Why Do Businesses Fail Even When Funded

Why Do Businesses Fail Even When Funded


The world of start-up entrepreneurship is an enormous jungle. Many who start get lost. It is understandable that times are hard across the South African economy and our challenges may affect the general weakening of many businesses.

Related: Government Funding and Grants for Small Businesses

At the same time business owners would expect a macro-level stimulation of activity through the empowering effects of BEE Supplier Development and

Enterprise Development legislation which has more than made available funding for small businesses.

In addition to funding, this legislation augments market access opportunities through a deepening of the relationship between larger corporates and SMEs, while also encouraging corporates to revise their procurement strategies, even formalising these for those who never had procurement plans.

For many small businesses, there is room for new markets, and at the extremes possible innovations through opportunities or methods of business previously not thought of.

However what is happening today is nothing new. The last few years have shown failures in Black Economic Empowerment and an imbalance in the colour of the beneficiaries of BEE. The funding also always creates consultants overnight, who preach various recipes for advancing entrepreneurship.

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Many such are individuals who themselves have no comprehension of small business challenges, running a business or the make-up and psychology of the entrepreneur they will be consulting on.

Although funding and market access are some of the obvious concerns, which may to an extent even have easier solutions, social capital and personal capital are lacking. For every successful business, there are many that have failed, and more with permanent bad credit against funders.

Some of the reasons for these failures, even when funding was made available, include:

No Trade Skills

Many individuals starting businesses do so in fields they have no exposure to or any working skills. Distribution of products is one of the most common, including retail businesses.

The challenges of retail business are greatly undermined and many businesses never plan enough and the numbers never stack up, with some businesses never seeing profitability from start to end.

No Opportunity

It is arguable that some of the most successful businesses would have looked crazy to a normal person, whilst some were not initially conceived as businesses but became businesses by default.

This is because they would have been revolutionary, path-defining businesses. Whilst these are exceptions, the majority of businesses started are the run of the mill businesses, and really have no exceptional proposition to the market.

Related: 10 Tips for Finding Seed Funding

Mismatch in Priorities

Most funding programmes in a legislated environment may not be business centric. In addition, with wrong implementation partners, and a general tendency towards confusion between business development and corporate social responsibility, interventions tend to water-down enterprises than intervene for growth and sustainability.

Leaving Business Administration To Others

Even the most educated of entrepreneurs make this mistake, to leave the business and its operations to accountants and administrators who may not have an equity incentive to see the business soar.

Wrong Vocabulary

Some businesses are started to help, and they tend to bleed from it. The few that are started to make money do make money a priority – attracting it, acquiring it, managing it, and multiplying the money.

The greater misunderstanding of entrepreneurship, and the fact that it is more personal than it is policy, leaves even policymakers dumbfounded about what to do. The following could be some of the solutions:

Teach Entrepreneurship Early

There is no better, simpler, material than “The richest man in Babylon” by George Clason. This is an applied version to life and entrepreneurship and not Economics 101. The book also teaches something higher than entrepreneurship, the concept of man.


When starting a business, it is important to involve as many capable people as possible. Keeping ideas to oneself delays success. Leveraging off others is a realisation of masterminds.

Understand Funders and their Priorities

Should you be able to match a funder, it is not what they can do for you, but what you can do for them. Better a funder with profit motives than a grant with no objective. Most grants derail entrepreneurs from their plans, because of lack of accountability.

Most funders have visions to become specialist and preferred providers for the markets they serve. As Identity Development Fund Managers we are defined by our demographic focus on businesses started and owned by black South Africans.

We have over 70 investments delivered in the last five years and have left lasting goodwill in many entrepreneurs we have interacted with.

Related: How to Write a Funding Proposal

Our drive is to realise industrialists and become significant funding partners to our investees, to a point of listing some of our investments. We invest in businesses that have at-least six months post-revenue performance, and our funding is a blend of debt and equity structures that optimises the business’ cash-flows.

In addition all funding is tied to business support that seeks to address the usual pitfalls for most early stage businesses. We are poised to become the first SME bank in South Africa.

Justice Kganyago
Justice Kganyago is the Chief Investment Officer at IDF Managers. He has been active in Investments at IDF Managers for six years and has just under nine years of experience in SME Finance. Justice is a development economics and finance graduate from Wits University. He truly believes in the realisation of black entrepreneurship and he has invested in over 100 black and women owned businesses over the period, and assessed hundreds more. He is passionate about bridging the gap in knowledge between financiers and entrepreneurs, especially on choice of business opportunities, acquisition due diligences, suitable funding products and operational analysis.

Most Read

  • Moses Mushi

    Thank you very much, how to write a proposal really assisted me in putting mine togetehr

  • Nosipho Mtshemla

    Good article, could relate to the Enterprise development by larger companies. As a small business, you must always know you are not their priority.

  • shawn dady

    i am partaking the route of micro finance lending money at an interest rate, what would you advise. i am only doing around the organisation that i work at lending small figures for security reason and minimising the risk of losing all i have. one really cant put all their eggs in one basket so they say.

  • Mmabatho Suzan Modise

    Wow! Wow I’m speechless what is said on the article is true I really need to get a good mentor in my business

  • Alexander Gates

    What a great Article. Mr. Kganyago has hit the the correct nail. Yes all is true, consultants dont have an idea what it takes to build a business and sit at the back and just analyses without having a good practical look at the business. More discussion on this matter is very much needed. Good Job.