Monday, April 27, 2009

SMEs - step 1 in the business planning process

Once you have a basic idea of which new business you wish to start up, give a thought to your harvest strategy.

Firstly, remember that the reason for creating a new business is to create wealth for yourself, not to create a salary. The salary is simply the reward for the work you do as an employee of the business. The wealth is the reward for being an entrepreneur and taking the risk in starting the business.

But so long as the business is being run by you, it is highly unlikely that you will be able to extract the wealth you have created.  The best way to extract the wealth is to sell the business. This simple fact is one that many entrepreneurs and business owners often miss.

So before you start a business, decide what your harvest  strategy is for the new business. Who will buy a business of this sort? What basis will they value the business on? What profit and turnover levels will you have to achieve to be able to extract the amount of money you want in the selling price? Remember that the selling price is a function of turnover, profit and sometimes assets. It is not a figure you suck out of thin air. 

So understand the process and plan accordingly, and if the business cannot give you the required selling price in the allotted time, decide whether you want to proceed, or whether you want to find a different business. 

Sunday, April 19, 2009

SMEs - step 2 in the business planning process

The second step in preparing a business plan for an SME is the business model.

The business plan requires you to define what you intend to sell to whom, and how you intend to do so, with the intention of making a profit. This sounds simple but can be complex in a business with many divisions or products.

Take the example of a computer store. Is the core profit of the business achieved through selling the product or through servicing the product and the client once the warranty has ended? It is important to know this, so that appropriate pricing and marketing strategies are defined and applied in advance.

The business will fail if both sales and service both discount their prices in the mistaken belief that the other is making the business' profit. So the model is an important component in assessing the future viability of the business.

SMEs - the recession and innovation

SMEs are like large business, they too struggle during a recession. However, they have the freedom to make decisions and move in new directions quickly.

Entrepreneurs, some of whom have gone into a form of hibernation once their businesses are up and running, can resurrect that entrepreneurial drive and try to innovate within their businesses.

However, they should not ignore a major source of innovation, the staff. Too often SME owners think that their success is purely due to their own efforts, but they could be missing opportunities. Consult with your staff as a group, and individually. Get your staff involved. Explain the situation to them and ask if they have any ideas or suggestions. You will be amazed at what comes out of these sessions at times.

Do not take your staff for granted. At times you become immersed in the day-to-day problems to the point that you cannot see the opportunities for improvement. The question is surely, what do you have to lose? Nothing - so give it a bash.

Wednesday, April 15, 2009

SMEs - that recession needs more attention than you thought

The recession is an event that forces businesses to review many aspects of the business. Unfortunately, many businesses see this as a an opportunity to cut staff and expenses. As stated before, you cannot save your way out of trouble, you have to sell your way out.

However sales is a part of the marketing function, and marketing should be reviewed extremely carefully. The intention of the review practice is not to try and reduce marketing costs, but rather to evaluate how the marketing budget is spent.

Do not reduce your marketing efforts. During a recession it is critical that you maintain your marketing efforts. I recently had a discussion with a retailer who was marketing using newspaper advertising. He had no idea who the target markets were for each newspaper, and consequent to our discussions and his subsequent investigations, he found that he was advertising in the wrong newspaper.

So do a careful review of the marketing channels you are using. Evaluate your systems for assessing the success of each advertisement and ensure that the advertisements are having the desired and intended effect. Are the advertisements designed to achieve their intended goal? Is it a brand building advertisement or is it intended to generate sales? Do you know and is it appropriate? Make every spend work for you!

Dr Rob Smorfitt

Monday, April 13, 2009

SMEs - a few more tips and tricks on surviving the recession

SMEs really do have the best of it and the worst of it. They always battle to access finance for a variety of reasons both inside and outside their control. Thats the worst of it. But lets look at the other side of the coin.

SMEs have flexibility and management control. So what should we do to survive the recession.

1. Act - make decisions and do something
2. Review all costs and cut what you can. Just get rid of the fat. Do not destroy your business' capacity to meet the clients' needs. But remember, no one ever saved themselves out of trouble.
3. If it is tough for you, it is tough for almost everyone. So, contact your suppliers and see if they can provide you with better prices. They need to keep your business to survive, so they may well be prepared to offer better pricing, and perhaps even better terms. If so, take advantage.
4. Visit your clients. Change your pricing methodologies so that competitors find it difficult to compete on price as they cannot understand how you have priced to the client. Change the rules of the game so that competitors have to stop competing to understand the rules.
5. To change the pricing to the client includes the necessity to change how you do business with your client. Can you add more value? How? Offer this to the client! The more value you add, the lower the client's costs should be. The more value you add, the more difficult to unravel your pricing.

