Why Most Small Business Fail in South Africa
As many as thousands of South Africans register businesses every year, but it is proven that almost 70 percent of the businesses fail within the first 2 years of operation. Usually, these businesses fail because of shortage of capital, not doing proper market research before starting the business, pricing without calculating profits and ignoring cost production.
We are going to discuss ways to help you prevent yourself from choosing the wrong business that might fail. We will give examples of real-life businesses in South Africa that have failed before and what we can learn from that.
1. Opening Clothing Boutiques and Fashion Labels
Most South Africans love fashion and fashion is forever evolving. Seeing this, entrepreneurs fall for this trap of starting by selling clothes since there is always something trendy coming up. The problem is, the market is already saturated and a lot of people are already doing the business.
Main risks when selling clothes:
- Buying stock in bulk is already costly
- Trendy clothes go out of fashion too fast
- Because of big competitors like retail chainstores(pep, ackermans, mr price) you have to lower your prices for people to come to you and the profit margins are low.
- There is no brand loyalty; people will always go for something cheaper or trendier.
There is a high possibility of having unsold out-of-season stock in your storage that you will have to sell at a loss, just to get rid of it.
Tip: If you are still passionate about the business, start small with custom orders or themed collections like graduation wear and traditional outfits.
2. Opening A Restaurant Or A Fast-Food Outlet
It’s surprising how the food business is one of the most failing businesses in South Africa. Even a simple shisanyama or takeaway spot is not a guarantee and might eat your cash instead of making you some.
Why food businesses fail:
- Starting equipments and rent are often high
- The cost of food keep rising
- High competition from already established restaurants
- Income is unpredictable, with high sales on weekends and low during weekdays.
- Food compliance regulations can cause your business to shut down at any time.
No matter how good the food is, you need to work extra hard to market your food, work under a tight budget and make sure you make high sales as much as possible.
Tip: When starting, introduce your menu in busy areas like food markets and pop ups until you start having consistent clients.
3. The Trucking and Transport Business
The only thing bigger trucks bring is bigger debt with hidden costs.
Risks of the transport business in South Africa:
- Buying a truck or a bigger vehicle is costly, including maintenance.
- Unpredictable increase in fuel prices
- Difficulty with paying clients
- High risk of theft, hijackings, and breakdowns
Maintaining and fixing the trucks can draw you back financially for months.
Tip: it’s advisable to start with small cars doing delivery services before engaging in big logistic contracts.
4. Starting An Internet Café and Printing Business
Technology has changed a lot of things including the printing business. Internet cafes used to be successful businesses before everything went digital, but now they are closing at a rapid pace.
There is less use for paper now, people are sending applications online through emails, newspapers are digital, fliers are posted on social media instead of being printed and most departments including the government now have oline platforms where you can fill out forms digitally without printing.
The internet cafes now survive through photo printing, document laminating, stationery sales, or online services and even that is not enough to keep the business going.
Tip: Try to join in on the technology and lean on things people might need to stay in operation.
5. A Poultry Business (Broilers)
A broiler business sounds easy and profitable until you get into it. New entrepreneurs usually underestimate the costs of buying chicks, feeds, and even the amount of labour needed.
Challenges of the poultry business:
- High feed prices
- You can wake up to no stroke overnight because of diseases
- The market is saturated with people selling chickens for meat
- Difficult customers always negotiating prices
Buying 1000 chicks to sell for meat sounds easy and profitable, but in reality, it is hard to find consistent buyers, bulk buyers or even supply contracts.
Tip: Have a strong client base that will definitely buy from you before investing in the business. Seek contracts and partnerships from restaurants, tuck shops, and local families.
6. Opening A Beauty Salon Or Barbershop Business
Opening a beauty salon or barbershop is easy and cost-effective to start, but the market is too saturated, and most people are loyal to the ones who have been doing their hair already.
Challenges:
- There is a barber or salon in every corner of the street
- Having high competitors means you have to reduce prices and make very low profit
- High rent and product prices
- Lack of originality
Thriving businesses are businesses that have already existed with a loyal client base, a polished brand, and exceptional service.
Tip: Be original and come up with better ideas that draw clients to you, something different like a mobile service, discounted student packages, or using your own branded hair products.
7. Opening A Spaza Shop Without Financial Literacy
You can never go wrong with running a spaza shop in South Africa; the problem comes with sticking to discipline. The reasons why spaza shops fail a lot are:
- Failing to manage stock
- Giving people stock on credit
- Not separating business money from personal
- Failing to keep up with supplier price change
If you do not have a tight management system, you will run out of stock and hardly see profits.
Tip: Track your sales records, reduce informal debt and keep records of what makes most profit and what you should drop.
Common Challenges That Causes Failure In These Businesses
Even though different businesses fail because of various reasons, the one cause they share is not preparing well and lack of research before starting. South Africans are known to be hardworking and creative, yet they always want to copy someone else’s business just because it’s flourishing. Just because someone else is succeeding does not mean it will be the same for you if you start the business without the proper strategy.
Most businesses succeed because:
- They have research and are up to date with the exact cost production of every item
- They have tested out the market to see if the product will make enough sales before investing bigger money
- Proper management of funds
- Being consistent throughout low and high seasons
- Using convenient and easy basic bookkeeping, marketing, and operations to track their product and financial records.
Final Thoughts
The rate of unemployment in South Africa is frustrating, but starting a business also needs proper preparation and a good mindset. Before starting any business, do proper research about it, test out the market, and compare which risk is worth trying and what to give up. Ask yourself if these businesses will make you enough profit or if they will eat from your already dry pockets instead.
