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Critical Challenges Facing Small Business Enterprises in Nigeria: A Literature

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International Journal of Scientific & Engineering Research Volume 8, Issue 8, August-2017 796
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Critical Challenges Facing Small Business

Enterprises in Nigeria: A Literature Review
Babandi Ibrahim Gumel

Abstract -Small business sector supports the Nigerian economy where it provides employment opportunity to most of its citizens. Despite its
importance, most small businesses fail within the first five years notwithstanding the agencies established by Nigerian Government to support the sector.
Most of the failure is due to numerous challenges facing the sector which borders of the success factors of small businesses. This paper identified the
challenges based on the Lampadarious (2015) success factors framework to providing information for owners, managers, and researchers of small
business success strategies. The paper identified fifteen critical challenges facing small businesses in Nigeria. The information will help owners and
managers of small businesses to develop strategies to mitigate the challenges. Small business researchers will use the information to study challenges
that are specific to the industry and investigate the strategies used by successful small businesses to mitigate the challenges. This paper might guide
Nigerian government to develop policies that might reduce the external business environmental challenges of small businesses.

Index Terms – Small Business Enterprises, Small Business Success, Small Business Failure, Small Business Challenges, Small Business in Nigeria,
Small Business Critical Issues, and Small Business Sustenance.

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Introduction efforts of the government to provide support through its
The Nigerian economy like other African agencies, small businesses are failing (Kayode & Ilesanmi,
economies has been facing a fight against unemployment 2014). In developed countries such as the United Kingdom,
since independence. Nigerian government through its and United States small businesses are managed effectively
economy regulatory agencies have recognized the with positive results. The positive management of small
importance of small businesses in the provision of businesses in developed countries and some developing
employment to its citizens. According to SMEDAN (2013), countries such as the Philippines and South Africa
small businesses employed 80% of the Nigerian workforce. contributed to their economic growth (Dugguh, 2015).
Shehu et al. (2013) stated 97% of the Nigerian economy are According to Dugguh (2015), small businesses in Nigeria
small businesses and are contributing job to 70% of the are faced with numerous challenges that resulted in their
country’s job opportunities. Because of the importance of failure. Dugguh (2013) further stated small businesses must
small businesses in the Nigerian economy, local, states, and develop strategies that will mitigate challenges and sustain
federal governments recognized the need of stimulating operations. Researchers have continued to identify the
small businesses to provide employment, reduce poverty challenges facing small business and the strategies of
rate, and improve economic growth. Various agencies were mitigating them (Kayode & Ilesanmi, 2014). Also,
created to do the job of stimulating the development of the researchers claimed researchers had neglected the small
small business sector of the Nigerian economy including business sector (Samujh, 2011). Thus, there is not enough
Small and Medium Enterprises Development Agency information on the challenges facing small businesses in
(SMEDAN) (Kayode & Ilesanmi, 2014). Others are National Nigeria. Reviewing the literature relating to small business
Directorate of Employment (NDE), Peoples Bank of Nigeria challenges will provide researchers with information that
(PBN), Microfinance Banks, National Economic will guide them to investigate the strategies used by small
Reconstruction Fund (NERFUND), and National Bank of business owners and managers to mitigate the challenges.
Commerce and Industry are the agencies with the mandate The literature review will also serve as information for
to develop the SMEs sector (Kayode & Ilesanmi, 2014). small business owners and managers to understand the
Kayode and Ilesanmi (2014) stated that despite the efforts various challenges facing small businesses in Nigeria which
of creating small business development agencies in Nigeria, will enable them to avoid being trapped by the challenges
small businesses continued to face the challenges that that may negate their success.
threatened their survival. A study by Adebisi and Gbegi
(2013) stated 80% of small business fail within the first five Objective of The Paper
years of formation. According to SMEDAN (2013), small
business success involvessustaining small business The purpose of this paper is to review thescholarly
operations longer than first five years. Notwithstanding the literature on the various challenges facing small businesses
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in Nigeria to providing small business owners with changed at different levels of the life cycle of the business
information that will enable them to avoidbeing trapped by (Oliveira, Filho, Nagano, & Ferraudo, 2015). Oliveira, Filho,
challenges that might negate their success. Mitigating small Nagano, and Ferraudo (2015) found a positive relationship
business challenges might result in sustaining small between the roles of the owners and the functions of the
business operations longer than first five years. Sustaining managers in small businesses. Bygrave and Zacharakis
small business operations might reduce the small business (2014) defined a small business owner as a person who
failure in Nigeria which will result in areduction in the rate creates a business with the hope of realizing profits,
of unemployment and poverty level in the economy. The employs 50 people, and risks financial loss. Hurst and
information from the paper will enable researchers to Pugsley (2011) determined most of the small business
investigate the causes of the challenges and strategies to owners work for their well-being while entrepreneurs
avoid them or resolve the challenges if they erupt in an desired innovation and growth of their businesses. Small
organization business owners usually strategize to provide an existing
product or service to an existing market where competition
Framework of The Literature Review is imminent while entrepreneurs work toward providing
new goods and services with new ideas into an existing
The review of the literature is based on the success market or create a new market (Hurst & Pugsley, 2011).
factors framework developed by Lampadarios (2015). The Most small business start-ups have no monetary benefits
researcher reviewed the scholarly literature with the aim of motive and are usually for the owner to be the boss, have a
identifying the challenges facing the success factors flexible schedule, or have controlled working hours (Hurst
identified by Lampadarios in his success factors & Pugsley, 2011). Hurst and Pugsley (2011) found learning
framework. The three broad categories of small business new skills are necessary for managers of small businesses to

