investigating the causes and outcomes of failure among
TRANSCRIPT
Investigating the causes and outcomes of failure among entrepreneurs in
Sudan
A thesis submitted to the Bucerius Master of Law and Business Program in
partial fulfillment of the requirements for the award of the Master of Law and
Business (“MLB”)
Sara Galaleldin
July 23, 2020
12.024 words (excluding footnotes)
1st Supervisor: Prof. Dr. Peter Witt
2nd Supervisor: Prof. Dr. Dirk Holtbrügge
Abstract This thesis explores the main causes of entrepreneurial failure from the perspectives
of the entrepreneurs in Sudan. The findings showed that the main causes of
business failure included internal and external factors. However the external factors
were found to have stronger impact on entrepreneurial failure and included
unfavourable economic situation, product/service related issues,
managerial/organizational issues, lack of funding/financial difficulties and the legal
environment.
This is the first study that focuses on examining entrepreneurial failure within the
context of Sudan. The findings provide relevant insights for the policy makers, the
academics and all the active bodies interested in the field. In light of the findings, the
author provides recommendations that may help policy makers in formulating policies
and programs that support the Sudanese entrepreneurs and enable them to develop
their businesses in a sustainable business environment.
Key words: Failure, Entrepreneurship, Sudan, Causes, Entrepreneur, learning
Acknowledgement
I would like to express my sincere gratitude to my supervisors Prof. Dr. Peter Witt
and Prof Dr. Dirk Holtbrügge for their support and guidance.
I am also grateful for the amazing support and encouragement from my family and I
would like to thank them.
Special thanks also go to my dear friend Lina Elshafie for supporting and connecting
me with entrepreneurs in Khartoum.
I would like also to thank Asia Kambal for taking the time to proofread my paper and
for the constructive feedback!
Finally, this thesis would not have been possible to complete without all the
participants who agreed to be part of the study, many thanks and appreciation for
your involvement.
Sara Galaleldin Hamburg, Germany July 23, 2020
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TABLE OF CONTENTS
1. Introduction ......................................................................................................... 4
1.1. Background ......................................................................................................... 4
1.2. Research Purpose ............................................................................................... 6
1.3. Research Questions ............................................................................................ 6
1.4. Relevance ........................................................................................................... 7
1.5. Research Outline................................................................................................. 8
2. Literature and Theoretical Review ..................................................................... 9
2.1. The development of Entrepreneurship in Sudan ................................................. 9
2.2. Literature Review on the causes of entrepreneurial failure ............................... 11
2.3. Entrepreneurial failure defined .......................................................................... 14
2.4. Attribution Theory .............................................................................................. 16
2.5. Learning from Entrepreneurial Failure ............................................................... 16
3. Methodology ...................................................................................................... 18
3.1. Research approach ........................................................................................... 18
3.2. Data Collection .................................................................................................. 18
3.3. Case Study as a Strategy .................................................................................. 19
3.4. Data analysis ..................................................................................................... 20
4. Analysis (Findings) ........................................................................................... 21
4.1. Why we failed – as perceived by the entrepreneurs .......................................... 21
4.2. General Perceptions on the causes of entrepreneurial failure ........................... 23
4.3. Causes of failure ............................................................................................... 24
4.4. Lessons Learned ............................................................................................... 31
5. Discussion ......................................................................................................... 33
5.1. The dominance of the external factors .............................................................. 33
5.2. The perceptions in comparison ......................................................................... 36
5.3. Are the internal factors equally important? ........................................................ 37
5.4. What have the entrepreneurs really learned? ................................................... 38
5.5. The impact of failure .......................................................................................... 39
6. Conclusion ......................................................................................................... 41
6.1. Summary of findings and recommendations ..................................................... 41
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6.2. Practical and theoretical contributions ............................................................... 44
6.3. Suggestions for further research ....................................................................... 44
6.4. Research Limitation ........................................................................................... 45
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LIST OF FIGURES
Figure 1: Inflation rates in Sudan from 1980 to 2020 ................................................ 35
LIST OF TABLES
Table 1: Characteristics of the failed entrepreneurs ................................................ 22
Table 2: Causes of failure (failed entrepreneurs) ...................................................... 22
Table 3: Causes of failure (successful entrepreneurs) ............................................. 23
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1. Introduction
1.1. Background
The role of entrepreneurship as a driving force for innovation and economic growth
has been acknowledged by governments worldwide and extensively emphasised by
research. During the last two decades, there has been a growing presence of an
entrepreneurial scene in Sudan where poverty is prevalent with a high rate of 46.5%
(World Bank, 2009) and unemployment rate of 16.5% (World Bank, 2019). To
promote the development of entrepreneurship as a tool for poverty alleviation, job
creation and economic development, various policy reforms and initiatives were
undertaken by governmental institutions. For instance, the launch of a microfinance
unit at the Central Bank of Sudan in 2007 paved the way for new and upcoming
entrepreneurs to develop their businesses.
However, entrepreneurs are often confronted with various impediments that impact
the success of their businesses. In fact, studies have indicated that new businesses
are faced with high rates of failure (Timmons, 1994 cited in Zacharakis, Meyer &
DeCastro, 1999). Therefore, it becomes vital to develop an understanding of how
entrepreneurs heal and progress from this often hurtful and destructive experience by
focusing on fruitful learning lessons that can be produced from failure (Cope, 2011).
Although previous research has focused expansively on exploring entrepreneurial
success rather than failures, the phenomena continues to be a critical element of the
entrepreneurial process. McGrath (1999) has proposed that research should move
from this anti failure bias to an integrative outlook of how failure and success are
related. She suggests that failed ventures can enhance knowledge or production
techniques.
Studies on entrepreneurial failure have explored various aspects such as the
financial, social and emotional implications that arise from entrepreneurial failure
(Gimeno, Folta, Cooper & Woo, 1997; Shepherd 2003; Cope, 2011). It has been
suggested that the emergence of greater understanding of new venture failures
would potentially offer important information for various main stakeholders involved in
a new venture (Liao, Welsch & Moutray, 2008) and that acknowledging an
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enterprise’s failure and closure are basics fundamental for managerial success
(Coelho & McClure, 2005).
While the abundance of studies provides useful insights and elements that can guide
our understanding of entrepreneurial failure, the applicability and relevance can vary
especially within different contexts. The entrepreneurial activities in any country are
rooted in an environment as well as impacted by interplay of conditional factors,
which can potentially encourage or obstruct the business environment and thus in
turn affects these entrepreneurial activities negatively or positively (Gangi &
Mohammed, 2017). Boso, Adeleye, Donbesuur & Gyensare (2019) note that most of
the previous studies on business failure were much focused in the developed
countries, while in Africa the research on this topic appears to be limited.
In Sudan, a least developed country, there is a general lack of knowledge with
regards to entrepreneurial failure among entrepreneurs given the scarcity of scientific
research in the field and availability of data on entrepreneurship. For many years, the
business environment in Sudan has faced many challenges due to sharp inflation,
political instability, and economic downturns making it more difficult for entrepreneurs
to strive and sustain their businesses in a highly volatile environment.
In 2018, Sudan participated in the Global Entrepreneurship Monitor (GEM) report for
the first time, which provided a comprehensive insight into the entrepreneurial
environment and activities. Based on the Adult Population Survey (APS) on a
representative sample aged 18-64 years old, the report revealed the highest rate of
business discontinuation in its zone about 17.3% among entrepreneurs in Sudan.
The main reasons for business discontinuation were identified as lack of financial
means, family/personal circumstances and lack of business profitability which
indicated that new businesses struggle to grow and maintain their activities in a
challenging environment.
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1.2. Research Purpose
The topic of this thesis has not been addressed sufficiently within the African
continent and particularly within the Sudanese context. In Africa, there have been few
studies made on the factors that cause entrepreneurs to fail (Fatoki, 2014), while to
the best knowledge of the author, no one has done a published study on why
entrepreneurs fail in Sudan. Given the high uncertainty and potential failure of many
entrepreneurial activities as indicated by previous literature and the emphasis on the
importance of researching failure, it becomes vital to understand why entrepreneurs
fail, how they experience their failures and more importantly the learning outcomes
from these experiences. Hence, the purpose of this thesis is to explore the main
causes of entrepreneurial failure from the perspective of the entrepreneurs
themselves considering that they are the main driver of the entrepreneurial process.
