5 Reasons Many African Businesses Do Not Survive Beyond A Generation

IBM. Coca-Cola. Ford. Nestlé. Pepsi. General Electric. Procter & Gamble. Bacardi.

I’m sure these names ring a bell. Apart from being large, highly successful global businesses, they also have something very interesting in common:

All of them have been in existence for more than a century.

Yes, started over 100 years ago, the entrepreneurs who founded these remarkable businesses are long dead, but these companies have continued to exist, thrive and expand even after the minds that conceived them left this earth.

Some of these businesses, like Ford and Bacardi, have remained within family circles, and passed through successive generations. Other businesses — like Coca-Cola, IBM,and General Electric — have changed hands several times but continue to exist and expand as very successful companies.

Do family-controlled businesses have a better chance of ‘multi-generational survival’ than non-family-controlled businesses?

Interestingly, there’s some interesting evidence in favour of family-controlled businesses. However, to my mind, both types of businesses have a good chance of survival if some things are done right.

Across Africa, the situation is quite different. Apart from a handful of small family businesses, and a few others with colonial ties, it’s often not the norm to find African businesses or brands that have survived beyond their founders.

For some strange reason, after the founder retires or dies, the business starts on a path of slow or accelerated death.

In this article, I share my thoughts on this ugly trend, and five of the biggest reasons why most African businesses don’t last beyond a generation.

1) Poor Succession Planning

Africans typically don’t like to think or talk about death, grave misfortune or permanent disability. It’s no surprise the insurance business isn’t a top performer on the continent, compared to other climes.

While nobody would wish for misfortune or death, they’re some of life’s risks and realities. And we must always consider, and plan for them.

However, while human life is finite and vulnerable to death and misfortune, a business can ‘theoretically’ live forever.

The best time to find a successor with the right level of commitment, vision and zeal to lead a business beyond the lifetime of the founder isn’t when the founder retires or is on his/her deathbed.

Finding the right successor to take the reins of a business is a conscious, deliberate and calculated process (or decision) that should not be left to chance, or emergency situations. Actually, the earlier the process of succession planning is started in the life of a business, the better.

Death, misfortune, and accidents never give advance warnings. There’s an intrinsic risk in every young business that it could cease to exist if the brain behind it suddenly disappears (probably due to death or illness), or is no longer available to nurture, drive and grow the business.

Actually, planning for succession doesn’t have to be tough and complicated, like most entrepreneurs think. The secret is to make the conscious decision, and start the process early.

Successors could come from anywhere. They could come from within the family (children, siblings etc.), or they could be business partners who share the risk and ownership of the business with you. Successors could also come from your most promising employees.

Once you have identified the likely candidate(s), it’s important to get them more involved in the business and groom them for leadership. They need to understand the nuts and bolts of the business and share a strong interest and passion in growing it into a bigger and better organisation.

If you identify any skills or knowledge they may be missing, invest in their learning and training. Formal education, short courses, mentorship, coaching and exposure are critical to the nurture and grooming of successors.

Whenever I discuss succession with entrepreneurs, the most common kickback I get is: “what if these potential successors know too much and become ‘dangerous’ to the business?”

That’s a valid concern, but to my mind, the risk of the business going extinct due to poor succession planning is far more dangerous and outweighs this common concern.

2) Small thinking

There’s no crime in starting small. Most businesses start small. Often, the mistake is staying small and ignoring possibilities for growth.

Many African businesses remain small all through the lifetime of the founder. And I think one key reason for this is many founders in Africa think small. What stops that small corner shop from becoming a national or international franchise? Why can’t that popular neighborhood product or service that you provide become a national brand?

Did you know that Coca-Cola was initially developed as a patent medicine; an elixir that claimed to cure morphine addiction and headaches? This dark-coloured drink, developed by a local drugstore owner in 1885, has now become a hugely successful international brand – a casual drink that now exemplifies fun, friendship and refreshment!

To my mind, small thinking undermines the possibilities and potential of many businesses in Africa. If only we knew how big some of our local products and services could truly become, most African founders would test the limits of their vision and challenge themselves more.

By thinking big, the possible lifespan of your business automatically increases. Growth and expansion are objectives that could take several generations to accomplish, and embracing this vision can eliminate shortsightedness and increase your horizon of possibilities.

The best part: thinking small – like thinking big – costs nothing. Just do it!

3) Lack of structure and business systems

One key trait of successful businesses, especially those that have existed through several generations, is the existence of a clear structure and business systems that help the business to operate effectively.

Structure is essential to every well-run business because it provides order, assigns responsibilities for key activities, and improves accountability. The reality is, many African businesses cannot function independently of the founder.