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success factors identified by Lampadarios include factors make decisions to assist them in creating success. Many
that affect the entrepreneur, factors relating to the small business owners in Nigeria are dissatisfied with being
enterprize, and those relating to theexternal business self-employed which leads to low commitment and
environment. Reviewing the challenges facing the three eventual business failure (Farrington, 2012). For the small
broad spectrum success factors categorization will enable business owners to be successful, Farrington found they
small business managers and owners to understand the must be satisfied with self-employment, have a passion for
various challengesand avoid being trapped by the the job, show a commitment to the business, and have a
challenges. The information will enable researchers to personal involvement in steering the enterprises to success.
investigate the strategies used by owners and managers to Small business owners are those operating businesses to
mitigate the challenges. provide income to their families while entrepreneurs aimed
at achieving profit and growth of businesses (Ionita, 2012).
Challenges Facing Entrepreneurial Factors of Small The intention of business owners is important. Farrington
Businesses stated if owners of small businesses restrict their intention
to providing income to their families, the growth of the
The entrepreneurial factors are variables that relate businessis not guaranteed. Therefore, the small business
to the owners and managers of small businesses and owners are faced with the challenge of their intention of
include their personal traits, skills, experiences, and starting a new business for family income or make aprofit
background (Lampadarios, 2016). The entrepreneurial and grow the business. The literature revealed a challenge
factors were widely used by researchers that were of intention of owners to the growth and survival of small
investigating growth and success of small businesses businesses. There is enough evidence that if the intention of
(Lampadarios, 2016). Age, educational level, owners is for self-sustenance, small businesses might not
entrepreneurial orientation, gender, personality, prior work grow, but an entrepreneur who set a business for profit
experience and management skills of owners and managers usually grow the business.
are reviewed to identify their impact to small businesses in A study on the adoption of e-commerce in small
Nigeria and the challenges posed by each factor and how businesses in Nigeria by Faloye (2014) stated 44.74 percent
the challenges are mitigated in the Nigerian small business of successful small business owners and managers are
environment (Lampadarios, 2016). between 40 and 60 years, 30.70% are between 20 and 40
Each of the factors was assumed to play acritical years, 19.30% are over 60 years, and only 5.26% is less than
role in the success of small businesses. An applied 20 years. Opara (2011) stated 92% of small business
qualitative survey of 70 small businesses in Sao Paulo, managers and owners are adults most of them having
Brazil on the managerial life cycles of small businesses families to support with their income. Ademola and
found the owners’ roles and the managers’ functions Michael (2013) stated there is no significant relationship
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between age of owners and managers of small businesses in Leadership is one aspect which shapes the survival
Nigeria regardless of the fact adult owners and managers of businesses.Karanja et al. (2013) found the success of
manage most of the successful small businesses. Similarly, managing small businesses is more on policies and internal
Lee, Jeon, and Na (2016) suggested age and the educational factors than on market buoyancy and external influences.
background of small business managers played a role in The behavior of leaders of small businesses influenced the
influencing success. Lee, Jeon, and Na revealed owners and overall performance and entrepreneurship orientation of
managers that are above the age of twenty contribute to the the businesses (Muchiri & McMurray, 2015). Obiwuru,
success of small businesses. Mueller and Naffziger (2015) Okwu, Akpa, and Nwankwere (2011) suggested
found planning activity in small businesses has nothing to transformational leadership style in small businesses would
do with the demography of the owners. result in an extra effort by managers to mitigate challenges
However, educational background and experience and asserted businesses could employ transactional
of the managers help the use of financial plans to make an leadership style to improve effectiveness, loyalty, and
impact on the performance of small business start-ups efforts to mitigate challenges. The charisma, intellectual
(Mengel & Wouters, 2015). Mengel and Wouters (2015) ability, and the motivational ability of leaders could propel
found financial planning in small businesses does not small businesses to mitigate challenges which were aspects
require sophistication. Therefore, managers with of both transformational and transactional leadership style
educational background and experiences can develop and (Obiwuru et al., 2011). The absence of the right leaders in a
implement simple financial planning for small businesses small business is a challenge to small business success.
to spur organizational performance (Mengel & Wouters, Small business owners and managers must strategize and
2015). Lussier and Corman (2015) found education, employ the right leaders to mitigate the challenges
experience, and skills of owners and managers help small associated with small business leadership.