By painting a broader picture of how entrepreneurial failure is perceived, the writer
intends to assess whether there are any lessons to be learned from the experience
and look into its impact on the entrepreneurs whether it left a negative or a positive
impression. Thus, this thesis aims to address the need for further research in the
region under study in order to contribute to the understanding of the phenomena of
entrepreneurial failure. The author also aims to shed light on the current issues
relating to the topic by providing insights that are of relevance for researchers,
venture capitalists, policy makers, and practitioners and other bodies that are active
in the field to shape policies and actions that support the business environment and
enable entrepreneurs to sustain and grow their businesses.
1.3. Research Questions
The main objective of this explorative research was to investigate the causes of
failure for Sudanese entrepreneurs to gain a better understanding of the
circumstances that drive failure, the learning outcomes (if any) and its implications.
For the purpose of my research, I selected a broader definition of entrepreneurial
failure that seemed most suitable to touch upon all the relevant aspects of the topic.
The study was guided by the following main research question:
a. What are the main factors that cause Sudanese entrepreneurs to fail?
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While this research did not specifically focus on testing whether there are learning
lessons to be produced from entrepreneurial failure or how they impact the
entrepreneurs, it is worth exploring how entrepreneurs perceive the entrepreneurial
failure and whether there are any takeaways (learning if any) from their experiences.
Hence, the thesis will attempt to touch on the social and psychological cost of
business failure as experienced by the entrepreneurs. Therefore, the following
additional question was formulated:
b. What are the lessons learned from entrepreneurial failure as perceived by
Sudanese entrepreneurs?
This study does not aim to find precise answers for these questions but rather to
explore the different perceptions and viewpoints of the entrepreneurs on the topic.
1.4. Relevance
The topic of entrepreneurial failure is highly interesting for different reasons. Firstly,
entrepreneurship as a concept has been regarded as a valuable instrument to
address relevant issues in developing countries including poverty reduction, creating
jobs and opportunities, encouraging innovation, empowering women. In Sudan, many
new businesses are created out of necessity to address social issues and create
employment opportunities. Thus, just as much as we celebrate success stories,
unsuccessful stories of entrepreneurs should be equally shared to provide us with a
deeper understanding of the topic and how it can be addressed.
Secondly, existing research has moved from focusing on investigating the causes of
business failure to exploring other relevant subjects such as sense-making, the social
and emotional consequences of entrepreneurial failure. Hence, this study hopes to
encourage the initiation of discussion on this rather sensitive topic in order to open
the door for further studies on entrepreneurial failure in Sudan to address other
aspects of the phenomena. The topic of this study is not only relevant for scholars in
the field, but will also provide relevant input to the governmental institutions and the
overall start-up community in the country.
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1.5. Research Outline
Subsequent to this introduction, the thesis is structured as follows:
Section 2 will address the literature review. It will start with an overview of
entrepreneurship within the Sudanese context. Second, previous literature on the
topic shall be discussed. Third, the definition of main concept of entrepreneurial
failure is presented followed by attribution theory and a brief overview of learning
from failure.
In section 3, the research methodology shall be described. This will include
information on the qualitative approach used for the study, data sample, data
collection and analysis. In section 4, the empirical data will be presented and
analysed.
Section 5 will include discussion of the findings and its relevance to existing
literature. Lastly, in section 6 a summary of the study’s main findings will be
provided, followed by practical and theoretical contributions as well as
recommendations for policy makers, practitioners, and academics.
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2. Literature and Theoretical Review
2.1. The development of Entrepreneurship in Sudan
In recent years, there have been many policies taken by governmental bodies as well
as initiatives undertaken by private and non-profit enterprises to support and
encourage entrepreneurial activities in Sudan. Gangi and Timan (2013) note the
development of entrepreneurship through government policies during three phases.
The first phase, before 1992, much of the focus of governmental policies was on
public enterprises which were given support and priority over private entities as
means for increasing job opportunities and achieving economic development. The
second phase during 1992-2005, the Sudanese government with a technical support
from World Bank and the IMF created various policy reforms on the macroeconomic
and the microeconomic levels. The purpose was to encourage the entrepreneurial
environment and attract domestic and foreign investments in the country (World
Bank, 2006 cited in Gangi & Timan, 2013). The third phase throughout 2005-2011
witnessed numerous policies and legislation in support of entrepreneurial activities,
including the launch of a microfinance initiative. However, the private sector in Sudan
during this period faced many difficulties due to external factors that were out of its
control and thus hindered development and diversification. These issues as defined
by private sector companies included namely corruption, economic and political
instability which are all related to the government (World Bank, 2009).
The influence of governmental actions and policies on the entrepreneurs in Sudan
remains unclear given the limited available data and lack of scientific research in the
field. The business environment continues to suffer from many challenges that
hinder the development of new ventures and their growth, which suggests that these
efforts have had little impact on improving the entrepreneurial environment. In an
effort to understand the impact of the implemented policies and social aspects on the
entrepreneurial environment, Gangi & Timan (2013) conducted a study to explore
how potential entrepreneurs perceived the entrepreneurial environment in Sudan.
Their findings showed that it was observed as weak, attributing the political, legal,
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administrative, social, and cultural conditions as poor, while other factors including
economy, education and infrastructure was perceived as fair. Their results suggest
that entrepreneurs generally face many challenges in Sudan where the businesses
environment appears to be not so entrepreneur- friendly.
On the other hand, Khattab, Ahmed & Mohamed Ahmed (2017) conducted an
exploratory study on the factors that impact the success of entrepreneurs in Sudan
based on questionnaires that were collected from 62 entrepreneurs. Their findings
highlighted finance as a vital component for successful businesses as well as
managerial capabilities, appropriate government policies and network. The
perception of entrepreneurship as a good career choice in Sudan was revealed to be
highly positive standing at 79% as means for resolving social issues (GEM Sudan,
2018). Despite this positive viewpoint, the percentage of established business stands
only at 10%, in comparison with nascent and new businesses which had a total rate
of 22.1% (GEM Sudan, 2018).
The World Bank’s doing business report 2020, which measures a number of
business regulations based on a number of indicators across 190 economics,
reported that Sudan stands at the bottom of rankings (171 out of 190), with low
scoring for starting a business, paying taxes, getting credit, resolving insolvency and
others. Hence, these findings reaffirm the reality that Sudan continues to be a
challenging country for entrepreneurs to thrive in. According to GEM Sudan report
(2018), the rate of business discontinuance which included selling, shutting down or
discontinuing ownership/management in the Sudanese context was found to be the
highest in the region. This main causes mentioned were financial inadequacies, low
profits, and personal and family problems.
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2.2. Literature Review on the causes of entrepreneurial failure
There has been a considerable body of research which engaged in investigating
factors that lead to business/entrepreneurs’ failure or developed models to test
certain factors that impact the survival or failure of new ventures. These factors are
often characterized as external factors relating to the environment conditions which
are outside entrepreneurs’ control and internal factors relating to the internal
organizational aspects of a business. In the 1960s, a study began to track the
development of 250 technology based ventures in Northern California over a period
of 20 years (Bruno, Mcquarrie & Torgimson, 1992). It revealed that 50% of the
companies that were examined failed (discontinued) by 1988, while 32% of the firms
had either merged or had been acquired, and 18% had continued to operate as
independent businesses. The main factors identified by failed entrepreneurs whom
were interviewed at the time included internal causes, such as managerial or key
employee issues and external factors namely product or market challenges and
financial difficulties (Bruno, Leidecker & Harder 1987).
Zacharakis et al. (1999) studied venture failure by comparing the perceptions of
entrepreneurs with venture capitalists (VC). Their results showed that the perceptions
differed, while the entrepreneurs attributed reasons of failure mainly to internal
factors (poor management); the VCs attributed the causes of failure to external
factors (weak market conditions). The authors focused mainly on bankrupt firms and
their findings highlight the potential danger of incorrect attributions, which could lead
to the application of wrongful actions.
Arasti, Zandi & Bahmani (2014) investigated the causes of business failure from the
perspectives of successful and unsuccessful entrepreneurs in the Islamic Republic of
Iran. Their findings showed that inappropriate polices including uncertainty of rules
and regulation, absence of support, bureaucracy and deficiency of monitoring
regulations as perceived by the participants is the main factor for business failure.
This indicates that the Iranian businesses are affected by the government policies
which were found to hinder the continuity and survival of enterprises.
Carter and Wilton (2006) argue that governments play a central role in attaining a
positive enterprise development. They sought to understand the cause of failure for
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enterprise development in Zimbabwe by interviewing several entrepreneurs whom
identified main issues to be personal, cultural, economic, political and financial
factors, as well as education, training and government’s policies. The researchers
further debate that these factors can be influenced by the government which can
provide support for the entrepreneurs through facilitating policies and programs that
create a favourable environment for constructive enterprise development.