For example, if the founder is out of town for any reason, or unavailable to sign cheques, suppliers and employees may not get paid on time. If she doesn’t OK a deal, it’s likely to fall through. His involvement in the business is often so central and toopersonal that it gets in the way of everything.

Business systems are also very important. How many medium-sized businesses on the continent actually have policies and procedures that govern everything from recruitment, employee conduct, finance and accounting, among others?

How many businesses actually keep accurate and up-to-date records of their activities, including complete information about operations, finances, transactions, customers, suppliers, employees and everything else?

It’s not surprising then that the most critical information and records concerning most businesses are housed in the heads of their founders. They seem to be the only ones who know where everything should be and how the business should run.

With this kind of ‘organised chaos’, it’s almost impossible to carry on a business when the almighty founder is suddenly unavailable.

4) Blind to business trends and changes

Another strong feature of businesses that last beyond a generation is their ability to adapt. In a world of constantly changing markets, consumer trends, socio-political influences and outright disruption, adaptation is a key strength of businesses that will survive today and in the future.

It’s a simple rule; adapt or die!

Many businesses seem to think that they’ve found a formula for success that will remain effective for a thousand years.

Big lie.

Entrepreneurs are often too focused on running their businesses that they don’t take the time to look into the distance to think, strategise or identify current and future threats or risks that could significantly affect their business, or worse still, kick them out of business.

In today’s globalized and interconnected world, one disruptive idea or business in a faraway country can totally change the landscape of your industry or market so fast you may never find the time to think or plan.

Looking into the future, and observing changes and trends in both the local and international market place has become increasingly important for African entrepreneurs and businesses. With a growing number of foreign businesses and brands expanding their footprint in Africa, even small family-owned corner shops and neighborhood businesses may not be spared.

To survive in these times of rapid change, entrepreneurs need to be open-minded and must not take everything for granted. Unlike a few decades ago, no business is too big to fail these days. One little unknown startup could have your business for lunch if you’re not prepared to adapt.

Among several others, Über is one typical example of a foreign disruptive idea/business that is changing the landscape of business across Africa – urban transport, in this case. Gradually, Über is eating up the market share of traditional city taxis across Africa, and providing new opportunities for anyone to enter the market.

My advice: stay in the know about developments in your market and industry, both locally and globally. Seek out innovative ways and technologies to make your business run more efficiently; make your products and services more valuable; keep your employees committed and effective; and improve the satisfaction of your customers.

In today’s internet-obsessed world, it’s cheaper and easier to find the information you need. You just need to know where to look, and how to find it.

Here’s one of the most interesting places to get started: The Top 30 Most Powerful Websites for Entrepreneurs and Investors in Africa.

5) A dominant ‘lifestyle’ mentality

I watched an interesting and thought-provoking TEDx Talk by Visu Thembekwayo about some of the reasons why African businesses remain small.

He makes a strong point about the business philosophy of the average African entrepreneur. In this part of the world, the success of a business is often seen by many entrepreneurs as a mandate to shore up their lifestyle.

Fancy cars and homes, globetrotting, expensive clothing, extravagant spending, and lavish displays of wealth are all too common. I guess prudence and moderation are hardly metrics to live by, especially when it comes to showcasing your success to friends, family and associates.

In my opinion, a dominant lifestyle mentality does two dangerous things to the longevity of a business.

The first is distraction. The funds you’re using to shore up your lifestyle can actually be dedicated to improving and expanding the business into a much bigger success. Those funds could also be used for strategic investments that diversify or consolidate the business, making it stronger and more resilient. So, using proceeds from the business to celebrate your ‘success’ is really a sign of small thinking.

The second is you’re sending the wrong signals to your employees and potential successors. People are watching. If you treat the business like an ATM, it’s going to be really hard for anybody else to manage the business with diligence and prudence.

If we see a business as an asset that should be nurtured and expanded beyond our lifetime, maybe we wouldn’t do our best to suck the life out of it, or just see it as a tool to serve our lifestyle needs.

Putting everything together…

Africa can have its own IBMs, Coca-Colas, Fords and Nestlés. But it will not happen by chance. Entrepreneurs on the continent need to take quick, deliberate and calculated steps to navigate the roadblocks and risks I’ve shared with you in this article.

Our continent has several unique products that have the potential to become global brands and build international corporations. While they could become global brands all the same, with or without African entrepreneurs, it would be great if we can pull this off ourselves.

Do you think there are other reasons African businesses aren’t surviving beyond the founders’ generation?

John-Paul Iwuoha is an author, impact entrepreneur, business strategist, and founder of Smallstarter Africa. He works with entrepreneurs and investors to start up and grow businesses in Africa. He is also the co-author of 101 Ways To Make Money in Africa, the widely-acclaimed book which reveals several interesting business ideas, market opportunities, and inspiring entrepreneur success stories across Africa.

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