Every business owner who conceives an idea to start something has high hopes that the venture will make products or render services that would be demanded by millions of people.
To scale a business is not an easy task anywhere in the world, and a lot of blood, sweat and tears are required amidst other factors beyond the control of the founder.
All over the world, we read and marvel at the stories of successful founders who started from nothing but nurtured their companies over the years, into big brands that millions or billions of people have become familiar with.
In Nigeria however, the case is different. We hardly hear of any company with a breakthrough product or service that is a core need of the people.
Here are my reasons why I think Nigerian businesses don’t scale to be billion Naira businesses:
Poor Enabling Environment
No matter how creative or life changing an idea is, the operating environment has to be conducive in order for businesses to thrive.
Nigeria is a harsh country for businesses to scale, as there are serious challenges holding the country back. Despite being blessed with natural resources (oil, natural gas, tin, coal etc), the business environment lacks basic social amenities and infrastructure that should help businesses grow.
Erratic power supply, poor transportation, political instability, inadequate technology, social unrest all raise business costs, increase the difficulty of expanding to different states and decrease profits in the short/long run.
The solution is obvious – The Federal Government has to focus on reforms in the following areas:
- Science and technology
Lack of Political Connections & Government Patronage
This is controversial but true. Business owners in a country like Nigeria who have no connections to the government would not be billion naira businesses.
If you do a thorough research on the richest Nigerians, you will find that most of them amassed their wealth through political connections and government patronage.
From Australia, to Indonesia, Russia, India, China and every other country you can think of, political connections play a huge role in determining how successful any business will be.
Unless transparency and a level playing field for competition to thrive is established here in Nigeria, the need for government patronage to secure lucrative contracts and favorable tax holidays will continue to play a huge role in determining how a business scales to a billion in revenues.
Lack of Access to capital
According to the International Finance Corporation (IFC), “the lack of access to finance is a key constraint on the growth of small and medium enterprises, and thus an important limitation on employment, economic growth and shared prosperity.”
Nigeria is a high interest rate environment, which implies higher financing costs and lower profits for businesses who borrow from banks.
Most banks in Nigeria continually lend to the already existing billionaires, thus having no time for small businesses due to lack of credible information on their loan repayment capability.
Lack of Government Protection
Small scale businesses and startups do not enjoy government protection or special incentives.
Only a few businesses enjoy special concessions and tax holidays, which would have helped reduce the running costs of the business.
Government policies and regulation also create distortions and uncertainties which destabilize operations and prevent growth.
The points above are why I think Nigerian businesses don’t scale and become billion Naira businesses. I would have added lack of innovative products by Nigerian businesses, but again Nigeria is a peculiar place because we like to fly before we learn to walk.
I reflected on successful worldwide business products we use in Nigeria, e.g., Facebook, twitter, WhatsApp, Snapchat, etc. and wonder if they would have been successful if the founders had tried to develop the ideas for those businesses here in Nigeria. Your guess is as good as mine.