Few studies were also conducted within the African context. One study on the
analysis of the causes of failure for new SME in South Africa by Fatoki (2014)
showed that both the internal and external factors including lack of managerial
expertise, competition, lack of funding, and crime contributed to the failure. Ihua
(2009) examined 10 key SME failure factors in the United Kingdom in comparison
with Nigeria. He found that while internal factors such as poor management was
considered as the most significant factor impacting SME failure in the UK, external
factors such as weak economic conditions and poor infrastructure were the most
critical factors in Nigeria. The study indicates that the impact of the factors had been
differently perceived and prioritized within the two different regions which in turn are
influenced by different business conditions
More recently, Pardo and Alfonso (2016) investigated the main factors that cause
entrepreneurial failure in Colombia by applying attribution theory. Their findings cited
the main causes as financial, organizational and marketing respectively.
These previous studies mainly focused on exploring the topic from the perspective of
the entrepreneurs. Other studies relied on models to investigate the impacts of some
factors (internal and external) on the survival and failure of new ventures. One of
these studies was conducted by Romanelli (1989). She found that both the
environmental circumstances independently as well as together with organization’s
strategies impact the prospect of survival for new ventures. She suggests that
founders of these ventures can improve the chances of survival by timing the
foundation of their businesses with increasing sales in the industry as well as by
attempting to adopt strategies for acquiring resources based on the conditions of
environments.
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Similarly, a predictive model for performance of new firms was developed by Cooper,
Gimeno-Gascon & Woo (1994) based on human and financial factors. The model
measures the probability of ventures’ performance by three possible outcomes:
failure, marginal survival or high growth. By testing several variables, their findings
showed that general human capital, initial financial resources and industry specific
experience impacted the survival and growth of new ventures, whereas, the level of
management, expertise and previous experience found to have little influence.
Based on their examination of human, social and financial capitals of nascent
entrepreneurs, Liao et al. (2008) findings indicate that resources acquisition reduces
the changes of entrepreneurial discontinuance (especially financial capital).
However, not all of them are equally important particularly within different types of
industries.
As previously indicated by existing studies, entrepreneurs face many challenges
especially in the first years of venture establishment. Thornhill and Amit (2003)
confirm the claim that failure occurs due to different reasons and at different ages at
the organizational level. By studying bankrupt firms at different firm ages, they found
that young enterprises fail because of inadequate general management skills, while
mature enterprises were impacted significantly by the competitive environment which
causes their failure. They argue that young enterprises lack the necessary resources
and skills due to the “liabilities of newness” (Stinchcombe, 1965).
The literature review has revealed that the internal and or external factors can cause
venture failure and in some cases a combination of these factors are involved. It has
been observed that the financial and managerial aspects appeared more frequently
in the findings of previous research. However, it is important to note that the findings
were influenced by how failure was conceptualized by the researchers.
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2.3. Entrepreneurial failure defined
There have been various definitions offered by scholars to describe the phenomena.
Previous research also attempted to analyse entrepreneurial failure both at the firm
and individual level.
When considering the definition of failure, it becomes essential to differentiate
between closure and failure (Headd, 2003). It was emphasized by previous research
that business discontinuance can occur due to different reasons such as change of
interest (Bruno et al., 1992) which may not necessarily mean that the business was
failing.
A narrow perspective – failure due to Bankruptcy, Insolvency
Bankruptcy embodies an indication for a failing enterprise, which is costly for all
relevant stakeholders (Moulton & Thomas, 1993). Some scholars applied a narrow
definition of failure by examining bankrupt enterprises (Zacharakis et al., 1999).
Applying bankruptcy as a definition is advantageous because it is an observable and
documented event (Ucbasaran, Shepherd, Lockett & Lyon, 2013). Nonetheless,
failure as a concept is often much broader than bankruptcy, and that business could
be terminated as a consequence of minor relational conflicts between new enterprise’
members as well as the entrepreneur’s own limitation (Singh, Corner & Pavlovich,
2007).
Failure was also examined as a discontinuity of ownership due to insolvency.
Accordingly, business failure is defined as “when an enterprise has not survived the
market test” (Coelho & McClure, 2005, p.14). The market test here is explained as
when a company’s revenues do not adequately surpass its costs in a way that would
make the prolongation of an enterprise appealing then it has failed (Coelho &
McClure, 2005). Shepehrd (2003) provides a broader definition that includes both
discontinuity of ownership and insolvency;
“Business failure occurs when a fall in revenues and/or a rise in
expenses are of such a magnitude that the firm becomes insolvent
and is unable to attract new debt or equity funding; consequently, it
cannot continue to operate under the current ownership and
management” (Shepherd, 2003, p.318)
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Although these definitions provide a narrow and clear view of failure, they ignore the
non-economic factors which may have significant impact on a venture’s failure.
A broader perspective – failure as discontinuity of ownership
Singh et al. (2007) adopts an operative definition of business discontinuance based
on the view supplied by Bruno et al (1992). Hence, failure is defined not only in
terms of economic factors such as bankruptcy and insolvency, but also other causes
are examined such as termination of a business due to legal issues, personal
problems of the entrepreneur and unyielding disputes (Singh et al., 2007).
Discontinuity of ownership due to performance below threshold
Gimeno et al. (1997) argue that the application of personal performance’s threshold
of the entrepreneur allow us to widen the existing understanding of entrepreneurial
exit by taking into the account the economic performance as well as non- economic
performance causes for exit. Following this line, Ucbasaran, Westhead, Wright &
Flores (2010) consider business failure as an exit or a sale of business not only
because of bankruptcy, liquidation or receivership, but also due to the entrepreneur’s
unmet expectations. Similarly, Ucbasaran et al. (2013, p. 175) define business
failure as “the cessation of involvement in a venture because it has not met a
minimum threshold for economic viability as stipulated by the entrepreneur”. Here the
authors’ focus was on the individual level; the entrepreneur’s experience of failure
and therefore they adopted a broad yet inclusive definition that would capture that.
The way failure is conceptualized impacts the applicability of the examined research
questions and the comparability of results across studies (Jenkins & McKelvie, 2016).
Thus, it has been emphasized that researchers should apply the definition that is
most appropriate for the research question of their studies (Shepherd & Patzelt,
2017).
To serve the purpose of this research which aims to first investigate the causes of
failure from the perspective of Sudanese entrepreneurs, the definition of failure
offered by Ucbasaran et al. (2013) shall be applied. It appears to be appropriate for
the exploratory and qualitative nature of this study as it provides broader view of the
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failure with the entrepreneur being at the centre of focus. Hence, the exploration of
failure shall be carried out at both the objective and subjective individual level criteria
(Jenkins & McKelvie, 2016). The examination will be guided by the personal
performance threshold of the entrepreneur and the personal impact on the
entrepreneur. This is an attempt to understand how entrepreneurs face failure and
their perceptions of this process.
2.4. Attribution Theory
Often linked with social psychology, attribution theory as a concept is the study of
perceived causality, and refers to the perception or reasoning of cause (Kelley &
Michela, 1980). The general viewpoints are that human beings construe behaviour in
relation to its causes and these elucidations have a significant role in defining
response to the behaviour (Kelley & Michela, 1980).
The exploration of failure through attributions instead of causes allows for the topic to
be observed from the perspective of the entrepreneur (Walsh & Cunningham, 2016).
Additionally, it provides a suitable frame to explore the differences in viewpoints on
the subject of causes of failure (Zacharakis et al., 1999). Failure can potentially offer
valuable learning lessons but to enable fruitful learning would necessitate correct
attributions of the causes of failure (Yamakawa, Peng and Deeds 2010, cited in
Walsh & Cunningham, 2016).
Following this logic, the study will apply attribution theory to examine the different
perceptions on entrepreneurial failure from the perspective of both entrepreneurs
whom had experienced failure and entrepreneurs whom had been successful.
2.5. Learning from Entrepreneurial Failure
While failure is often regarded as a negative event, there has been a considerable
amount of literature that concentrated on highlighting the positive outcomes of failure
such as providing valuable learning to the entrepreneurs. Coelho and McClure
(2005) argue that the early acknowledgement of failure enable managerial resources
to be redirected towards ventures that have better likelihoods of success. Cope
(2011) views learning as a process from which the entrepreneurs face the impact of
failure and engage in a recovery and re-emergence processes. He emphasises that
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this in turn enable the entrepreneurs not only to learn about themselves and the
decease of their enterprises but also about the broader environment, the nature of
relationships and the escapade of the entrepreneurial process. His findings propose
that failure can enhance entrepreneurial preparedness for succeeding
entrepreneurial activity.