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businesses to develop the strategies which lead to the Women owners and managers of small businesses
success of small businesses. Wen-Long et al. (2014) found in Nigeria are faced with hurdles of alow expectation of
courses in small business procedures helped managers to small business success. Women are being quarried on how
develop skills of problem-solving and recognition of the they successfully managed small businesses despite
possibilities to grow. Staniewski (2016) discovered pressures of ethical issues they contend with in their
entrepreneurs with management skills and experience who operations(Udofot & John, 2017). Ethics are vital to the
employ managers with unique knowledge are more survival of businesses (Udofot & John, 2017). Business
successful in business. Similarly, O'Neill, Sohal, and Teng ethics guide managers and owners of small businesses
(2016) revealed small firms with quality management about norms, behavioral standards, and moral values as
capabilities have the significant advantage of good financial they relate to decisions to interact with stakeholders and
performance over firms which do not have experienced solve problems (Udofot & John, 2017). Because of
management. Therefore, it is evident employing managers anincreased rate of women participation in thesmall
with educational background, professional qualifications, business enterprise, women take acalculated risk which
skills, and prior experience in small business management resulted in themassive success of operations (Udofot &
will help small business owners to sustain operations John, 2017). Udofot and John stated women have
longer than the first five years. innovativeness, perseverance, problem-solving ability, and
Karanja et al. (2013) in a qualitative study asserted theability of empathy with their customers than men
once a small business is established, the owner’s personal owners and managers in Nigeria. Udofot and John found
skills and management behavior determine the women are aware of ethical issues in small business
management of important functional areas of the business. management and always act to minimize ethical problems
A study shows owners and managers demographic as in small business management. Meyer and Mostert (2016)
predictors of small business success which include found women inability to clarify goals and their inability to
education, experience, and training, but the experience of secure enough funding for their business as factors that
owners and managers determine the success of small hinder their small business success. A study revealed there
business more than the other two (Genty, Idris, Wahat, & are more men in small scale enterprises than women in
Kadir, 2015). Education and training of owners and Nigeria. A study revealed pressure from family, inadequate
managers might not be the only determinant of the success exposure to the market, inadequate education, and
of small business in Nigeria (Genty et al., 2015). The discrimination as factors that hindered women small
experience might be one of the factors determining the business success in Nigeria (Hauwa, Khan, Jan, & Roslan,
success of small businesses (Staniewski, 2016). Therefore, 2016). Though there is not enough research in
inexperienced owners and managers might be a challenge entrepreneurship intention, studies revealed self-efficacy
to small business success. (Mobaraki & Zare, 2012), personality (Zarafshani, Sharafi, &
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Rajabi, 2011), gender (Gupta, Turban, Wasti, & Sikdar. human capital, market and product development,
2009), and entrepreneurship education (Solesvik, 2013) as marketing, and strategic planning.
factors that determined entrepreneurship intention. An empirical study that investigated the
Ibrahim and Mas’ud (2016) found entrepreneurial relationship between profitability, theage of small business
orientation influence entrepreneurial intention and interact and size of the business found a significant positive
with entrepreneurship skills of small business owners and relationship between profitability and size of the business
managers in Nigeria. Ibrahim and Mas’ud recommend (Olutunla & Obamuyi, 2008). Olutunla and Obamuyi (2008)
government efforts to Nigerian students on entrepreneurial stressed there is a relationship between age and growth,
orientation. but at a point, the age of a business does not determine its
Based on the literature reviewed about profitability. Similarly, Babajide (2012) found a positive
entrepreneurial factors, the age of owners and managers relationship between SME size, location and the growth of
who recorded successes are above twenty years. The the enterprise. A study by Ezeoha (2008) revealed a highly
literature revealed no significant relationship between age significant negative relationship between financial leverage
of owners and managers with the success of small and profitability of a firm and further affirmed firm age is
businesses, but adults are managing successful small positively related to the financial leverage in Nigeria.The
businesses in Nigeria with age 20 and above. Educational financial requirements of small businesses also differ based
level of small businesses owners and managers is revealed on size and type of business they operate (Taiwo, Yewande,
to be secondary schools certificate holders and persons with Edwin, & Benson, 2016). Taiwo et al. (2016) found that
a degree and above educational qualification. Educational microfinance institutions in Nigeria consider the size and
qualification of owners and managers play a role in the age of small businesses when offering loans, but prefer
success of small business, but their experience is more higher profitability and growth rate when considering a

