Something unique your customers want
- Understand which kind of business doesn’t have a lot of competition
- What business to start to have the “first to market” advantage
Next to the desirability, is the viability of your business. What are the expenses? What is the revenue? What is your gross and your net profit? Most of the people in Africa, don’t do this exercise.
Mistake 2: Start big
Most of the business plans I read, have big budgets. “To start this business, I need to have $5,000 – $10,000 to open a big shop,” they say. The problems with starting big are gigantic:
- You expose yourself to the risk of losing all your money, because you don’t know if customers will come to buy your product or service.
- If you take a loan and your business doesn’t work, you have a large debt to repay.
It is better to start small.
One entrepreneur I trained in Malawi wanted to start a spices shop. He came with a large budget to open a big shop. I advised him to first go to restaurants and asked them if they needed spices. They could pay a down payment and with that money he could go to source the spices. He didn’t need a lot of money upfront for a big shop and could test if his business would work with a small budget.
Mistake 3: Don’t plan
“He who fails to plan, is planning to fail.” Winston Churchill— Jonathan Fokker (@jonathanfokker) November 18, 2022
Most of the people in Africa we train, don’t plan. They just start.
This is a recipe for disaster.
When people go through our training and coaching we help them developing a business plan. We have a template of a business plan that has a lot of questions. These questions force people to think. One of my favorite questions to ask is:
What is are the risks and obstacles of your business? How can you plan to overcome these risks?
These questions help people to plan and be prepared for the risks and obstacle that come their way.
Mistake 4: Spend the money that belongs to the business for your own expenses
While talking to a “chapati” (little pancakes) seller in Uganda about the expenses and sales of his business, I found out he sold around 200 little pancakes a day (+/- $30,- revenue per day). I asked him what he did with this money. He said: “I use all the money to eat.”
A big mistake is that business owners think that the revenue of the business belongs to them. This is not true. The money belongs to the business!
You pay yourself a salary from the revenue you make. THAT money belongs to you and that is what you can use. The rest of the money is used for expenses in the business (in this case news eggs and flour).
Mistake 5: Start and run the business by yourself
A lot of people that start businesses by themselves in a difficult economic environment in Africa and Asia fail. There are so many challenges in starting and running a business. It’s easy to drop the ball. It is better to work together. With two or three people you have more brains, hands, hearts and giftings to make the business successful and make an impact.
The five mistakes in a nutshell:
- Start your business right away without doing market research
- Start big
- Don’t plan
- Spend the money that belongs to the business for your own expenses
- Start and run the business by yourself
Your five take aways:
- Start with market research
- Start small
- Only spend your salary money on your own expenses
- Build a team