The social aspect is very relevant to this study considering that entrepreneurial failure
take place within different contexts which are often shaped by different social
attitudes and cultural characteristics. Failure can also impact negatively the personal
and professional relationships of the entrepreneurs. For example Cope (2011) notes
the downfall of marriages consequent to failure. The entrepreneurs can also suffer
from the stigma attached to venture failure. Therefore, how it becomes vital to
understand how entrepreneurs are impacted by the social aspects consequent to the
failure.
Another aspect that was examined was the psychological cost of the failure. The
assessment of literature in this topic proposes mainly two interconnected
psychological costs: emotional and motivational which are related to the
entrepreneurs’ experience of venture failure (Ucbasaran et al., 2013). Although it has
been emphasized repeatedly by scholars that venture failure can provide valuable
opportunities for learning (McGrath, 1999; Singh et al. 2007; Liao et al. 2008), failure
can also triggers negative emotions such as grief, anger, depression (Shepherd,
2003; Cope, 2011) which can hinder learning from failure.
Singh et al. (2007) suggest that while learning and coping from entrepreneurial failure
take place broadly in four aspects of failed entrepreneurs’ lives, including economic,
social, psychological, and physiological, the economic aspect is most prevalent. This
indicates that a more balanced approach on how the other aspects are affected is
needed since entrepreneurial failure affects the entrepreneurs both on the personal
and professional sides. A couple of studies also examined how individuals’
differences can influence the psychological responses to failure. For example,
previous experiences of the entrepreneurs may impact how they respond to business
failure in relation to the psychological cost of failure (Cope, 2011).
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3. Methodology
3.1. Research approach
The chosen method for this study is an exploratory and qualitative approach, as there
is a lack of knowledge on the topic of entrepreneurial failure within the Sudanese
context. The study seeks to explore the factors that cause entrepreneurs to fail in
Sudan. It is worth mentioning that this thesis does not focus on testing the
relationship between two or more predetermined variables nor does it intend to test
theory, but rather aims to explore and develop an in-depth understanding of the
phenomena as perceived by entrepreneurs. Hence, the author aims to analyse and
interpret the stories of failure as told by interviewed entrepreneurs. For this purpose,
the author used a hermeneutical approach to advance meaning through the
interpretation of texts, being here the use of interviews.
3.2. Data Collection
The research design is based on two qualitative methods of data collection. The
primary data which consists of interviews with seven entrepreneurs and the
secondary data taken from published articles, books and online sources. Interviews
are a valuable way to enrich data. Phone interviews were conducted from Germany
with seven Sudanese entrepreneurs, including four that experienced entrepreneurial
failure and three that experience entrepreneurial success. The interviews were
conducted in Arabic—the official language spoken in Sudan—to ensure that
interviewees have a complete understanding of the context and are able to articulate
their perspectives.
The interview questions were formulated as open-ended manner that would be less
intimidating and encouraging for the entrepreneurs, given the sensitivity of the topic.
For example it included questions like “tell me about your experience of
entrepreneurial failure”. After transcribing and recording the interviewees, the author
translated the transcription to English. Furthermore, a hint of bias may become
apparent, particularly since interviews were carried out remotely. Although individual
perspectives are subjective, they are an essential testimony to the entrepreneurial
experience.
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3.3. Case Study as a Strategy
The approach of theory building from case studies can be a useful and relevant
research strategy. Eisenhardt & Graebner (2007, p. 25) elucidate a main ground for
its popularity;
“It is one of the best (if not the best) of the bridges from rich
qualitative evidence to mainstream deductive research. It emphasis
on developing constructs, measures, and testable theoretical
propositions makes inductive case research consistent with the
emphasis on testable theory within mainstream deductive
research”.
Case study research depends on theoretical sampling, which aims to select cases
that are likely to repeat or extend growing theory (Eisenhardt, 1989). Following the
approach of multiple cases, allows for comparison, which can explain whether an
emergent result is merely eccentric to a single case or consistently simulated by a
number of cases (Eisenhardt, 1991). In addition, multiple cases allow for a wider
examination of research questions and theoretical explanations (Eisenhardt &
Graebner, 2007). Hence, following this line of reasoning, the sample selection in this
study was not random but rather focused on selecting specific cases that can be
extended to a broad range of organizations in Sudan.
The number of cases selected was seven, a sample that is often considered to work
well (Eisenhardt, 1989). It was done through the author’s professional network. Semi-
structured interviews were scheduled with seven Sudanese entrepreneurs; four of
them have failed or owned unsuccessful ventures. The remaining interviewees were
considered to be successful entrepreneurs and were asked to provide their
perspectives on the main causes of entrepreneurial failure in Sudan. The author aims
to explore broadly the interviewees' diverse perceptions of entrepreneurial failure. A
comparative study of the interviewed entrepreneurs' perspectives on the main causes
of failure will offer an intimate and nuanced understanding of the topic.
20
The size of the ventures founded by the interviewees ranged from micro to small
sized companies, consisting of about six to fifty employees in total. All the
entrepreneurs have undergraduate degrees, with some having post-graduate
degrees as well. The age of the entrepreneurs ranged between 34 – 60 years old.
The sample included in total six men and one woman. The interviews lasted between
15 to 60 minutes. Due to difficulties associated with COVID-19 travel restrictions, the
author was only able to arrange for phone interviews instead of face-to-face
interviews. Nonetheless, the author believes that it did not affect the quality of
interviews and found the entrepreneurs to be open to sharing their experiences and
stories just as much.
3.4. Data analysis
The author utilised a two-step system to analyse the data. The first step was within
case analysis, which involves detailed descriptions for each case. This method
enables the distinctive features of each case to develop—prior to proceeding—as to
generalize patterns across cases (Eisenhardt, 1989). The second step was to look
for cross case patterns by selecting a number of cases, and comparing similarities
and differences within, then interpreting the data in divergent ways to arrive to a
better understanding.
21
4. Analysis (Findings)
This section will present the main findings of the cases that were studied. The
interviewees’ sample included a combination of entrepreneurs whom have
experienced success as well as failure. They were asked to provide their
perspectives on the main causes of failure for entrepreneurs in Sudan. The
participants worked in different industries including; technology (IT, ride sharing app),
education (marketing and consulting), exterior decorative stones business, finance,
and food and beverage.
The goal of the study was to identify the main causes of failure from the perspective
of the entrepreneurs. Internal factors related to the firm, may include poor
management, lack of experience or skills which are under the influence of the
entrepreneur. External factors occur outside the organization and are embedded in
the general environment which the entrepreneurs have no control over.
4.1. Why we failed – as perceived by the entrepreneurs
The sample included four entrepreneurs who were asked to provide their
perspectives about the main factors that contributed to the failure of their ventures.
The main causes of failure were identified based on the ranking given by the
entrepreneurs, including most affecting to least affecting factors. The frequency of
citation was also accounted for, since some of the entrepreneurs did not prioritize the
factors, but mentioned all of them together.
The entrepreneurs attributed the causes of entrepreneurial failure in Sudan to a
combination of internal and external factors, which were mainly (a) economic
situation (b) product/service related issues (c) managerial/organizational skills (d)
lack of funding/financial difficulties and (e) legal factors. In general, the external
factors impact on the failure was cited much more than the internal factors as
attributed by the entrepreneurs.
22
Table 1: Characteristics of the failed Entrepreneurs
Ent. Background Sector Duration of the business
1 He was the co-founder for tech company
focusing on University Industrial collaboration
projects (UIC)
Tech 3 years
2 He is the co-founder of company that
specializes in restaurant franchise
management
Food and
Beverage 9 months
3 He was the co-founder of a company
specializing in exterior stone decorations for
buildings
Exterior
decoration 1.5 years
4 He was the founder of a company that
provides financing through installment for
home appliances, and automobiles
Finance 6 years
Table 2: Causes of Failure (failed entrepreneurs)
Factors Type No. of repetition
Economic situation (fluctuations in exchange rates, customers -
low income)
External 4
Product/service issues (lack of availability of material, difficulties
in transportation, lack of service culture, new concept)
External 3
Managerial skills (lack of experience)/organizational issues Internal 2
Lack of funding/financial difficulties (delayed in customers’
payments)
External 2
Legal factors External 2
Lack of support /low demand External 1
Competition External 1
Political factors External 1
Cash flow problems External 1
Complex process Internal 1
23
4.2. General Perceptions on the causes of entrepreneurial failure
The second group interviewed included three entrepreneurs who have experienced
success in Sudan and they were asked to give their perspectives on the main causes
of entrepreneurial failure in Sudan.
