How to stop ‘premature deaths’ of SMEs

It has been documented that in some parts of Africa, small and medium scale enterprises (SMEs) die within their third anniversary.

The statistics in Ghana are not clear but according to Mr Mighty Agbenuke Norgbey of Midland Savings and Loans, who prefers to define the situation differently, 70 per cent of SMEs registered in Ghana do not start at all and 80 per cent of those operating are not registered at all.

For this statistics to change, however, SMEs need to focus on building sustainable operations that will outlive their entrepreneurs. The business has to be resilient against threats and turbulence, but quick to spot opportunities and make the best out of them.

The summit

These are some of the lessons that the 50 SMEs and ancillary bodies were treated to at the maiden African SME Summit at the Best Western Premier Hotel in Accra - on the theme: “Small Businesses, Big Impact.”

It was a platform to share business best practice with small businesses and how they can form partnerships and alliances to create the enabling environment for their ventures.

Sustainability, according to a marketing doyen, Mr Edward Boateng: “Is the conscious and continuous effort to build long-term value for shareholders, employees, customers and society in general.” It is that approach where businesses think long term in their decision making, he adds.

Tracing the challenges

For a risk manager with a company involved with lending funds and receiving savings from such small businesses, Mr Norgbey has gathered that some factors are consistently responsible for the unsustainability, hence, the failure of these SMEs. 

These include starting the business for the wrong reasons; not following one’s passion before choosing what to do; poor management, including not separating the business from the entrepreneur, and sometimes the location of the business, not close to raw material sources but along some major roads whose expansion or diversion may render the business out of service.

He also cites the lack of planning; a phenomenon alluded to by Mr Boateng, himself a successful entrepreneur, who sees planning as the first step to making a business sustainable. 

Expanding too fast can also hurt businesses, especially small ones, since they trade their working capital for capital investment; not catching up with technology or not upgrading the skills of staff can also push the SME under.

Mr Boateng, who is also the Chief Executive Officer of Global Media Alliance (GMA), shared his business experience with the entrepreneurs, touching on best practices he had learned while working for global giants CocaCola and CNN, both in the United States, and how he had applied them in making his own business sustainable.

Four steps to business sustainability

Here are four of five steps to sustainability Mr Boateng shared:

a) Research-driven business – Businesses and plans should be drawn out of market research. This will help the enterprise deploy its resources properly and help the businesses to attract investors. 

b) Invest in people – One of the surest ways of creating sustainable businesses to outlive their owners is to invest in the people who work with the company. According to him, such investments in the people will give them the required skills and commitment to the course of the business. It also ensures that they will own the business values and objectives, contribute their quota and carry on the business normally even with the absence of the owner.

c) Marketing – Marketing is an essential component of business. Mr Boateng’s view of the need to adopt smart marketing approaches is shared by Mr Magnus Nunoo of Mobile Water, who says marketing and advertising is part of the cost structure of every business and provision should always be made for them. For the CEO of GMA, marketing does not necessarily mean huge billboards, radio and television slots and that small businesses can explore innovative options such as social media platforms.

d) Innovation – This is one of the critical ingredients of sustainability of an enterprise. It defines an entrepreneur’s perspectives about a live cow in hand; whether it will be interpreted only as a cow that provides milk and beef or one that provide shoes, bags, accessories, cheese and so on. This is what it means to think outside the box. 

Time-tested values

The summit stressed the need for SMEs to cultivate time-tested values out of which their vision, mission and the culture of the business flow. For the Regional Learning Development Manager of the Foreign and Commonwealth Office, Mrs Vida Kwapong-Akuffo, values are not standards, but the reason behind the standards and the essence of corporate identity.

“Values are the principles and beliefs that represent the culture of the business; it is what drives the values,” she stressed, adding that it was the values of a business that increased employee alignment, motivation, loyalty and efficiency.

The values should withstand changing times and cut across organisations and businesses. The description, therefore, points to leadership; collaboration; integrity; accountability; passion; diversity and quality – values that SMEs must embrace to make their operations sustainable.

Succession planning for SMEs

When it comes to SMEs, succession planning is critical since it is what defines whether the business will survive the entrepreneur who passes on. The lack of it accounts for the demise of majority of SMEs, according to the speakers.

A corporate lawyer, Mr Charles Okyere, identifies some legal factors that can help shape succession planning in SMEs. They include good corporate governance practices, such as forming a board for the company with members, as few as three directors, as well as letting every employee in the business sign confidentiality agreements.

The transaction advisor and corporate attorney advised that entrepreneurs who want their children to take over the business should deliberately groom them both academically and on the job. They should pick and choose those willing, have the passion and cut for the job rather than imposing it on them.

“If you want your children to succeed you, take steps to employ them legally in the business and be made to understudy some persons,” Mr Okyere said.

Mr Boateng also adds that when a family member is managing a family business, they should get the rest of the members to agree on some basic terms, such as salaries, entitlement to shares and dividend and other benefits. This is to forestall some confrontations which often arise when family members who are not engaged in the day-to-day running of the business suddenly want the same value and entitlement as the ones who sacrifice to run the entity.

Way forward

Challenges confronting SMEs are well documented in Ghana and across the world. The missing link for crossing into the successful league of companies germane to the economy is the appropriate policy implementation and the owners’ own efforts at making their operations formal and embracing business best practice at all times. GB