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Why startups struggle to succeed and what to do about it.

By Marion Kago

Startups are the lifeblood of innovation in emerging markets, contributing significantly to economic growth and job creation. Across emerging markets, startups have transformed industries, from redefining financial inclusion through fintech to addressing healthcare gaps with groundbreaking technologies. Yet, while success stories inspire us, the sobering reality remains—many startups struggle to transition from early wins to sustainable growth.  In Africa alone, over 600,000 new businesses are established annually, yet more than 80% fail within their first five years. The challenges are multifaceted: limited access to capital, fragmented markets, and infrastructural deficiencies.

However, beyond external factors lies an often-overlooked truth: internal governance and financial management failures are primary contributors to unsustainability. This article explores why startups falter and how strengthening governance and financial structures can unlock scalability and sustainability.

The question is no longer just about launching a business but about building one that lasts.

The Role of Startups in Emerging Markets

  • Economic Contributions: Startups contribute 3% to Africa’s GDP and employ over 30 million people annually.
  • Innovation Hubs: Countries like Kenya, Nigeria, and South Africa are leading tech-driven transformations, from fintech solutions to healthcare innovation.
  • Opportunities and Risks: While startups are catalysts for change, their long-term survival is critical to sustaining these gains.

   General failure rates

  • Approximately 10% of startups fail within their first year, while around 70% do not survive past five years
  • By the end of ten years, about 65% of new businesses have closed down

 THE FOUR CORE CHALLENGES

1. Corporate Governance

Governance structures serve as the backbone of organizational integrity and effective decision making. Corporate governance refers to the system by which companies are directed and controlled, extending up to the level of Boards of Directors. Research indicates that startups with structured governance systems outperform their peers by 60% in growth and profitability.

Poor governance in startups often manifests in the following ways:

  • Lack of Clarity in Roles and Responsibilities: Startups, often constrained by limited resources, operate within lean structures where roles and responsibilities can remain undefined, especially during budget cuts. This lack of clarity creates confusion, neglects critical departments such as finance and human resources, and results in inefficiencies and overlapping decision-making.
  • Weak Oversight Mechanisms: When boards or advisory councils are not established early or lack the necessary expertise, startups miss out on strategic oversight. This gap leads to decisions focused on short-term gains instead of long-term objectives and prevents the benefits of diverse expert opinions or critical challenges to flawed strategies.
  • Nonexistent Policies or Processes: Many startups bypass formalizing essential policies, such as those governing financial management, compliance, or risk management. This oversight exposes them to significant operational and reputational risks.
  • Leadership Bottlenecks: In many startups, decision-making is overly centralized around the founder, creating bottlenecks and stifling contributions from other key stakeholders. Weak leadership often results in misaligned goals, poor decision-making, and strained team dynamics, which undermine accountability and direction.
  • Inefficient Resource Management: Governance failures often lead to the mismanagement of resources, including human capital and financial assets. Startups may fail to allocate funds effectively or overspend on non-essential areas, ultimately leading to financial instability.

Solutions

  • Establish a Board or Advisory Team: Bringing in experienced professionals ensures strategic oversight and sound decision-making. Advisory boards should consist of individuals whose expertise supports the business’s goals. It is also essential to keep the board informed and consulted, rather than treating it as a mere formality.
  • Create Governance Policies: Develop clear policies for oversight, including compliance, risk assessment, and reporting standards, to establish a robust governance framework. Periodically evaluate governance structures and make necessary updates as the business scales to ensure continued relevance and effectiveness
  • Empower Teams: Delegate decision-making authority to key departments, fostering agility and accountability while encouraging decentralized decision-making.

2. Finance Management

Financial management is the process of strategically managing a business’s financial resources to achieve its goals and maximize potential. It involves setting objectives, tracking progress, and making informed decisions based on accurate financial data.

For many entrepreneurs, understanding the fundamentals of financial management can feel overwhelming, yet it is critical to the success of any business. Startups often face financial difficulties, leading to tough restructuring decisions or, in some cases, closure. Research shows that 50% of failed startups cite cash flow problems as a primary reason for their downfall.