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important in determining the success of operations. A firm’s loan application.
study revealed the need for the Nigerian government to The network capability of small businesses is
initiate entrepreneurial orientation of citizens to increase related to its positivecreation of knowledge, and the
entrepreneurial skills and intention which will result in capacity of a firm to innovate and spur competition
small business success in Nigeria. The personality, aggressively serves as factors that mediate between
charisma, intellectual ability, and the motivational ability of performance and knowledge creation (Zacca, Dayan, &
leaders could propel small businesses to mitigate Ahrens, 2015). Small businesses rely on the contact network
challenges, and transactional leadership or of owners and managers and sometimes on networks of
transformational leadership is suggested for small their customers during the marketing of their products or
businesses in Nigeria because both have the personality services (Adegbuyi, Akinyele, & Akinyele, 2015). Therefore,
traits identified in successful small business leaders in for small businesses to have a marketing that is effective,
Nigeria. Though gender remains a cultural concern in the owners and managers must establish relationships than
Nigerian context, small businesses are managed sales to have the network to engage people at all level and
successfully in Nigeria, and following ethical standards improve their market growth (Adegbuyi et al., 2015). Social
have been stressed on the part of women small business media platforms provide the platform by which small
managers. Therefore, gender may not be a strong business owners and managers can create the relationships
determinant of success in small businesses. Therefore, small by the engaging audience through commenting on their
business owners and managers should strategize to posts (Adegbuyi et al., 2015). The challenge for small
mitigate challenges affecting the experience, educational business owners and managers is their ability to establish
background, and leadership traits. Small business relationships with the audience.
researchers should investigate the strategies used by small Customer relationship management in the 21st-
business owners and managers to contain challenges that century business environment requires the use of ICT to
affect leadership traits, educational background, and establish and maintain a relationship with customers of
experiences of owners and managers to sustain operations businesses. The adoption of ICT by small businesses in
longer than first five years. developing countries has transformed the way they do their
businesses (Asgarkhani & Young, 2010). ICT enhance
Challenges Facing Enterprise Factors of Small Businesses control and operations of customer relationship
management of SMEs among many other functional areas
According to Lampadarios (2016), the enterprise (Asgarkhani & Young, 2010). Factors affecting the adoption
success factors of small businesses include age and size of of ICT in Nigeria are those that affect the adoption of CRM
thecompany, business network, customer relations system by SMEs. Among the factors that affect the adoption
management, financial resources, internationalization, of ICT by SMEs in Nigeria is the high cost of computer
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equipment, access to financing, inadequate infrastructure Nigeria. According to Oliyede (2012), financial institutions
particularly electricity, lack of ICT skills and knowledge, in Nigeria avert risk associated with SMEs loans. Opara
lack of management support, and lack of government (2011) stated poor records and unreliable collateral are the
support (Adebayo, Balogun, & Kareem, 2013). The increase main reasons why financial institutions refused loans to
in profits of small business drive ICT adoption in Nigeria, SMEs in Nigeria. Proper risk management by SMEs will
because it is used for CRM and marketing to increase help in securing financial institutions loans for sustenance
revenue which will, in turn, result in anincreased profit and growth (Terungwa, 2012). Researchers have identified
(Apulu & Latham, 2011). Therefore, the challenges facing access to finance as one of the main challenges facing small
CRM in SMEs in Nigeria is aligned with the adoption of businesses in Nigeria. Researchers also found amajor
ICT as the 21st century CRM require ICT system to establish source of small business financing as personal or family
and maintain customer relationship to remain competitive. savings which are not enough to sustain and growth
Financing small business has become one of the businesses. Researchers also found inadequate access to
main challenges that negate small business success in finance as the barrier hindering small businesses from
Nigeria. The capital to invest is critical to the growth of becoming public companies in Nigeria. Researchers also
small businesses sustenance and survival. Gbandi and identified inappropriate loan application procedure,
Amissah (2014) found the failure of small businesses to unreliable collateral, poor records, high interest rates as the
access long-term financing as the main source of small challenges hindering small businesses accessed to financial
business failure in Nigeria. Similarly, Akinola and Iordoo institution loans but suggested proper risk management
(2013) asserted inadequate funding of small businesses strategies as afactor that will help SMEs secure financial
remain their barrier with Nigerian capital markets. A institution loans.
qualitative study by Ozioma-Elendinmuo (2015) involving There are formal and informal factors that affect

