One of the most common challenges faced by many Nigerian startups is the lack of access to adequate resources needed to scale their businesses.
Starting a business in Nigeria is fraught with many challenges, but the prospects of success in a growing economy spur many entrepreneurs on. While Nigerian startups are innovative, they often face significant obstacles to growth. This article seeks to understand such challenges and finding practical solutions as such is key to the success of any startup.
If you are a startup or business owner this article may just be the perfect read for you to take your business to the next level.
1. Limited Access to Funding
Perhaps one of the most common challenges faced by many Nigerian startups is that of inadequate financing. This therefore makes it very tough for many entrepreneurs to raise venture capital and bank loans hence hindering them from scaling their businesses.
According to a recent report by the African Venture Capital Association in 2020, less than 15% of Nigerian startups secure external funding within their first three years of operation.
How to Overcome?
To address this, entrepreneurs need to source alternative sources of funding such as angel investors, crowdfunding, and government grants. Equally, a well-developed business plan and offering proof of return on investment would attract investors.
2. Lack of Infrastructure
Another of the common challenges faced by Nigerian startups is the system of poor infrastructure. Lack of electric power, transport, and connectivity to the internet will seriously delay business activities, raise the cost, and reduce productivity.
The loss due to power reduces $29 billion annually for the businesses of Nigeria, according to the statement of the Nigerian Economic Summit Group. Isn’t that concerning?
How to Overcome?
Infrastructural obstacles may be minimized somewhat by investing in alternative sources of energy, such as solar power, and selecting efficient logistic providers. Poor infrastructure that causes operational bottlenecks can be minimized by partnering with technology firms through cloud services.
3. Regulatory Barriers
Many of the startups in Nigeria exist under extremely complicated regulatory environments, which is overwhelming sometimes to new ventures. The time it takes to navigate through several licenses, taxes, and regulations, considering costly delays, makes it even harder.
According to findings from PwC, more than 60% of Nigeria’s entrepreneurs perceive regulatory complexities as one of the major hindrances to their operations.
How to Overcome?
The regulatory challenges can, to a large extent, be minimized by engaging legal consultants who have vast knowledge of Nigeria’s business laws.
Participation in local industry associations could also help entrepreneurs keep abreast of changing regulations. Besides, lobbying for reforms in the business environment could bring long-term relief.
4. Inconsistent Government Policies
Another major challenge is policy inconsistency. Fluctuating tariffs, restrictions on certain imports, and not-so-clear government policies on taxes disrupt business planning.
More than 45% of the startups faced sudden disruptions owing to changes in government policies, states the Nigeria Startup Ecosystem Report 2023.
How to Overcome?
Such shocks need to be handled by a startup, always updated with the changing government policy by subscribing to industry updates and reports. Diversification of business across sectors or geographic regions will also reduce the impact of sudden policy changes.
5. Talent Acquisition and Retention
Talented attraction and retention are gradually becoming an uphill task for startups in Nigeria. The “japa” syndrome is alive-the emigration of skilled professionals to other countries, leaving many struggling to find people to fill important positions.
A report from Jobberman last year showed that 64 percent of Nigerian startups reported difficulty finding qualified staff for technical roles.
How to Overcome?
Competitive salaries, flexible working conditions, and career growth opportunities all add to an enabling environment that attracts and retains the best of the available talent.
The startups can also invest in training programs to upskill local talent or collaborate with international organizations to locate the best remote talent.
6. Competition in the Market
The startup space in Nigeria is a highly competitive one, with sprouting businesses around every corner. While it was earlier believed that startups working in spaces such as fintech and e-commerce had much to promise, today, not only local competition but international players also have to be put up with.
According to a report brought out by Disrupt Africa in 2023, 30% of the number of fintech startups in Africa come from Nigeria-a fact which depicts how crowded this market has become.
How to Overcome?
Differentiation is key in competitive markets where startups join in. In that direction, products or services must be unique, and any startup needs to do proper market research and innovate through the needs of their customers.
Such strategic partnerships can be beneficial in helping smaller start-ups compete against large players.
7. High Operating Costs
High operational costs, compelled by high inflation rates and fluctuating foreign exchange rates, are the greatest challenge to Nigerian startups. The inflation rate, as recorded by the National Bureau of Statistics at the end of 2022, stood at 22%, which rapidly escalated the prices of basic business inputs.
How to Overcome?
To control high operational costs, a startup should adopt lean business practices, such as outsourcing non-core services to reduce hands-on work and utilizing automated tools to minimize manual labor. Secondly, partnerships with local suppliers could help alleviate inflationary pressures on material costs. Also, the use of software can help manage costs.
8. Poor Financial Management
Due to the level at which financial management is practiced, most of the startups in Nigeria cannot boast of financial stability. Very poor bookkeeping, no budgeting, and mismanagement of funds can quickly bring down any business.
The 2022 report on the Nigerian Startup Finance Report found over 40% of the startups in Nigeria failed within the first five years of operations as a result of financial mismanagement.
How to Overcome?
This calls for investment in financial education and tools such as accounting software to track income and expenses. Besides, this can be complemented by hiring a financial consultant or adviser who will give insights on cash flow management, cost reduction, and revenue increase.
9. Lack of Business Support Networks
The lack of strong support makes entrepreneurship a lot more difficult. Most startups in Nigeria operate in isolation without access to mentors, advisers, or networking opportunities that will help them scale their businesses.
How to Overcome?
Mentorship through incubators and accelerator programs may be actively sought out with the aim of guidance and access to a broader network. Insights and connections can also be sought through attending local startup events, conferences, and online forums.
10. Limited Access to Technology
Technology has remained the number one driver of success for modern businesses, but today too many Nigerian startups have access to top-tech technologies. Only about 33% of all businesses in Nigeria are incorporated into the use of digital means, as the World Bank reports.
How to Overcome?
A startup can overcome technological barriers by partnering with technology companies that can provide affordable software solutions or by participating in collaborative efforts where technological resources can be shared.
Investing in scalable digital capabilities, such as cloud computing and artificial intelligence, will also have substantial long-term advantages.”
11. Cybersecurity Risks/Threats
But with growing dependence on digital platforms, the threat of cybersecurity is rapidly emerging as one of the high-level risks Nigerian startups must work through. According to the Nigerian Communication Commission (NCC), Nigeria was among the top ten countries around the world that were most hit by cyberattacks in 2022.
How to Overcome?
Startups are supposed to take cybersecurity seriously by employing data protection tools, conducting periodic audits, and training employees in online security. Outsourcing vulnerability management by partnering with cybersecurity firms is also another option.
Concluding Thought
Despite these common challenges faced by Nigerian Startups, with strategic solutions such as alternative fundraising, legal consultation, and market research, these businesses can always overcome the challenges and conduct lucrative business in the long run despite the competitive landscape.