Key Challenges

  • Disconnected Budgets &Financial Models: Financial plans often fail to align with a company’s operational needs, strategic vision, or growth goals. Often entrepreneur use over-optimistic projections, financial models designed to attract investors which often lead to unrealistic revenue expectations and poor cash flow management. Investor-focused models often prioritize high projections over achievable goals.
  • Neglected Bookkeeping and Accounting: This critical area is often overlooked, leading to disorganized finances and poor decision-making, misappropriation of funds and missed opportunities.
  • Poor Cash Flow Management and Lack of Contingency Planning: Ineffective cash flow practices—such as over-hiring at the C-suite level, launching too many simultaneous projects, or expanding too rapidly—can deplete funds and jeopardize sustainability. Neglecting to allocate funds for risks or buffers makes it difficult to adapt to unforeseen challenges.
  • Delayed Decision-Making: Entrepreneurs often hesitate to make tough financial decisions, such as cutting costs or seeking additional funding, until it’s too late.

Solutions

  • Align Budgets with Vision: Develop operational budgets grounded in the company’s strategic goals and supported by data. Build financial resilience and create an emergency fund or buffer to manage unexpected challenges and avoid operational disruptions.
  • Prioritize Cash Flow Management and Strong Internal Controls: Focus on maintaining liquidity to support daily operations and sustain growth. Implement systems to prevent fraud, ensure compliance, and monitor spending.
  • Engage Financial Expertise Early and adopt Data Driven Decision Making: Work with financial advisors, accountants, or CFOs (even part-time) to build a solid foundation in financial management. Leverage analytics to refine products, enhance customer retention, and proactively mitigate risks.

By addressing these challenges and implementing solutions, startups can enhance their financial resilience, improve decision-making, and position themselves for sustainable growth.

3. Product Market Fit

A product without users is a product without revenue. Achieving product-market fit (PMF) is critical for any business, yet many startups struggle to get it right. Signs of a PMF fallout include high customer churn, prolonged sales cycles, stagnant growth in new customers, difficulties in hiring and retention, declining revenue, and resistance from investors.

One major cause of PMF failure is building products based on speculative demand rather than concrete market needs. Achieving PMF requires extensive market research, deep customer engagement, and a willingness to pivot. Research shows that over 30% of startups fail due to a lack of market need or misjudged user preferences.

Key Challenges

Insufficient market research and poor product alignment often result in:

  • Unviable Pricing Models: Products/Services may be underpriced, eroding margins, or overpriced, alienating potential customers.  The offerings may also fail to address the real needs or preferences of the target audience.
  • Missed Customer Personas and Poor Differentiation: Products developed without a deep understanding of user behavior, demographics, or pain points often fail to create value. Without clear competitive advantages, products fail to stand out in a crowded market.
  • Delayed Recognition of Failure: Startups often ignore signs of misalignment, such as customer churn or slow growth, leading to wasted resources before corrective action is taken.

Solutions

  • Invest in Comprehensive Market Research : Start by identifying the pain points of your intended users or clients. Is the solution user-friendly, efficient, and addressing the core challenge? Keeping the user at the center is critical. Leverage data-driven insights to define user personas, assess market size, and understand the competitive landscape. This foundational research ensures your product aligns with actual market needs. Additionally, test pricing strategies through controlled pilot programs before scaling.
  • Establish Customer Feedback Loops and Continuous Market Testing: Actively seek and integrate user feedback throughout the product development process. This approach ensures continuous alignment with evolving customer needs. Even after achieving product-market fit (PMF), regularly test the product against market trends and competitors to maintain its relevance in a dynamic environment.
  • Develop Minimum Viable Products (MVPs): Focus on building MVPs that address core customer pain points while leaving room for iterative improvements based on user feedback. This strategy not only helps manage cash flow but also prevents costly missteps, such as launching products that fail to gain adoption or drain resources unnecessarily
  • Train Sales and Support Teams: Ensure customer-facing teams understand the product’s value proposition and can clearly communicate it to prospects and users.

By proactively addressing these challenges and maintaining a customer-first approach, startups can increase their chances of achieving product-market fit, leading to sustainable growth and investor confidence.

