Key failure factors of start-up women owned SMEs in service sector in Kigali: a principal component analysis approach

Abstract

Purpose This study aims to develop and test a framework for studying the failure of new women entrepreneurs in the small- and medium-sized enterprises (SMEs) sector. Design/methodology/approach Using a sample of 114 unsuccessful entrepreneurs in Kigali, Rwanda, this study aimed to identify key failure factors of women-owned SMEs. This study used mixed methods where quantitative data were analysed using the principal component approach with Varimax rotation to reduce the variables to only three clusters. Findings The study findings revealed that the failure of women-owned SMEs results from the entrepreneur’s inability followed by the enterprise incompetence, which are both internally controllable factors and the inauspicious business environment. These findings contribute to the validity of the dynamic capability theory by explaining how well internal and external factors must stay glued together to avoid failure among women-owned SMEs, something that was not yet previously well documented so far. Originality/value New SMEs are considered a noteworthy constituent of Rwandan development. Unfortunately, most new SMEs, in general, do not grow; their failure rate is high (70%), which raised many worries for both researchers and policymakers as to why this occurs at this stage of business growth. Therefore, to the best of the authors’ knowledge this paper is the first to analyse the reasons for the failure of Rwandan women-owned SMEs in the service sector. These findings are important because they suggest that policies designed to reduce the incidence of SMEs’ failure should take account of the two main factors influencing failure among women entrepreneurs.

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“…For instance, some studies have classified failure reasons as objective-subjective elements (Jenkins & McKelvie, 2016), while others have highlighted environmental issues (Franco et al, 2021;Khelil, 2016) or individual (Rahman et al, 2020) and organizational viewpoints (García-Ramos et al, 2017;Klimas et al, 2021). Some scholars have classified them as deterministic-nondeterministic-emotional (Khelil, 2016;Mellahi & Wilkinson, 2004) and controllable-uncontrollable categories (Kasema, 2021). However, these failure factors are majorly categorized as internal and external elements (Klimas et al, 2021;Zacharakis et al, 1999), where internal causes are under the direct control of the firm, and external causes are beyond the firm's control (Atsan, 2016).…”

“…Business models have the potential to drive innovation and provide a competitive edge to startups (Zott & Amit, 2008), the absence of which might impede innovators (Doganova & Eyquem-Renault, 2009) from successfully implementing and extracting value from their inventions (Teece, 2010). A poor business model usually denotes shortcomings or errors in the planning (Kasema, 2021) and implementation of crucial elements, which cause operational inefficiencies and make success more difficult. It encompasses insufficiencies in the identification of target markets, revenue streams, cost structures, or overall viability (Baecker, 2023;Bajwa et al, 2017).…”

“…Fierce market conditions Akter and Iqbal (2020), Triebel et al (2018), Franco and Haase (2010), Ihua (2009), Kasema (2021), Vesper (1990), Lukason and Hoffman, (2015)…”

“…Poor networking Akter and Iqbal (2020), Franco and Haase (2010), Atsan (2016), Baum et al (2000) External environmental issues Theng and Boon (1996), Akter and Iqbal (2020), Calderón et al (2019), Ihua (2009), Kasema (2021), Arasti et al (2014), Liao (2004), Gaskill et al (1993), Strotmann (2007, Nigbor-Drożdż and Łukasiński (2023)…”