A retrospective analysis of the major determinants of start-up failures in the Fezile Dabi District

Abstract

Small businesses remain the major economic drivers of the present day. Small business startups are meeting every country's economic needs through the creation of thousands of new jobs and income each year. Nonetheless, the high failure rates among small businesses are a major deterrent to economic growth and gross domestic product (GDP) in South African regions and Fezile Dabi district in particular. This study sought to examine the key factors influencing business failure within the Small Medium and Micro Enterprise (SMME) sector in the Fezile Dabi district. The high failure rate can mostly if not always be attributed to endogenous (internal) factors such as lack of business management competencies. A survey instrument testing the key variables was developed and data was generated by administering 50 questionnaires to key respondents (owner-managers) from the Fezile Dabi district, in the Free State. The data collected probed failure of the respondents' businesses across a period straddling five years between 2009 and 2014. The data analysis employed the use of qualitative and quantitative research methodologies. The findings and results identified three explanatory factors that were significant in this research: “leadership as origin of failure” (factor 1); “endogenous and exogenous causes of failure” (factor 2); and “SA business environment as a precondition of failure” (factor 3). Relevant statistical analyses embarked on, led to the rejection of one proposition of the study. Based on the finding in the study, recommendations that could contribute to reducing the incidence of high failure rates were suggested. Hence more efforts should be dedicated in developing management competencies and leadership skills for SMMEs. The key factors in the external environment such as funding constraints and burdensome regulations need to be bridged and support mechanisms improved for effectiveness.