The results show the main causes of failure a combination of internal and externals
factors as follow (a) economic situation, (b) lack of funding and (c)
managerial/organizational issues
Characteristics of the entrepreneurs
The second group of participants consisted of entrepreneurs who are also co-
founders of their businesses, and are working in different sectors with the age of
business ranging from two to four years.
Table 3: Causes of Failure (successful entrepreneurs)
Factors Type No. of repetition
Lack of funding External 2
Economic situation (fluctuations in exchange rates,
customers - low income)
External 2
Legal factors External 1
Managerial /organizational issues ( Shareholders’
disputes, lack of experience)
Internal 2
Lack of support /low demand External 1
Political factors External 1
Product/service issues (lack of availability of material,
difficulties in transportation, lack of service culture, new
concept)
External 1
Motivation Internal 1
The mindset of the entrepreneur Internal 1
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4.3. Causes of failure
This section will give an overview of the main causes of failure as perceived by the
entrepreneurs. As previously mentioned, the main factors contributing to the failure
included economic situation, product/service related issues,
managerial/organizational challenges and lack of funding and financial difficulties.
Other factors that were frequently discussed by both group as impacting
entrepreneurial failure, include lack of support for the entrepreneurs, the legal
environment and the expectations of the entrepreneur.
a) Economic situation
The influence of the economic crisis was undeniably acknowledged by the majority of
entrepreneurs as a major reason for entrepreneurial failure in Sudan. A number of
entrepreneurs highlighted how their businesses were negatively impacted by the
instability in the foreign currency exchange rates and the devaluation of the
Sudanese pound, especially since their businesses relied on importing materials or
conducting oversea transactions that were necessary for the activities and operations
of their businesses.
One entrepreneur referred to the situation as a case of bad luck, considering it the
main cause for the venture’s failure. The entrepreneur explains:
“At that time, we were unlucky. Because for many years the foreign currency
exchange rate was stable. When we started the business, the fluctuations of foreign
currency rates started …if the exchange rate was stable, the business would have
been successful.”
The political unrest from the recent uprisings in Sudan was also cited as having
affected the entrepreneurs negatively and resulted in interruptions in their business
activities. For instance, the ride sharing business which relies on the use of mobile
application and the availability of internet connection was mentioned to have been
impacted by the internet blackout which lasted for a number of weeks during 2019.
“One of the major factors that impacted companies, especially during the revolution
period, was the instability in the economic situation in Sudan. One time they [the
government] shutdown access to the internet, another time they restore access to the
internet.”
25
Another economic factor that was cited by almost half of the entrepreneurs was the
“customers and the market”, taking into account the economic circumstances of the
population. According to the World Bank’s country classification (2019), Sudan's
economy is designated as one of the low income economies. A number of
entrepreneurs emphasised the fragility of the economy, and a constant occupation
with the devaluation of the Sudanese pound. Careful attention was given to the
economic situation, as entrepreneurs tried to offer prices that were considered
reasonable in the market. The entrepreneurs also gave an indication of how their
sales volume was impacted, and spoke of their struggle to strike the right balance
between generating profits, while maintaining their customers base. The interviewees
elaborate on this dilemma:
“Most people do not have high income… so we wanted to make the prices lower.”
“Customers — when you increase your prices they come to you saying everything is
increasing, the petrol, the bread.. we don’t need you.. so our prices should be in
alignment with the current economic situation.”
Other aspects related to the economic scene, include difficulties in retaining
employees, as they are impacted by the economic circumstances and perceived to
seek other employment opportunities that would offer them the slightest improvement
in income.
“It’s very hard to retain staff…forget that your material is getting expensive so you
have to increase your prices, but even your employees…especially in the food
industry…the turnover is very high… no matter what you do.”
The downturn of the economy was the most influencing factor causing failure for
entrepreneurs in Sudan. The uncertainty and constant changes in the market and the
general environment conditions presented many challenges for the entrepreneurs.
For some entrepreneurs, it was not possible to overcome these challenges that
caused them to fail. Whereas other entrepreneurs expressed that they did not see
any point in continuing with their business, due to lack of experience in the sector, as
well as lack of profits. Hence, for some the decision to opt for a venture exit strategy
was perceived as the best option. One entrepreneur concluded: “We decided to close
the business..we did not want to get tired for nothing.”
26
b) Product/Service related issues
More than half of the Interviewed entrepreneurs cited challenges related to products
or services offered by their business as the second reason for a failed venture. For
example, problems related to the availability of required material for business
activities, transportation issues and varying costs from one city to another, in addition
to the impact of other external factors, such as weather conditions. Other issues
included are “service” related, the lack of service culture in the food and beverage
sector in Sudan. Lastly, other challenges were mentioned, including introducing new
ideas and concepts to the market, yet perceiving the Sudanese environment as not
easily open to such initiatives. Several entrepreneurs elaborated on this point:
“The ecosystem in Sudan is not supportive of entrepreneurs, especially if it’s an idea
that needs time… all the businesses that succeed here, are the ones that are directly
with customers (B2C) and not business to business (B2B).”
The lack of training and experience in some industries—for example the food and
beverage sector—was perceived as an additional factor contributing to
entrepreneurial failure in Sudan. This was linked directly with the Sudanese
character, which was perceived as lacking a sense of service and the necessary
skills needed to excel in the mentioned sector. One entrepreneur went so far to
conclude that the “..service culture in Sudan… it does not work.” Khattab et al. (2017)
cites managerial capabilities as a major factor for successful businesses in Sudan.
This provides another indication of how managerial skills are regarded as being
important for the success of the entrepreneurs.
Sudan’s weak infrastructure was also cited as an additional challenge. For instance,
it was often difficult to find reliable transportation means from other cities to the
capital city, which impacted employees’ presence at work. One entrepreneur
explained that it was a struggle to secure the required materials for the business
activities, he elaborated:
27
“Sometimes there were external circumstances…for example in the autumn they
were unable to transport the material…that we did not know.”
These factors were considered to have a major role in business failure as attributed
by the entrepreneurs. It touched upon on a number of social and cultural aspects of
the entrepreneurial environment in Sudan as well as the problems related to the
basic infrastructure.
c) Managerial/organizational skills Internal factors cited by the interviewees as causes of entrepreneurial failure are lack
of managerial skills, organizational problems, operation-related issues, lack of clarity
on roles and responsibilities of employees, and misalignment of the viewpoints of the
founders, as well as lack of experience. The entrepreneurs were able to
acknowledge openly their shortcomings through their own reflections. The internal
factors impact on a business’ outcomes can be as significant as the external factors.
Problems related to management, lack of skills or even internal disputes can be
damaging and lead to further negative consequences on businesses. Therefore,
being able to acknowledge the internal causes of failure would enable the
entrepreneurs to reflect and learn from these experiences, particularly since they are
able to influence and control these factors directly.
From the below quote, the entrepreneurs perceived the lack of alignment between
the founders on the strategic direction of the company was a key reason for the
entrepreneurial failure;
“One of our failures is associated to the internal processes. There was a dispute
between the viewpoints of [the founders].”
Lack of industry experience was also cited as an internal impacting factor;
“From a business perspective, it’s a bit tough managing full scale service big
restaurants something that involves service, big spaces, chairs and furniture, indoor
and outdoor. It’s not easy…our culture is not a service culture in terms of employees,
we don’t have a sense of service…we do not know how to smile to customers we do
not know how to sell…”
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d) Finance/Lack of Funding
Finance (including lack of funding/difficulties in obtaining finance) was considered to
be a major factor for failure by a number of entrepreneurs. This finding is consistent
with GEM Sudan (2018) report which cited financial difficulties as a main reason for
entrepreneurial exit in Sudan. Some of the entrepreneurs interviewed felt
handicapped by the shortage of resources due to lack of funding which they felt
obstructed their business growth and its continuity.
“You feel like you want to make many things but at the same time you have very
limited resources which is one of the things that frustrates the entrepreneur”
Additionally, finding an investor that was willing to provide funds was another
challenge mentioned by the entrepreneurs. A detail worth mentioning concerning
investors that emerged from the perspective of some of the entrepreneurs was the
mindset of the investor, who was believed to be incapable of understanding the value
of an idea or a brand (including tech related innovations). Furthermore, the investor
was perceived as motivated by a short term investment perspective “quick return”
rather than providing long term support for the entrepreneur.
“The business that involves ideas needs patience and long investment ... at the end
the [investor] was inpatient and we were not able to move forward because he had a
modest capital and could not continue.”
“Another problem that [provision of] capital here in Sudan, sometimes it needs to
[be related to]something that is tangible, for example if you bring to [the investors]
sesame they get into business with you, but when you bring business related to
intellectual properties and ideas they hesitate to enter into [such businesses].”
