1.3: Reasons for Business Failure

Specific concepts that can be regarded as a prerequisite (requirement) for entrepreneurship are not fully developed in South Africa and in particular in certain aspects of the African Culture (such as individual property rights) but luckily our legal system, with its roots in Europe, supports these rights and has been incorporated not only in the Constitution but also in everyday practice by most of the population (except in the deep rural areas and the previous homelands where there is a slower shift away from traditional and communal ways toward modern economic thinking and methods of wealth creation).

Other issues are the literacy problem, the digital divide, the lack of money, a government-controlled schooling system that does not foster innovation and creativity, lack of role models in some communities, financial constraints, the heavy hand of regulatory restrictions on all but the most rudimentary of economic activity (the most significant constraint), heavy taxation, low economic growth due to archaic (apartheid type) economic policies, lack of infrastructure in some areas and the cost of entry into the market. A lack of higher-level (information technology, theoretical thinking) skills is also a bit of a stumbling block in developing a culture of entrepreneurship.”

Reasons for own business failure

1. Lack of experience
2. Lack of money
3. The wrong location
4. Inventory (list of goods) mismanagement
5. Too much capital going into fixed assets (property)
6. Poor credit-granting practices (bad credit-giving ways)
7. Taking too much personal income
8. Failing to plan
9. Having the wrong attitude
10. Not knowing yourself
11. Having unrealistic expectations (hopes)
12. Choosing the wrong partners

What can be done about these pitfalls?

1. Recognize limitations
2. Plan properly
3. Keep records
4. Watch the balance sheet – Not just the profits
5. Investigate
6. Co-operate with suppliers and banks
7. Learn
8. Utilize professional assistance
9. Watch your health.

“Entrepreneurs use failure as a learning experience. The repeating, trail-and-error nature of becoming an entrepreneur makes serious setbacks and disappointments an important part of the learning process. The most effective entrepreneurs are realistic enough to expect such difficulties. Furthermore, they do not become disappointed, discouraged, or depressed by a setback or failure. In bad and difficult times, they look for opportunities. Many of them believe that they learn more from their early failures than from their early successes. They believe in their own ability” (Kuratoko and Hodgetts p 54)

Success is achieved by using negative experiences positively and by learning from past mistakes. Training such as NVC could correct all the “problem areas”.