Nigeria is a country with immense potential for innovation and entrepreneurship, especially in the technology sector. However, the reality is that many tech startups in Nigeria fail to survive and scale up, despite raising millions of dollars from investors.
In 2023 alone, nine Nigerian startups that collectively raised over $70 million in the last two years shut down, leaving behind disappointed customers, employees, and shareholders. What are the reasons for these failures, and what can be done to prevent them in the future?
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The Reasons for Startup Failure in Nigeria
There is no single cause for startup failure, as each case is unique and depends on various factors. However, some common themes can be identified from the experiences of the startups that shut down in 2023. These include:
Lack of market fit: Some startups failed to identify and address a real problem that customers were willing to pay for. For example, Pillow, a platform that connected travelers with local hosts, shut down after realizing that there was not enough demand for its service in Nigeria. Similarly, Vibra, a music streaming app, closed down after failing to compete with established players like Spotify and Apple Music.
Poor execution: Some startups had a good idea, but failed to execute it well. For example, 54Gene, a genomics company that aimed to build the largest African DNA database, shut down after facing regulatory and ethical challenges, as well as allegations of data misuse and mismanagement. Likewise, PayDay, a payroll and HR software, shut down after experiencing technical glitches, customer complaints, and legal disputes.
Running out of cash: Some startups ran out of money before they could achieve profitability or raise more funding. For example, Lazerpay, a web3 crypto payments company, shut down after being unable to close a successful fundraising round. Similarly, Hytch, a logistics startup, shut down because it could not sustain the business with the revenue it was making.
Founder conflicts: Some startups suffered from internal disagreements and disputes among the founders, leading to loss of focus, vision, and trust. For example, Pivo, a fintech startup that offered banking services to small supply chain businesses, shut down after a fallout between the co-founders over strategy and direction. Likewise, Bundle, a cryptocurrency exchange, shut down as part of the shareholders’ decision to restructure the business and focus on another product.
External factors: Some startups faced external challenges that were beyond their control, such as market conditions, competition, regulation, and politics. For example, Rondo, a platform that connected travelers with local guides, shut down after the COVID-19 pandemic severely affected the tourism industry. Similarly, 54Gene and Pivo faced regulatory hurdles and scrutiny from the government and other stakeholders.
The Strategies for Startup Success in Nigeria
While there is no guarantee for startup success, there are some strategies that can help entrepreneurs increase their chances of building a sustainable and scalable business in Nigeria. These include:
Conducting proper market research: Entrepreneurs should validate their ideas and assumptions by conducting thorough market research, including customer interviews, surveys, and experiments. They should identify the problem they are solving, the target market they are serving, the value proposition they are offering, and the competitive advantage they have over others.
Seeking mentorship and guidance: Entrepreneurs should seek advice and feedback from mentors, advisors, and experts who have relevant experience and knowledge in their field. They should also join networks and communities of other entrepreneurs, investors, and stakeholders who can provide support, resources, and opportunities.
Managing cash flow and expenses: Entrepreneurs should monitor and control their cash flow and expenses, and avoid spending money on unnecessary things. They should also plan and budget for their runway, and raise funds only when they need it and when they have a clear plan for how to use it.
Building a strong team and culture: Entrepreneurs should recruit and retain talented and passionate people who share their vision and values. They should also foster a culture of collaboration, communication, and innovation, and resolve any conflicts or issues quickly and amicably.
Leveraging technology and innovation: Entrepreneurs should use technology and innovation to overcome infrastructure and operational challenges, and to deliver value to their customers. They should also keep abreast of the latest trends and developments in their industry, and adapt and pivot as needed.
Navigating regulatory and legal requirements: Entrepreneurs should comply with the relevant laws and regulations in their sector, and seek legal counsel when necessary. They should also engage and collaborate with the government and other stakeholders to advocate for policies and reforms that support the growth and development of the tech ecosystem.
Nigeria is a country with enormous opportunities and challenges for tech startups. While many startups have failed in the past, there are also many success stories and lessons to learn from. By applying the strategies outlined above, entrepreneurs can increase their chances of building successful and impactful businesses in Nigeria in 2024 and beyond.