29
e) The legal factors
The legal environment in Sudan was criticized by almost half of the entrepreneurs
who mentioned the absence of rules and regulations that support the entrepreneurial
environments in terms of policies and exemptions, lack of notification on the constant
changes of the rules and how the current policies are unfit to address the
entrepreneurs’ needs. The world’s bank doing business report (2020) reflects this
weak legal infrastructure, with Sudan standing on the bottom of the rankings in
comparison with the other economies particularly in the areas of starting a business,
paying taxes and getting credit. This implies that entrepreneurs have to go through
complex procedures that are costly and time consuming for them which provides an
additional burden that they have to deal with beside the other challenges they face.
“Policies in Sudan do not support the entrepreneurial scene at all because they are
outdated…people face a lot of challenges not just in registration but also how they go
about their taxes, the rules and laws of the country.”
“You are treated just like any other big organization.”
f) Lack of support for the entrepreneurs
A very important theme that emerged from the interviews was the frustration felt by a
number of the entrepreneurs due to the lack of support from the surrounding
environment including the society (friends and family) and the government which left
some of them feeling “devastated” and “discouraged”. Similarly, Gangi and
Mohammed (2017) note the impact of the Sudanese society in creating poor
entrepreneurial environment in two ways first by the preference of families for their
children to earn education/degrees through schools and universities to secure jobs in
either the public and the private sectors and the second way through the practice of
imitation as a strategy for avoiding risk. This has resulted generally in a society that
does not adapt easily to new ideas, new approaches of doing businesses and hence
this often leaves the entrepreneurs struggling to make it in a hostile and obstructive
environment. As a consequent, this could potentially impact the entrepreneurs
psychologically and influence the outcomes of their businesses.
30
To be an entrepreneur in Sudan, one has to have sufficient strength to fight the
negative atmosphere, as one entrepreneur expressed;
“You believe in yourself, you have to support yourself, but this comes on the expense
of your family, you are unable to see them, they start to tell you things that could
psychologically affect you.… you find your friends questioning your [choice] telling
you that it would have been better for you to accept a job [position] for a better salary,
others telling you that you are wasting your time and that what you are doing is
nonsense….you face many negativities negative energy that you need not to give in
to.”
It was also claimed by a number of entrepreneurs how the government does not in
truth appreciate and encourage new ideas, despite many efforts made by
entrepreneurs to implement new ideas tackling real social problems that are existing
in Sudan. One entrepreneur describing his experience with governmental officials;
“The government is not helping, they do not initiate, that was one of the things that
devastated us that we were running after the ministries, the governmental
universities and the interaction was weak.”
g) The expectations of the entrepreneur
One of the internal factors impacting the entrepreneurial failure which was cited more
than once related to the expectations of the entrepreneur who were perceived as
anticipating “quick results” or “quick return” from their entrepreneurial activities. This
is turn can result in the entrepreneur feeling disappointed that he or she had failed.
A new venture especially at the beginning of its establishment might have to deal
with many challenges including being a new comer to the market. Therefore, it is
unlikely that it would be able to generate immediate earnings and develop rapidly.
One entrepreneur explains;
“People think that once they have entered into a project or [business] that they have
become entrepreneurs… that the next day they are able to make profits right away
and that the business will grow quickly.”
Also, having to give up a stable income from a regular job, and moving on to become
an entrepreneur in a volatile and unstable economy made some entrepreneurs
31
anxious to succeed, and raised expectations that may not be realized as expressed
in the following quote;
“Here [in Sudan]..we still look at the money more than anything else, if you start with
an idea for six months or a year and it does not generate revenue, it will be
considered as the biggest failure to you..especially if you are moving from one
situation [from being employed] to another[entering the market as an entrepreneur].”
One entrepreneur when asked about the learning outcome from his entrepreneurial
failure, he spoke of the unmet expectations from his business, which consequently
led him to shutdown the company. Similarly, the GEM Sudan report (2018) also cites
low profits as a main reason for business discontinuity in the country. The
interviewee reveals:
“From that experience, I came to realize that I should not get involved in a complex
business with low returns... there are [businesses] that are easier and can generate
higher returns with the lowest effort.”
4.4. Lessons Learned
The entrepreneurs were asked to share what they learned from their entrepreneurial
failure experiences. Their responses as frequently mentioned included the
importance of having a supporting network, the choice of partners, lack of
experience/expertise, and the business model of their companies.
One entrepreneur when reflecting on his own experience mentioned the
psychological impact of failure and how he felt “depressed” when the business made
little gains. The takeaway from that experience was that he would only get involved in
a less risky type of business.
“I learned that I should work in a more guaranteed business …because when I made
enormous efforts, there were only low returns. This led me to feeling depressed.”
A number of entrepreneurs also highlighted the biggest learning lesson for them was
who they chose as a partner or investor, referring to the risk associated with entering
into business with friends “personal relationships”, as well as someone who might
have a different viewpoint on the strategic direction of the company.
32
“[I learned] the most important factor is your partner. That means you need to have
an alignment with your partner in your idea for example…with my partner, I was
always thinking long term [perspective], while he was [focusing on] the short term.”
“The first and biggest thing I learned is that [entering into] business with friends is the biggest risk.” Other learning outcomes related to difficulties in establishing successful businesses
in Sudan, include corruption and political factors. These two factors can have a
powerful impact on the companies’ activities. Furthermore, it was indicated the
Sudanese environment generally does not support and adapt to new ideas easily
which ultimately lead to their failure.
“Lesson learned - if you want to do business in Sudan, you need [political] support,
network. The corruption rate is high, and new ideas do not grow in Sudan.”
The previous quote highlights corruption as an existing issue that is impacting
businesses’ activities in Sudan. Similarly, corruption is considered as one of the top
three factors—along with economic uncertainty and political instability—hindering the
development and investment of private sector enterprises in Sudan (The World Bank,
2009).
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5. Discussion
The previous section presented the main findings of the study. This section will
discuss the implications of the results. This study was guided by the main research
question: what are the main factors that cause Sudanese entrepreneurs to fail?
As indicated in the analysis section, the main causes of entrepreneurial failure
involved a combination of internal and external factors. Cited internal factors, include
managerial and organizational issues, as well as the entrepreneur; unrealistic
expectations. The Sudanese economy, product and service issues, lack of finance,
lack of support and the legal environment were some of the reported external factors
impacting start-ups in Sudan.
The study also tried to answer the following question: What are the lessons learned
from entrepreneurial failure as perceived by Sudanese entrepreneurs?
The entrepreneurs offered varying and similar reflections on the learning outcomes
from their failed business experiences. Their responses highlighted several
challenges that have affected their businesses. For example, interviewees cited new
ideas and concepts of businesses are not easily accepted and difficult to implement
within Sudan. Other learning outcomes were noted, including the importance of
having social support and a network, the choice of partners and avoidance of risky
businesses.
5.1. The dominance of the external factors
The results show that entrepreneurs generally attribute the failure of their ventures to
a combination of internal and external factors, with the external factors weighing
more on the entrepreneurial failure. This finding comes in contrast with Zacharakis et
al. (1999) who found that entrepreneurs attributed the causes of their failures to the
internal factors more than external factors. Perhaps this difference can be explained
by looking at the general environment in Sudan. Entrepreneurs had a multiplicity of
external problems that had to be overcome, ranging from economic, political, to legal
aspects that are out of their control. The entrepreneurs considered these conditions
as major factors in business failure. Therefore, it is not surprising that the
entrepreneurs attributed the causes of failure mainly to the external factors. However,
this may also indicate that the entrepreneurs may not recognize or are unaware of
34
their shortcomings. This could have further exacerbated their situation, and likely to
be a direct cause of failure.
In the study, the entrepreneurs tended to attribute external forces as mainly
contributing to their failures, which would indicate a possible bias in their perceptions.
In social psychology, attributions are often thought to be bias or in error. Ross (1977)
refers to the concept of a fundamental attribution error, which is explained by the
people’s tendency to overrate the significance of personal factors and underestimate
the impact of environmental factors when explaining the behaviour of a person. In
other words, people tend to attribute external factors to justify their own
shortcomings, while attributing the shortcomings of other people to internal factors.
However, this study also asked the entrepreneurs who experienced success about
their perceptions on the main causes of entrepreneurial failure in Sudan. The results
showed that they attributed both internal and external factors as causing failure.
Similar to the first group, the citation was much more on the external factors.
Similar to the Sudanese context, Pardo and Alfonso (2016) found that the finance
and organizational/managerial factors were two of the main factors for business
failure in Colombia. However, in this study, these factors did not have the same
priority. Other external factors, such as an unfavorable economic situation and
product/service related issues were considered to have bigger impact on
entrepreneurial failure in Sudan.