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100 small businesses in Aba, Nigeria found the lack of internationalization rate of small businesses in Nigeria,
adequate funding as what hindered their growth to be among the formal factors include export regulations,
public limited companies. Bah and Fang (2015) found licensing, and franchising procedures (Dana & Ratten,
crime, inadequate infrastructure, corruption, regulations, 2017). The informal factors include theglobal perception of
and access to finance as the major external factors negating African products or services, the nature of international
small business success, and the factors also affect small markets, and cultural factors (Dana & Ratten, 2017).
business access to finance. Most of the small businesses in Therefore, like any other nation, small businesses are faced
Nigeria are undercapitalized due to the tendencies of with cultural challenges when they intend to expand
owners depending on personal and family savings as a beyond the borders of the country. Most of thecultural
source of funding (Opara, 2011). Similarly, Boateng and challenges that relate to internationalization include
Abdulrahaman (2013) stressed the most visible source of language barrier, communication gestures, space
small business financing in West Africa are personal management, and business cultural difference (Hitt et al.,
savings and credit supplies. A qualitative study by Cole 2015). Owners and managers of small business intending to
and Sokolyk (2016) revealed that most of the small go international must understand the cultural differences
businesses do not apply for loans from financial institutions before expanding across borders.
because of the bureaucracies involved in loan application Despite small businesses employed most of the
procedures. On the other hand, Kanayo, Jumare, and Nigerian work force, there are challenges facing the work
Nancy (2013) found SMEs avoid loans from micro finance force used by small business in Nigeria (Ademola &
institutions because they charge high interest rates which Michael, 2012). Educational and professional qualification,
make it difficult for them to make profits. The institutional skills, and experience of owners and managers of small
debt financing options available to SMEs in Nigeria businesses contribute to the success of Nigerian small
includes loans from commercial banks, loans from businesses. Owners and managers of small businesses with
Microfinance banks, and loans from cooperative societies theeducational and professional background, skills, and
(Gbandi & Amissah, 2014). Oliyede (2012) found the experiences could develop and implement sound planning
inability of small businesses to access financial institutions that will spur performance in the organization (Mengel &
loans as the factor that contributed to the inability of the Wouters, 2015). Similarly, educational background and age
sector to make animpacton the economic growth and of small business owners and managers influenced the
development of Nigeria. Inadequate financial institutions success of their firms (Lee, Jeon, & Na, 2016), and taking
funding contributed to the massive failure of small courses in business procedures will develop their skill of
businesses in Nigeria (Obokoh & Asaolu, 2012) because problem-solving (Wen-Long, Wen, Guu, & Chiang, 2014).
Franca (2013) found there is a positive relationship between The challenge is for small business owners to employ
micro credit institution loans and growth of SMEs in managers with the educational and professional
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background, skills, and experience to manage the business Ormsby,& Austin, 2015). The commonly used approach to
and further train them to develop skills of problem-solving. strategic planning includes research on customer needs and
The demand for a business product or service by competitive landscape, developing the plan in writing, and
customers determine the success of the organization. Small implementing the plan (Honig & Hopp, 2016). Most of the
businesses develop methods and strategies that could small business start-ups managers who commence the
attract customers and retain existing ones, and the major operations of their business with a written plan were
method employed is the market orientation of a firm successful (Honig & Hopp, 2016). It was also argued,
(Dauda & Akingbade, 2010). The employees of small owners of businesses might change their initial plan if
businesses are capable of influencing the market orientation customers change their requirements (Blank, 2013), but
by focusing on the firm's interest to monitor the customer's owners of small businesses are likely to adapt to the
loyalty and retain them and be competitive in the market changes more than big firms because of flexibility
place (Dauda & Akingbade, 2010). A study shows that advantages (Gunasekaran, Rai, & Griffin, 2011). The small
small businesses that engaged in market orientation business challenge as it relates to business and strategic
recorded success better than those that do not engage in planning is the capacity of its owners to develop and
market orientation (Dauda & Akingbade, 2010). The implement the plan which requires owners with
challenge is for small business owners to be the market educational background, skills, and experiences. Otherwise,
oriented focus by training employees to understand the owners should engage the services of professional
importance of customer loyalty in their drive towards consultants to develop the plan. The flexibility of small
success. Small businesses that do not attract customers and businesses to adapt to the change in customers
retain existing ones are likely to fail within the first five requirements is an advantage, but require competence of
years (Dauda & Akingbade, 2010). The 21st-century owners and managers to adjust the plan.

