SMEs - a good time or bad

SMEs with poor management and ownership are going to disappear, particularly those in overtraded industries with low barriers to entry. But this is a blessing, particularly for those who have what it takes and who have been battling against the bad businesses who undercut price. While it is not always necessary to discount deeply to the same level, it does require some "contribution" to the client. So margins can take a hammering. Remember the clients are often also in a similar industry.

I believe there are three key issues that are important during difficult times.

1. SMEs must be in clear defined and deep niche markets. This is the safest place to be as a SME. Too often SMEs simply try and compete on price and that is the death knell of the business.

2. Innovation. Keep everyone guessing. Keep changing what you are doing and the way you are doing it. Keep changing what you take and how you take it to market. Every time the competitors work it out, you should have changed again, so that they are expending most of their energy chasing you and not the client.

3. Maintain margins. A large part of this is the relationships with the clients. Obviously if you are in industrial sales markets it is easier, but it is possible in different ways with consumer focused businesses too. Networks and relationships always come to the fore during tough times.

SMEs - where do you fit in?

SMEs fit into one of the three (3) categories of SME I defined in the previous three blog articles.

So where do you fit. Are you a survivalist? Are a lifestyle entrepreneur? Whatever you are, it is important to know!! The lifestyle entrepreneur is the most difficult to motivate to change his or her ways.

Are they worth changing? I think that there are undoubtedly many worth changing, but the question is how to do so. It is a very difficult process, and I have yet to succeed on a significant scale. I believe that only they can change themselves. As I have stated previously, it is all about the ego. Unless they can manage their ego to the point where they can acknowledge they are wrong, they will never change. The ego will ensure that they do not change.

The survivalist, that is the one who was previously employed, may be able to break out of the mould he is in. but it is almost as difficult. These people seldom have egos. They have very low self esteem, and this has to be changed, by themselves. they need to build their own self-esteem, to the point where they believe they have the skills to do more. I do not know if they are able to grow into high growth ventures, but they can most definitely grow beyond their current position.

Which brings me to another option. An option that most entrepreneurs avoid like the plague. The partner/fellow director.

Research points to the fact that those businesses with multiple owners are generally more successful than those with single entrepreneurs. There is no doubt that 1+1=3 when it comes to multiple directors. One secret is to avoid partners with competing skills, rather seek someone with complementary skills. Accountants often make good partners, especially if you are technically or sales oriented. Give it some thought and remember that the main purpose of starting a business is to create wealth. Nothing else is important, and everything else eventually links back to this wealth creation.

SMEs - the high growth entrepreneur

The SME owner who is also a high growth entrepreneur is the least known of all entrepreneurs. However, he should be on the top on everyone's A list. The high growth entrepreneur understands that if he works real hard, generates fast growing turnover with high profit margins, he will have an even greater lifestyle than the lifestyle entrepreneur. In my humble opinion the lifestyle entrepreneur thinks he is smart, whereas the high growth entrepreneur IS smart. He soon pops up on the radar of bigger investors. He soon has people wanting to invest large sums of cash in his business. He is soon selling his business or listing it. He has soon created enormous wealth for himself and the investors. He also created many new jobs and made a significant contribution to GDP in his country. And then quite likely he repeats the exercise again. An interesting factor is that often banks will not lend to these individuals because they consider them to be overtrading, but they are highly attractive to angel funders and venture capitalists.

SMEs - the lifestyle entrepreneur

SMEs also feature the lifestyle entrepreneur. There is much debate about these people. The reality is that while they are growing the business to the size that sustains the lifestyle they want, they do contribute to GDP and employment growth. However, once they have achieved what they want to achieve in respect of turnover and profit levels, they really do not try too hard thereafter. They are usually characterised by their toys - boats, cars, beach houses and the fact that they often only work 3 or 4 day weeks. They now begin with the maintenance programme. The fact is that they are useful to governments in good times, but not so good in the bad times. They do not want growth, nor do they want risk, and they often associate the one with the other. So are they right or wrong?! On the one hand it is their choice to limit their efforts in relation to the rewards. That is what democracy is all about. The government might want to get them revved up to a higher level, but they generally have absolutely no interest. So why should we bother with them. Why not leave well enough alone? They are satisfied and happy, so why interfere? Well, and here I talk only about my experience in South Africa,the problem often arises when they get to retirement. Most of them see the business as a pension. They fully intend to sell the business. The problem is they have stolen, in one way or the other, all the profits out of the business, so there is no value to sell. Eventually they get to the point where they realise that it is unsaleable, they have no pension, and they are trapped. And so begins the beginning of the end. They cannot sell, because they did not grow, and so they often  have no dominance in the local market anymore. The business is in fact in decline. The twist is sometimes the expectation of a child coming in to run the business which never materialises either. It is sad, but here in South Africa I often find 70 year old people who have to keep working because it is their pension. I believe the start of the maintenance programme is the end of growth and is also the beginning of the end. It is slow, inexorable and barely noticeable, but too often a very real reality.