4. Leadership and Culture Gaps

Culture reflects the shared values, norms, beliefs, and behaviors of a group or organization. It encompasses everything from leadership styles and team dynamics to decision-making processes and everyday interactions. Despite its profound impact, developing a strong organizational culture is often overlooked, even though it is a cornerstone of long-term success. A robust culture fosters employee engagement, drives innovation, and ultimately enhances financial performance.

As Peter Drucker famously said, “Culture eats strategy for breakfast.” This underscores the idea that while strategy is important, it is culture that ultimately determines a company’s success. A lack of accountability and intentional culture-building from the beginning can weaken organizational cohesion and performance.

Key Challenges

  1. Company Values on Paper: Many organizations articulate values, but if top executives fail to embody them, these values remain meaningless. Culture is shaped by the actions of leaders and evolves over time.
  2. Unclear Expectations: Without clearly defined Key Performance Indicators (KPIs) or ownership of responsibilities, employees lack direction and motivation.
  3. Founder Dependency: Over-centralized leadership can stifle innovation, prevent shared accountability, and create bottlenecks in decision-making.
  4. Toxic or Undefined Culture: Without deliberate efforts to build a positive culture, organizations may face issues with trust, collaboration, and morale, leading to disengaged teams.

Solutions

  1. Define Vision, Goals, and Values: Articulate a clear and compelling organizational vision, set measurable goals, and establish values that reflect the company’s mission.
  2. Leadership Alignment and Role Modeling: Ensure leaders at all levels embody the company’s values and model desired behaviors to inspire their teams. Foster an environment where information flows freely, feedback is encouraged, and employees feel heard.
  3. Set the Tone Early: Establish and reinforce a culture of accountability and ownership from day one. Unclear expectations or lack of accountability can erode team cohesion. Develop systems to track progress, including well-defined KPIs, regular performance reviews, and rewards to recognize and incentivize achievements.
  4. Cultural Building Blocks: Invest in robust onboarding processes, team-building initiatives, and practices that promote collaboration and trust. Create a safe environment where employees feel comfortable sharing ideas, admitting mistakes, and taking risks without fear of negative consequences.

A strong organizational culture not only aligns teams but also creates a competitive advantage that drives sustained success. Companies that prioritize leadership development and culture-building from the outset position themselves to navigate challenges effectively and achieve their long-term vision

In Summary

Startups thrive when they focus on their users—this is where success begins. Without users, there is no revenue, no impact, and no sustainable growth. However, there is a risk of overemphasizing growth without laying the groundwork for customer acquisition and retention. Startups must avoid scaling too quickly before understanding and winning their current markets, as this often results in chaos and weakened business models.

The path to success lies in deliberate, well-structured strategies:

  1. User-Centric Focus: Build businesses around user needs to drive both impact and revenue. Design user-focused products and solutions informed by comprehensive market research and analytics. Leverage data and analytics to refine products, enhance customer retention, and effectively mitigate risks.
  2. Robust Governance: Strengthen governance structures and implement agile, scalable systems that evolve with the business. Companies with strong governance are 1.5 times more likely to secure follow-on funding, underscoring its importance for sustainable growth.
  3. Financial Alignment: Align financial planning with business goals, emphasizing cash flow management and efficient resource allocation to boost investor confidence and ensure long-term sustainability. Expansion and scaling should be strategic, with a solid foundation established before taking significant steps.
  4.  Leadership Accountability and Culture: Cultivate leadership accountability and foster a value-driven company culture. Invest in leadership training to promote innovation, collaboration, and a shared sense of accountability across the organization

At Jaza Rift, we are committed to transforming Africa’s startup ecosystem by empowering visionary entrepreneurs in health-tech, biotech, digital, and medtech sectors. Beyond providing capital, we offer mentorship, strategic advisory, and access to transformative networks.

With extensive experience in governance, financial modeling, and operational efficiency, we understand the factors that differentiate thriving startups from those that falter. While challenges like weak governance, financial misalignment, and leadership gaps persist, we see these as opportunities to drive innovation and sustainable growth.

By fostering thoughtful planning, strong governance, and accountable leadership, African startups can unlock their full potential and thrive in today’s dynamic market.

We’d love to hear from you on what topics on governance, financial management, achieving product market fit and business leadership you would like us to explore further.

jazarift
jazarift
http://jazarift.com

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