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business environment is enabled by information and
communication technology, where most small businesses in Challenges Facing External Business Environment of
Nigeria are marketing their products and services via the Small Businesses
social media platforms. Also, CRM is enabled by ICT, and
its adoption in Nigeria is becoming a challenge because of The external environmental factors affecting small
the massive capital investment involved. CRM systems business success include political, socio-cultural, legal and
allowed small businesses to engage, attract, and retain regulatory, economic, and ecological factors (Lampadarios,
customers (Baltzan, 2015). The use of ICT in SCM system 2016). The political leadership of a country provides the
allowed businesses to maintain the appropriate inventory enabling environment for businesses to thrive (Agwu &
level that will enable small businesses to meet customers Emeti, 2014). Among the challenges negating the survival
needs and retain loyalty. The marketing challenge can be of small businesses in Nigeria are poor financing,
reduced if small businesses adopt ICT systems in their inadequate social infrastructure, multiple taxations, and
operations. Such challenge is attributed to the inability of lack of managerial skills of owners and managers (Agwu &
small businesses to source adequate financing to adopt ICT Emeti, 2014). According to Agwu and Emeti (2014),
in their operations. thegovernment can guarantee long-term loans to improve
Developing strategies guide small businesses to financing of small businesses, improve infrastructure, and
success (Gupta & Muita, 2013), while strategic planning devise ways to curve multiple taxationsto enhance the
serves as a tool for influencing performance, and reduction success of small businesses in Nigeria. Ekpo and Bassey
of uncertainty in the organization (Chaudhry, Ali, Fareed, (2016) stressed power supply is grossly inadequate to meet
& Fakher, 2014). Strategic business planning ensures the the Nigerian needs which give rise to use of small
favorable market position of a firm (van Gelderen Thurik & generators to power small businesses resulting in high
Patel, 2011). According to van Gelderen et al. (2011), the overhead cost. Similarly, Alarape (2014) stated frequent
inability of businesses to establish the right business plan power outages as one of the challenges negating the success
resulted in 95% of business failures, because strategic of small businesses in Nigeria, while Faloye (2014) found
planning improves the decision-making process. Similarly, power outages as the barrier to small businesses adoption
business strategies help small businesses to add value of e-commerce in Nigeria. Electricity insecurity is found to
resulting in growth and sustainability (Dugguh, 2015). be affecting SMEs’ productivity in Nepal, Nigeria,
Educational background, skills, and experience of owners Tanzania, Pakistan, and Uganda(Scott, Darko,
and managers play a key role in developing the business Lemma,&Rud, 2014). Opara (2011) identified six key
and strategic planning for the success of the small business challenges facing small businesses in Nigeria: low demand
(Mengel & Wouters, 2015). Similarly, operational planning for products and services, poor and insufficient
enhances the performance of small businesses (Watts, infrastructure in the economy, corruption, low profit,
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incompetence in business management, and lack of support technology in business, and a lack of management skills
from government and financial institutions.Small and competencies in record keeping. Other challenges
businesses are also open to risk from fraudsters. Hess and include poor infrastructure in the economy, poor and
Cottrell (2016) discussed in their theoretical study financial exorbitant power supply, and the prominence of corruption
strain, lack of expertise, rapid growth rate, and lack of in all facets of life in the economy (Shehu et al., 2013).
necessary resources were the factors which opened a small
business to an attack by fraudsters. Hess and Cottrell Findings of the paper
asserted small business owners must focus on ways to
protect themselves from the risk of fraudsters. Similarly, a Based on the scholarly articles presented, the
world bank supported a qualitative survey by Islam (2014) following are the major challenges facing the small business
involving 12,000 companies in 27 countries and found a sector of the Nigerian economy, and are presented based on
negative relationship existed between the growth of firms the small business success factors framework as follows:
and crime, and this negative relationship is stronger in
small and medium firms. Entrepreneurial Challenges
The qualitative research by Oyelola et al. (2013)
1. Eventhough age, educational level, entrepreneurial
studying how small businesses could help Nigeria achieve
orientation, gender, personality, prior work
sustainable economic growth found a lack of the Nigerian
experience and management skills of owners and
government’s interest in small business enterprises as a
managers, researchers emphasized on the need of
factor negating the growth of the sector and leading to
theexperience of owners and managers for small
failures. Similarly, Adeyemi and Abiodun (2014) asserted
business sustainability beyond first five years.
development plans initiated by the Nigerian government
Small businesses might face success challenges if

