The global Halal industry is on the rise. It has been consistently growing for the powers. Every now and then we hear success stories of newbie entrepreneurs in various sectors of the global Islamic economy. However, many Halal businesses also fail. And, they fail miserably. For us to become successful entrepreneurs in the Halal industry and beyond we need to be aware of the reasons behind the reasons these failures occur.
One of the least understood aspects of entrepreneurship is why small businesses fail, and there’s a simple reason for the confusion: Most of the evidence comes from the entrepreneurs themselves.
I have had a close-up view of numerous business failures — including a few start-ups of my own. And from my observation, the reasons for failure cited by the owners are frequently off-point, which kind of makes sense when you think about it. If the owners knew what they were doing wrong, they might have been able to fix the problem. Often, it’s simply a matter of denial or of not knowing what you don’t know.
In many cases, the customers — or, I should say, ex-customers — have a better understanding than the owners of what wasn’t working. The usual suspects that the owners tend to blame are the bank, the government, or the idiot partner. Rarely does the owner’s finger point at the owner himself or herself. Of course, there are cases where something out of the owner’s control has gone wrong, but I have found those instances to be in the minority. What follows, based on my own experiences and observations, are the top 10 reasons small Halal businesses fail. The list is not pretty, it is not simple, and it does not contain any of those usual suspects (although they might come in at Nos. 11, 12, and 13).
Top 10 Reasons Small Halal Businesses Fail
1. Not Enough Demand for Their Products/Services
The math just doesn’t work. There is not enough demand for the product or service at a price that will produce a profit for the company. This, for example, would include a start-up trying to compete against Best Buy and its economies of scale.
2. These Entrepreneurs Are Stubborn
Owners who cannot get out of their way. They may be stubborn, risk-averse, and conflict-averse — meaning they need to be liked by everyone (even employees and vendors who can’t do their jobs). They may be perfectionists, greedy, self-righteous, paranoid, indignant, or insecure. You get the idea. Sometimes, you can even tell these owners the problem, and they will recognize that you are right — but continue to make the same mistakes over and over.
3. They Overstretch Their Businesses
This one might be the saddest of all reasons for failure — a successful business that is ruined by over-expansion. This would include moving into markets that are not as profitable, experiencing growing pains that damage the business, or borrowing too much money in an attempt to keep growth at a particular rate. Sometimes less is more.
4. They Follow Poor Accounting Practices
You cannot be in control of a business if you don’t know what is going on. With bad numbers, or no numbers, a company is flying blind, and it happens all of the time. Why? For one thing, it is a common — and disastrous — misconception that an outside accounting firm hired primarily to do the taxes will keep watch over the business. In reality, that is the job of the chief financial officer, one of the many hats an entrepreneur has to wear until a real one is hired.
5. They lack Healthy Cash Cushion
If we have learned anything from recessions in your country, it’s that business is cyclical and that bad things can and will happen over time — the loss of an important customer or critical employee, the arrival of a new competitor, the filing of a lawsuit. These things can all stress the finances of a company. If that company is already out of cash (and borrowing potential), it may not be able to recover from the disaster.
6. They Do Not Run Their Business Professionally
I have never met a Halal business owner who described his or her operation as mediocre. But we can’t all be above average. Repeat and referral business is critical for most businesses, as is some degree of marketing (depending on the nature of the business).
7. They Operational Inefficiencies
Paying too much for rent, labor, and materials. Now more than ever, lean companies are at an advantage. Not having the tenacity or stomach to negotiate terms that are reflective of today’s economy may leave a company uncompetitive.
8. They Lack Focus
Lack of focus, vision, planning, standards, and everything else that goes into good management. Throw fighting partners or unhappy relatives into the mix and you have a disaster.
9. The lack of a Succession Plan
We’re talking nepotism, power struggles, and significant players being replaced by people who are in over their heads — all reasons many family businesses do not make it to the next generation.
10. They Fail To ‘Read’ the Changing Market Dynamics
Bookstores, music stores, printing businesses, and many others are dealing with changes in technology, consumer demand, and competition from huge companies with more buying power and advertising dollars.
In life, you may have forgiving friends and relatives, but entrepreneurship is rarely forgiving. Eventually, everything shows up in the soup. If people don’t like the soup, employees stop working for you, and customers stop doing business with you. And that is why countless Halal businesses fail.