Essentially, be proactive and not reactive, and keep your creativity levels high. Read a lot to find new ideas.

Dr Rob Smorfitt

Saturday, April 11, 2009

SMEs - more tips on surviving the recession

The truth is that many businesses are started as a flash of entrepreneurial endeavour. However, once the entreprenreur is living comfortably, the fear of losing it all is deemed to be too high a risk, and so the entrepreneur simply resorts to managing the business rather than by seeking continous entrepreneurial opportunities.

It is simply required that the business owner recognise that the owning/managing of a business is not an entrepreneurial event. Entrepreneurship is an action not a state of being.

Small business owners need to find and rekindle the entrepreneurial spark that got them going. They need to understand that the risk associated with doing nothing is much higher for the business, than the introduction of entrepreneurial activities would be.

Growth and new ideas do carry risk, but the more experience you have the lower this risk is, and it is definitely a lower level risk than doing nothing represents.

In a word, surviving the recession requires ACTION. Do something. Stop whining and complaining about how tough it is. Remember that it is tough for everyone, and if your competitors are hurting, they could represent opportunities, either directly or indirectly.

Dr Rob Smorfitt

Sunday, April 5, 2009

SMEs - surviving the recession in Africa

Can SMEs survive the recession in Africa? I believe they can.

The secret is to shift away from supplying to other international markets which are contracting, and to focus on the African markets.

They may not always be as sophisticated, and certain markets may not exist, but many SMEs could make the shift to African marrkets.

Large parts of Africa are still growing despite the global financial recession. The improvement in democracy in Africa, although patchy and weak, is happening nonetheless. This is in turn leading to infrastructural investment which is stimulating the markets, together with the demand for commodities with the Chinese gladly assisting in the extraction thereof. Angola is flying as are other countries.

There is obviously credit risk among other forms of risk, but many African governments understand and recognise this, and offer their citizens insurance against the risks associated with Africa. South Africa does.

The secret is to educate Africa into understanding that there is greater prosperity in commerce than in corruption, and it is also more sustainable.

The black African diaspora need to start lobbying to change the African context, and not simply write great stories from the comfort of New York. Come back and make a difference.


Dr Rob Smorfitt

SMEs - should governments be bailing them out during the 2009 financial crisis?

Firstly I want to categorically state that I am an SME owner myself.

Secondly my answer to this question is a definite NO. Many people will query my position on this question but let me explain my position.

All economies are cyclical with good times and bad times. A recession is just a bad time that is worse than the normal cyclical bad time. Hell yes, it is difficult to survive a recession, and many SMEs will not make it. But then again many large businesses will not make it either.

Should governments be helping them all? In my mind this is a socialist approach that merely sustains, at best, mediocre businesses. All businesses are able to access the same information and market intelligence. If a business is not sufficiently opportunity aware, nor innovative enough to adapt, or resistant to change, then they deserve to make way for those businesses that are.

Sure it is difficult for those who crash and burn, at a personal, financial and psychological level. However, the true entrepreneurs will bounce back. Those that do not, do not deserve to be there.

All businesses are equal in principle. The difference lies in the management thereof, and if management fails to manage correctly they must be allowed to fail.

A recent article I read showed how a number of todays large successful businesses started during the Great Depression.

A business I am aware of were advised to reduce staff. They did so partially and then promptly re-employed, because the management were weak. The recession started to grip and new investors terminated more than 50% of the staff day 1 (among other things). Tough times for those staff, but the business will now quite likely survive. Good management leads to survival and success.

So I say to governments that the secret is not to throw good money away giving it to businesses that are quite likely to fail any way. Use that money to address the structural hole that exists which minimises bank lending to SMEs. Close the hole and increase the flow of funding to SMEs and then only those businesses that are likely to succeed will get funding and continue. This will be at a greatly increased level to current funding for SMEs but will be done purely on a commercially viable lending basis. Fund research into closing this structural hole, so that banks can lend with reduced risk.