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on small businesses failed due to the dominance of the
owners and managers do not possess the adequate
government in economic activities, economic and political
experiences. The challenge is for small business
instability, and delayed democratization. Oyelola et al.
owners to employ managers with theeducational
concluded government supported initiatives had not
and professional background, skills, and
contributed meaningfully to reducing the rate of failure of
experience to manage the business and further
small businesses in Nigeria. Despite the lack of government
train them to develop skills of problem-solving.
interest in small business development, SMEDAN exists
2. Educational and professional background of
with the mandate for initiating programs to develop the
owners and managers is important, especially
sector. Researchers at SMEDAN identified challenges
when developing and implementing business and
including poor infrastructure, access to finance,
strategic planning. Small businesses may employ
inconsistencies in government policies, and poor business
the services of professional consultants to develop
development services, improper access to markets, multiple
strategic planning, but where the requirement of
taxations, and obsolete technology. A qualitative study by
customers change small businesses need
Du and Banwo (2015) suggested the support given to SMEs
competent managers to change plans to suit the
by the government of Nigeria was nothing compared to the
customers’ requirements.
size of the sector in the economy.
3. The owner intention is important to the success of
The biggest challenges facing small business
small businesses. Where the intention is for self-
growth in Nigeria are related to socio-economic conditions
employment, small businesses might not grow and
of the country where poverty and crime are on the rise
succeed beyond first five years, but entrepreneur
(Remi et al., 2010). Remi et al. stated the Centre for Gender
intentions make owners and managers to use
and Social Policy Studies observed the economic condition
strategies that will grow the business beyond five
of Nigeria is deteriorating leading to a high rate of
years.
unemployment and poverty most of which is due to the
4. Leadership is one aspect that influences small
failure of small businesses. A quantitative study involving
business success. Researchers suggested
198 respondents focused on the mediating effect of SMEs
transformational leadership style in small
performance determinants in Nigeria aimed at discovering
businesses would result in an extra effort by
the relationship of owner/manager knowledge, the
managers to mitigate challenges and asserted
intensity of competition, marketing, and technical
businesses could employ transactional leadership
competence revealed the challenges affecting small
style to improve effectiveness, loyalty, and efforts
business development in Nigeria (Shehu et al. 2013). The
to mitigate challenges. The charisma, intellectual
challenges facing small businesses in Nigeria include poor
ability, and the motivational ability of leaders
strategic planning, poor understanding of the use of
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International Journal of Scientific & Engineering Research Volume 8, Issue 8, August-2017 803
ISSN 2229-5518
could propel small businesses to mitigate inappropriate loan procedures and high interest
challenges which were aspects of both rates which made it difficult for them to make
transformational and transactional leadership style ameaningful profit. The challenge is for small
(Obiwuru et al., 2011). businesses owners and managers to find initial
5. The literature revealed no significant relationship capital and additional capital to grow their
between age of owners and managers with the business and sustain operations beyond first five
success of small businesses, but adults are years.
managing successful small businesses in Nigeria 5. On market orientations, the challenge is for small
with age 20 and above. business owners to be the market oriented focus by
training employees to understand the importance
Enterprise Challenges
of customer loyalty in their drive towards success.
1. Financial institutions in Nigeria consider the size Small businesses that do not attract customers and
and age of small businesses when offering loans, retain existing ones are likely to fail within the first
but prefer higher profitability and growth rate five years (Dauda & Akingbade, 2010). The
when considering a firm’s loan application. The marketing challenge can be reduced if small
challenge of small businesses is growing and be businesses adopt ICT systems in their operations.
successful for five or more years for financial Such challenge is attributed to the inability of small
institutions to consider additional funding as aloan businesses to source adequate financing to adopt
for growth and long-term sustainability. ICT in their operations as earlier highlighted.
2. Small businesses rely on the contact network of External Business Environment Challenges
owners and managers and sometimes on networks