The major external causes of failure as attributed by the entrepreneurs include an
unfavourable economic situation, product and service related issues, finance, lack of
support and an inadequate legal environment. Arasti et al. (2014) findings showed
comparable results to the main causes of business failure in Iran. It included
inappropriate policies and economic conditions, and various challenges due to an
unstable economic environment, such as embargoes and high inflation rates. The
findings suggest that Iranian entrepreneurs face many challenges due to the external
environment, ranging from political, legal, economic and cultural factors.
35
The economic circumstances in Sudan have had a significant impact on the
entrepreneurs’ businesses. Most pertinently, the last decade witnessed high levels of
inflation and sharp currency devaluation. Consequently, this affected entrepreneurs
who cited the unstable economic conditions as the main cause of entrepreneurial
failure.
Figure 1: Inflation rates in Sudan from 1980 to 2020
Source: IMF
According to Figure 1, the inflation rate has been rising significantly from 2010
onwards, reaching 81.3 percent by 2020.
How can entrepreneurs operate in a troubled economy and not fail? Liao et al. (2008)
suggests that nascent entrepreneurs can improve their likelihood against business
discontinuance by acquiring resources, in particular financial capital. However, this
may not be easy for entrepreneurs in Sudan. The lack of funding opportunities and
difficulties in accessing finance continues to be a major obstacle for many
entrepreneurs and involuntarily a cause for entrepreneurial failure. Other studies that
investigated the causes of entrepreneurial failure (Bruno et al., 1987; Pardo &
Alfonso; 2016) also highlight finance as a major factor for business failure.
This finding is of relevance for the policy makers who need to formulate appropriate
policies and programs that allow entrepreneurs to acquire necessary resources for
the sustainability of their business.
36
Other external causes related to product/service issues, such as lack of service
culture, difficulties in transportation from one city to another (in the autumn season
for example), and cultural attitudes towards new ideas and concepts. One could
argue that all these challenges could have been tackled internally by the
entrepreneurs. For example, through proper research market, assessing the situation
or testing public appeal of new ideas and concepts. However, it is often difficult for
entrepreneurs to predict the outcomes especially if they are in an experimental stage
in the market. It becomes difficult to accurately evaluate the market particularly in a
volatile environment like Sudan. One entrepreneur explained how the market reality
was completely different from what he had anticipated; “We found that all the market
estimates were incorrect”.
The legal environment was also perceived as weak by almost half of the
entrepreneurs interviewed who referred to the complexity of procedures, inadequacy
of regulations and laws, and lack of transparency. These findings are consistent with
Gangi & Timan (2013) who found that the entrepreneurial environment including the
legal, administrative cultural, social aspects are perceived by entrepreneurs as poor.
However, while in their study the economic aspect was considered to be fair, this
study highlights economic circumstances as unfavorable or harsh as perceived by
the majority of the entrepreneurs.
5.2. The perceptions in comparison
The two groups examined here—the successful and the failed entrepreneurs—
showed similar results, as they tended to attribute entrepreneurial failure mainly to
external factors rather than internal factors. However, they differed in their
prioritization of the factors.
For example, those who failed considered the economic situation, product/service
issues, managerial/organizational challenges, and lack of funding to be the main
causes of failure, respectively. While those who have had successful ventures gave
more weight to the following factors: the economic situation, lack of funding and
managerial/organizational issues in this order.
Overall, the general perceptions tended to attribute a combination of external and
internal causes, with the external factors as the main reasons for the failure. There
37
was no major difference in the perceptions of these entrepreneurs, which may
suggest that these factors are common challenges that Sudanese entrepreneurs face
in the external environment.
5.3. Are the internal factors equally important?
The results of the study show the external factors as having more impact in causing
the entrepreneurial failure. Nevertheless, previous research has highlighted how
internal factors, such as lack of skills (Arasti, 2014) are regarded as a major aspect
for business failure. Unlike mature enterprises, new ventures often fail due to the lack
of general managerial skills (Thornhill & Amit, 2003). In this study, several
entrepreneurs recognized that internal factors like managerial issues, lack of
experience, incoherent internal structure and the competing roles of several
founders, as having impacted the outcomes of their ventures. This shows that they
were able to admit their own mistakes and reflect on the internal influences on their
ventures. As Zacharakis et al. (1999) note in their findings, the high
acknowledgement of entrepreneurs of the internal factors causing their business
failure indicate that they are able to evaluate the situation realistically and not
jumping quickly to blaming external factors. They suggest that as a result, the
entrepreneurs may be more effective in correcting issues, at a minimum in their
future enterprises.
In Sudan, entrepreneurship as a concept is still relatively new and there are no
specialized programs that teach people how to become entrepreneurs. Hence this
finding is of particular interest to the educational institutions, which need to address
the need for educational programs and trainings that are tailored for aspiring and
current entrepreneurs. Programs may focus on equipping them with the necessary
skills, like managerial, project design, and financial skills that would prepare them for
the challenges and demands of launching and running a start-up.
38
5.4. What have the entrepreneurs really learned?
As suggested from previous research, failure can provide valuable learning sources
for the entrepreneurs, and may potentially contribute to future successful ventures.
The study asked the entrepreneurs to share their perceived learning outcomes .The
first group is comprised of those who have experienced entrepreneurial failure. They
gave their reflections on the lessons learned from their different experiences. The
responses varied and reflected the impact of the internal forces as well as the
external forces resulting in the collapse of the venture.
Learning lesson 1 - only enter into guaranteed businesses
This learning outcome refers to how some entrepreneurs in Sudan prefer risk
aversion when it comes to entering into businesses. It is an indication of
entrepreneurs’ future direction who now considers high-risk in business as
unappealing and could yield negative returns. Therefore, many entrepreneurs in
Sudan prefer imitation practices (Gangi & Mohammed, 2017) of other businesses
over innovative ideas. On the one side, this is a good strategy in the face of
uncertainty, but on the other hand, it hinders creativity and innovation in the
entrepreneurial scene within the Sudanese context.
Learning lesson 2 - new ideas or concepts do not grow in Sudan
A number of entrepreneurs said it was difficult to implement unfamiliar or new
concepts in Sudan, and that it needed time to be accepted and implemented.
However, there was no discussion with regards to the general fit and applicability of
new ideas or concepts within the Sudanese environment. However, it might be the
case that some ideas are simply not practical or difficult to implement due to the lack
of resources and inadequacy of the infrastructure in the country.
Learning lesson 3 - the choice of partner and/or investor is important
Some of the entrepreneurs also mentioned how choosing the right partner or investor
was the biggest learning lesson for them. Internal issues that occurred due to
shareholders’ disputes, misalignment of the partners’ views (short term vs. long
terms perspectives) and investors influence in decision making were a direct result of
this lesson. Having gone through such experiences entrepreneurs are likely to reflect
carefully on these choices in the event that they enter into subsequent ventures. This
39
is an important learning outcome, considering that previous research reported
shareholders’ disputes as a cause for business failure and discontinuance.
Learning lesson 4 - entrepreneurs need a network and support to do business in
Sudan
It was also perceived that having a network and political/social support as necessary
for conducting business in Sudan. Corruption is prevalent in the country, and may
impact negatively the outcomes of new businesses. From these reflections, it was
observed that those entrepreneurs who tended to blame mainly external factors
articulated that it was not possible for their ideas to succeed without other favourable
external factors. These factors include culture, economy, politics or network. It was
also perceived that it was better to avoid risky activities and only enter into
guaranteed businesses.
Other entrepreneurs who have attributed both internal and external factors as
causing venture failure showed openness in admitting their own shortcomings, such
as acquiring the appropriate skills, and choosing the right partner and investor.
Yamakawa & Cardon (2015) examined the impact of failure on perceived learning
and found that the internal unstable attributions of failure produce better perceived
learning, while external unstable attributions produce a lesser amount of perceived
learning. Accordingly, this would suggest that the entrepreneurs in this study who
attributed internal factors as causing the failure are likely to learn more than those
who attributed their failure mainly to external factors. It is important to note that this
study did not focus on examining the relationship of failure and perceived learning.
Nevertheless, it was interesting to see how each entrepreneur associated their
experience of failure to their perceived learning outcomes.
5.5. The impact of failure
The existing literature also refers to the social and psychological cost of failure which
can negatively impact the entrepreneurs and thus hinder learning from the failure.
Some entrepreneurs expressed feeling “anxious”, “depressed” and “devastated”
when their businesses collapsed. Similarly, Shepherd (2003) and Cope (2011) note
that failure may triggers negative emotions, such as grief and depression, which in
turn can obstruct learning from the failure.