SMEs - the survivalist entrepreneur

SMEs - the survivalist entrepreneur. Do they really make a difference? If we assume we have 3 basic groupings of SME, the survivalist, lifestyle and high growth entrepreneur, we need to understand where the value is added to an economy. This blog will consider the survivalist. Many people perceive the survivalist to be the uneducated BOP person who is doomed to poverty. The kind of people who were targeted by Grameen bank and their subsequent followers. However, the person who has been fired or re-trenched and who is unemployed in contracting markets is every much a survivalist too. The difference is that they may be well educated and highly experienced. However, in both cases they want employment, albeit at different levels. Therefore government interventions for these two survivalist sub-groups need to be handled and processed in a different manner. Neither really wants to own a business. Neither of these are likely to directly and significantly contribute to employment and/or GDP growth, but will indirectly benefit from employment and GDP growth as and when they find employment. Therefore government needs growth from alternative sources in order to reduce the number of survivalists. The fewer survivalists, the better the economic health.

SMEs - are governments helping or hindering?

Government interventions are fact of life in every economy. These can be general in nature (functional interventions) or very specific (selective interventions). So what is the problem. It appears that governments the world over are seeking economic, and sometimes political, solutions through SMEs. SMEs have been around for a long time, and I have personally owned my own businesses since 1982. But the governments and the media act as though they have personally found/invented the SME. Everybody is making wild claims about the importance of SMEs in their economy, often without any research data to support their claims. Interventions are based on hearsay and urban legend, not good solid research. They then bombard the SMEs with a range of interventions that are often ill planned. ill designed and poorly implemented by inexperienced government functionaries. They try to put square pegs in round holes! They push SMEs into sectors that are not suited to SMEs, and they ignore advice. They try to force big business to do business with SMEs, ignoring the risk to big business, and this is particularly applicable to banks. Perhaps it is time for governments to step back and take a long hard look at the SME sector, their current interventions, and then assess what they should really be doing. Perhaps then greater success will be achieved.

SMEs - a new funding website for South African SMEs

There is an interesting new website for businesses seeking funding in South Africa and it can be found at this website

SMEs - why existing SMEs fail

I am sure to have a few people hating me after this blog. SMEs fail most of the time for one simple reason - the owners. The owners generally suffer from the negative side of one of their positive attributes - ego. Ego is essential for entrepreneurs because it drives them forward to greater things. The problem is that it often leads to arrogance and conceit. They do not need to plan, they do not need to read, they no longer need to work 18 hour days, they no longer can be told anything by anyone, and worst of all they can no longer accept their own fallibility. I am eternally amazed at how many people are in deep trouble in their businesses, but they still think their businesses are great and worth a fortune. The moment their businesses are in trouble they put them on the market - but they still represent great value!? I have personally had a number of lessons in humility, and I can recommend them. I have found that the locus of control issue is paramount. If any entrepreneur is unable to accept that any of the problems in the business are due to their own poor decision making, then they are due for a 'correction'. Every now and again I meet entrepreneurs such as Darlene, who cannot suck in the knowledge fast enough to satisfy her craving for improved business. Darlene is enthusiastic and desperate to learn, and I believe can only rise to the top. A star in the making. The economy would be a better place all around if there were more Darlene's.

SMEs saviour for economic policy?

SMEs all over the world, are perceived to be the saviours of government economic policy failure. SMEs will save jobs, create jobs, boost GDP growth, and stimulate innovation among a host of other thing expectations. Are these expectations realistic? It all depends on how it is contextualised! The first question has to be whether or not SMEs can deliver on these expectations? In my opinion absolutely. The next question is whether there is room for government interventions in order to assist SMEs to achieve these expectations? Once again the answer is a big yes.However, there are two types of intervention, the functional and the selective. Selective interventions do have their place. They are used to boost particular sectors for strategic reasons. But more important are the functional interventions. These are those interventions which help to level the playing field and make it easy for all citizens to be able to enter the market. The need for one or the other is largely dependent on how distorted the current economy is. So it cannot be stated that functional are better than selective interventions. It is a guide to say that research shows that developed countries are more likely to require selective interventions, while developing countries are more likely to require functional interventions. However, in the context of developing countries, there appears to often be a situation where the governments tend to follow urban legend rather than solid research. Research is clear that in most countries the start-up rate and failure rate of SMEs is at best equal, with a nett result of no job creation, rather a shuffling of the deck. Key to this problem is that most of these countries have no idea of how many businesses they have and therefore they cannot even begin to address the problem by increasing the start-up rate to a level higher than the failure rate. Japan did for example. Furthermore, job creation generally comes from high growth enterprises, and most countries total ignore this fact. Most have no idea what it is or how to deal with it. Interventions are designed by government without contextualising for the three main groups of entrepreneur. These are the survivalist, lifestyle and high growth entrepreneurs. They are all vastly different from one another, but you seldom see interventions designed appropriate to each group. Interventions are seldom measured with regard to their impact, and in many developing countries are often used as a sop to the poor rather than a genuine intervention for SMEs, the intention being to rather buy votes. If we want SMEs to work for us as countries, we need to address the problem scientifically.