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of their customers during the marketing of their 1. Inadequate infrastructure negates the survival
products or services (Adegbuyi, Akinyele, & and growth of small businesses. The major
Akinyele, 2015). The challenge for small business challenge about infrastructure is inadequate
owners and managers is their ability to establish power supply where frequent power outages
relationships with the audience. Establishing a are the norm in the country.
relationship with the audience will enable 2. Crime rate which is because of thehigh rate of
attraction and retention of customers to maintain a poverty is classified as a contributor to small
competitive advantage. business failure. The high insecurity rate in the
3. The challenges facing CRM in SMEs of Nigeria is country is a challenge for small business
aligned with the adoption of ICT as the 21st century successes (Dugguh, 2015).
CRM require ICT system to establish and maintain 3. Double taxation is one factor identified as a
customer relationship to remain competitive. The challenge to small business success due to
main issues with ICT adoption in Nigeria by small improper laws and regulatory framework that
businesses are the huge capital requirement of will harmonize the taxes. Double taxation
such projects, and small businesses find it difficult results in eroding of efforts made by small
to secure long-term financing in the country. businesses where most of theprofits made are
4. Financing small business has become one of the paid as taxes. The challenge is how to make
main challenges that negate small business success political class understand the implication and
in Nigeria. The capital to invest is critical to the revert the situation.
growth of small businesses sustenance and 4. Corruption is also identified as a challenge to
survival. Gbandi and Amissah (2014) found the small business success. Regulatory and
failure of small businesses to access long-term support agencies have to design policies that
financing as the main source of small business will help develop the sector. Corruption is
failure in Nigeria. Similarly, Akinola and Iordoo likely to distort any Nigerian government
(2013) asserted inadequate funding of small efforts to support the growth of small
businesses remain their barrier with Nigerian businesses (Dugguh, 2015).
capital markets. Inadequate financial institutions 5. Lack of the Nigerian government’s interest in
funding contributed to the massive failure of small small business enterprises, dominance of the
businesses in Nigeria because they tried to avert government in economic activities, economic
risk associated with small businesses financing. and political instability, and delayed
Similarly, small business owners and managers democratization are challenges that negate the
avoid financial institutions loan due to growth of small business enterprises in
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International Journal of Scientific & Engineering Research Volume 8, Issue 8, August-2017 804
ISSN 2229-5518
Nigeria. Strong institutions, political will, and investigating more challenges facing small businesses in
strong economic policies might help thespecific industry, and investigate the strategies
thegrowth of the sector. successful small businesses have used to mitigate the
challenges.
Discussions of findings
Conclusion
The dominant challenge facing small businesses in
Nigeria is the enabling environment necessary for
Small businesses employ citizens of Nigeria, and
businesses to grow and thrive. Most of the enterprise and
the sector is faced with themassive failure of the businesses
external environmental challenges hinged of government
within the first five years of operations. Most of the failure
policies that do not favor small businesses grow. The
is due to critical challenges which negate the survival of
governmentprovides infrastructure, financial institutions
their operations. For small business owners to be
regulatory framework, economic and political stability,
successful, they need to understand the challenges and
reduction of crime rate and corruption, and the political
develop strategies to mitigate the challenges. The
will for owners to have the confidence that they are being
researcher identified many challenges ranging from those
needed and supported. The major challenge is for the
affecting entrepreneurial factors, enterprise factors, and
Nigerian government to develop policies that will favor
business environmental factors. The paper presented many
small business growth because they help the economy by
challenges as highlighted by researchers to providing
providing the citizens with employment opportunity.
information to small business owners that they can use to
Challenges that affect Entrepreneurial factors are much
develop strategies to mitigate small business challenges.
more of competence and capacity of owners and managers
The findings can also be used by researchers to investigate
of small businesses to manage and sustain operations

IJSER
strategies for mitigating small business challenges.
beyond first five years. Though educational and
professional background of owners and managers is
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About the Author

Babandi Ibrahim Gumel is a Doctor of Business

Administration Student at California Southern University,
Costa Mesa CA, United States. expected to Graduate Late in
2017. His Research Interest include Small Business
Management and Entrepreneurship. Babandi Ibrahim
Gumel is managing his small business and a practicing
politician in Nigeria.

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