40
Entrepreneurial failure can ruin previous friendships between partners. These
personal and work-related tensions and disputes consequently were perceived to
have significantly impacted the businesses and contributed to their downfall.
Furthermore, the absence of fixed income as a result of becoming an entrepreneur
was suggested to have applied more pressure on the entrepreneurs, especially if
they are the main providers in their families. This in turn made them more anxious to
succeed quickly. Lastly, the entrepreneurs also felt let down by society due to the
general lack of support for entrepreneurs in the country. This indicates that
entrepreneurs that had short-lived businesses are more likely to become vulnerable
to social stigma, which can arise from business failure.
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6. Conclusion
6.1. Summary of findings and recommendations
“Despite the failure of the experience, in my opinion it succeeded because as a
person with an idea or a message, it is not necessary to reap the reward of the
success, as much as it is necessary that the idea you believed in is accepted and
spreads within the society.”
This quote from one entrepreneur who was part of this study illustrates how
entrepreneurial failure is not necessarily regarded in a negative light and can foster a
positive learning experience that may potentially contribute to future successes. The
objective of this thesis was to investigate the main causes of entrepreneurial failure in
Sudan from the perspectives of the entrepreneurs and contribute to the limited
research carried out in this field with new insights. The main causes of venture failure
included economic instability, product/service related issues,
managerial/organizational challenges and legal factors. Other relevant factors were
lack of funding/financial difficulties and lack of support for the entrepreneur.
The business environment continues to be very challenging for entrepreneurs in
Sudan, as a result of decades of political unrest, international isolation due to
economic/political sanctions and economic downturns. The basic infrastructure
remains underdeveloped with many challenges to name, a few related to electricity,
transportation and education.
The economic situation which was found to have the greatest impact on the
entrepreneurs’ business continuity and growth needs to be addressed by the
government. Problems like high inflation rates, exchange rates fluctuations and the
existence of multiple currency practices. The central bank’s official exchange rate
and parallel market rates increased the risk of corruption by boosting rent-seeking
and excessive speculation, as a result slowing the economy and enabling income
divergence (IMF, 2020). Entrepreneurship can provide a valuable source to tackle
social problems that exist in the society as well as provide means for reducing
poverty, creating employment opportunities and economic development. Several
42
reforms need to be put on the macroeconomic and microeconomic levels that would
also offer support for the entrepreneurial environment.
The second cause of failure is product and service related, and was impacted by
various factors, such as difficulties in securing the material needed for business
activities, difficulties in transportation between different cities in Sudan. Other issues
were cited by the food and beverage entrepreneurs, such as “lack of service culture”,
which was branded as a Sudanese cultural problem. Entrepreneurs in Sudan
continue to operate in a weak and undeveloped infrastructure, which directly affects
their businesses. Government authorities need to improve the general infrastructure
to enable entrepreneurs to develop and sustain their businesses. Moreover,
vocational training initiatives are needed to overcome the lack of skills in certain
sectors, such as the food and beverage sector.
Finance was another major factor considered to cause entrepreneurial failure as
indicated by the findings of the study. Similar findings were also seen in the previous
literature (Pardo & Alfonso, 2016). The lack of funding and difficulties in accessing
finance continues to be a major obstacle for the Sudanese entrepreneurs. According
to GEM Sudan (2018), the country recorded the highest level of informal funding—
mainly from family sources—in its zone, with about 18 percent of the studied adult
population stating that they had operated as informal investors in the previous three
years. While this provides a good indicator for the entrepreneurs who are accessing
support from social channels, the access to formal finance, including banks and
private funding, remains very limited. To enable entrepreneurs to develop and
maintain their businesses in Sudan, policymakers need to improve accessibility of
finance through banks and the private sector. They can also introduce policies and
financing schemes that support micro and small-sized companies, notably in the first
years of their establishment. Microfinance can also offer valuable resources to the
entrepreneurs, provided they are available to access it and benefit from these
resources.
Some of the internal factors that contributed to the failure of entrepreneurs in Sudan,
included lack of knowledge in regards to setting up a sound business model and
formulation of strategy, as well as lack of experience and weak organizational
structure. Timan & Gangi (2015) studied the state of entrepreneurial education in
43
Sudan by examining the five largest public universities in the country. Their results
showed that courses on entrepreneurship are scarce and rarely offered by public
universities in Sudan. Hence, governmental and educational institutions can
influence and enhance knowledge by introducing entrepreneurship as a fundamental
subject in the curriculum of secondary schools and universities.
Based on existing research and the findings of this study, it is apparent how having
the right set of skills and knowledge are important for sustaining and managing
successful businesses. A number of the entrepreneurs in the study expressed their
disappointment in the rejection of new ideas and initiatives, and the lack of support
and encouragement from government officials. Therefore, it is crucial for the
government to foster training and more importantly enhance the overall
entrepreneurial environment in a manner that would encourage creativity and
personal initiatives. The negative social and cultural attitudes towards entrepreneurs
and entrepreneurship cannot be changed without the government making real efforts
and prioritizing entrepreneurship as the way forward to contribute to the development
of economy. By fostering a positive entrepreneurial environment, this could
potentially enable a better involvement from the private sector in encouraging and
supporting the entrepreneurs not only with capital (investments) but also with
mentoring and experience.
Almost half of the entrepreneurs cited the ever-changing laws and regulations as an
instrumental factor in business failure. The legal environment in Sudan is often
characterized by the complexity and bureaucracy in legislation and procedures,
which is an additional burden for entrepreneurs. Policymakers and regulators need to
take into account the needs of the entrepreneurial scene. They ought to formulate
policies and legislation that would ease the burden on entrepreneurs while
accommodating the needs of new ventures. For instance, reducing administrative
costs, transparency in procedures, and simplifying complex procedures for new
businesses.
44
6.2. Practical and theoretical contributions
The objective of this thesis was to provide relevant insights on the topic of
entrepreneurial failure within the Sudanese context. To the author’s knowledge, this
is the first study to explore the causes of venture failure from the perspectives of the
entrepreneurs in Sudan. As seen from the previous literature and the findings of this
thesis, studying business failure can help us not only understand the reasons that
lead entrepreneurs to fail, but also the consequences of that failure on the
entrepreneur. This in turn can provide policymakers and regulators with valuable
insights. It may assist in addressing the gaps that exist in the laws and legislation,
and accordingly formulate appropriate and adequate policies and laws that enable
entrepreneurs to establish flourishing ventures in a sustainable business
environment. For the academic field, the lack of research requires us to continually
explore different ranges of topics within entrepreneurship. Investigating failure
remains a prominent theme considering the high rates of failure for new ventures.
6.3. Suggestions for further research
It is never easy to talk about failure. This study took the first step towards initiating
the discussion on entrepreneurial failure in Sudan. Further studies on the field are
needed to help in understanding how entrepreneurs experience failure, and the
lessons that can be learned from this failure, and most significantly what happens
after the failure. Researchers and academics interested in the field can carry out
further studies to explore the financial, social, psychological and physiological cost of
failure. They may further explore the impact on entrepreneurs, and the available
recovery mechanisms for failed businesses. Due to time constraint and limited
resources, the author primarily focused on conducting a small study that covered
entrepreneurs who were based in the capital city – Khartoum. Other researchers may
carry out studies covering a broader range of cities as well as industries, which would
allow comparability and generalizability of results. Additionally, in Sudan, female
entrepreneurs face many challenges due to societal; attitudes, thus it would be
beneficial utilised a gendered lense. Researchers may gauge how entrepreneurial
failure impacts women and how they experience failure.
45
6.4. Research Limitation
The author is aware of the uncertainty of empirical studies especially that the findings
are based mainly on interviews being the only source of data. The small size of the
studied sample restricts the generalizability of the findings to the whole population of
entrepreneurs in Sudan. Nevertheless, it provided valuable insights that allow us to
develop a broader understanding of failure as a concept through the different lenses
of entrepreneurs. Another limitation experienced by the author is the difficulty in
finding entrepreneurs whom had failed in Sudan and were open to share their
experiences. Reluctance of entrepreneurs to participate in the study can be
explained by the sensitivity of the topic and the reality that unsuccessful stories are
often difficult to share. Similarly, Bruno, Leidecker and Harder (1986) note that one of
the obstacles to researching causes of failure is that the entrepreneurs may be
reluctant to discuss these experiences that are often painful. Nonetheless, those
entrepreneurs who have participated in the interviews showed openness and
willingness to share their stories. Despite these limitations, this humble study hopes
to strike the curiosity and interest of other scholars to conduct further expansive
research on the topic.
46
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