KUCHING: Small businesses can fail despite strong sales and hard work when they lack the capacity to withstand financial and market shocks.
Universiti Malaya Research Fellow Post Doctorate at the Ungku Aziz Centre for Development Studies (UAC), Dr Nik Zirwatul Fatihah, said sustaining a business required more than simply getting it started.
“Rising operating costs, unpredictable demand, digital disruption, supply-chain difficulties and sudden household expenses could undermine businesses even when entrepreneurs worked hard.
“Some initiatives also provide equipment, start-up capital or short-term mentoring,” she said.
However, she said the success of entrepreneurship programmes was sometimes measured by the number of businesses created rather than how many remained sustainable after the programme ended.
“A participant selling food, clothing or services may initially appear successful because sales are being made and revenue is coming in, but this does not necessarily indicate financial stability.
“Entrepreneurs may not separate business and household finances, while product prices may cover material costs without accounting for transportation, electricity, packaging and personal labour.”
She added that revenue may also be used immediately to meet household needs, leaving insufficient capital to purchase the next round of stock.
“These pressures are particularly significant for low-income and informal entrepreneurs, whose businesses are often closely linked to household survival.
“When a child becomes ill, a vehicle needs repair or the cost of essential goods rises, business capital may become the household’s emergency fund.
“Unlike larger companies, microenterprises generally have limited financial buffers, meaning a relatively small disruption can threaten both the business and the family depending on it.”
Nik Zirwatul said financial literacy remained an essential entrepreneurial capability, with business owners needing to understand cash flow, costs, pricing, savings and responsible borrowing.
She noted that Bank Negara Malaysia’s financial-inclusion and financial-literacy strategies recognised financial capability as an important foundation for resilience and well-being.
“However, financial knowledge alone does not ensure that a business will survive.
“An entrepreneur may keep accurate financial records but still lose customers when consumer preferences change. Another may offer a high-quality product but struggle to reach a larger market.
“A rural entrepreneur may also understand digital marketing but face unreliable logistics or limited internet connectivity.”
She said entrepreneurial survival therefore depended on a broader set of capabilities, including the ability to identify market changes, adjust products and prices, use digital platforms effectively, maintain relationships with customers and suppliers, obtain reliable information and make difficult decisions when resources were limited.
“Entrepreneurs also need the ability to recover after setbacks.”
She described this as ‘Entrepreneurial Survival Capability’, referring to the combined ability of an entrepreneur to anticipate challenges, adapt to changing conditions, mobilise available resources and sustain a business through uncertainty.
The capability, she said, was shaped by several interconnected strengths.
“Financial capability enables entrepreneurs to manage limited resources and prepare for disruptions, while adaptive capability allows them to change products, prices or business methods when circumstances shift.
“Digital capability helps entrepreneurs reach customers and operate in an increasingly technology-driven marketplace.
“Social capability is also important, as family members, customers, suppliers, mentors, community organisations and fellow entrepreneurs can provide information, encouragement, referrals and practical assistance.”
Nik Zirwatul said differences in access to such support could help explain why entrepreneurs with similar products and equal determination experienced different outcomes.
“One entrepreneur may have access to mentoring, affordable financing, reliable transportation and a supportive business network, while another may be trying to solve every problem alone.
“Their different outcomes should therefore not automatically be regarded as differences in effort,” she said.
She said entrepreneurship programmes needed to look beyond business creation if entrepreneurship was to function as a meaningful pathway towards poverty reduction.
“Short-term training may help participants begin, but sustainable development requires continued support during the vulnerable stages that follow.
“Entrepreneurs may require different forms of assistance as their businesses develop, including advanced training, market access, digital guidance, mentoring and appropriate financing.”
She stressed that programmes should consequently monitor more than participation and business registration, she said.
“They should examine whether entrepreneurs remain active, generate stable income, retain customers, build emergency reserves and become less economically vulnerable over time.
“The objective should not be to create as many entrepreneurs as possible,” she said.
Instead, she said, the focus should be on developing entrepreneurs with the capabilities and support systems needed to survive.
Nik Zirwatul also said not every business difficulty could be addressed through individual motivation, as entrepreneurs operated within wider economic environments.
“Access to infrastructure, financing, childcare, transportation, digital technology and social protection could influence whether a viable business continued operating or disappeared.
“Policies that promote entrepreneurship without addressing these structural conditions could place too much responsibility on individuals while overlooking the environment in which they were expected to succeed,” she said.
She pointed out that a sustainable entrepreneurial ecosystem should instead connect entrepreneurs with markets, financing, knowledge, technology and networks, while giving them opportunities to learn and adapt before temporary setbacks result in permanent closure.
“If entrepreneurship is expected to reduce poverty, strengthen communities and create economic mobility, then helping people start businesses is only the beginning.
“The real measure of success is whether those businesses and the people behind them are equipped to survive what comes next.”
