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One Size Strategy for SMEs Does Not Fit All

The needs of SMEs are not the same as those of big business.

Allon Raiz

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As in the rest of the world, South Africa is pinning its hopes on small, medium and micro-enterprises (SMEs) to create jobs and drive economic growth. Indeed, government has spent billions on this sector. Yet some 17 years of state support for SMEs has produced disappointing results.

Much of this poor outcome is due to a failure to understand that the needs of micro and small enterprises are very different from those of medium-sized enterprises. We have blanket policies being applied, at substantial cost, by a range of programmes and institutions, but our “one size fits all” approach is falling between the cracks.

The acronym “SMME” covers anything from survivalist informal enterprises to established multi-million rand companies. Loosely defined, a micro business has a turnover of less than R100,000 and employs no more than 5 people; a small business has a turnover of under R5 million and employs up to 50 people; and a medium-sized business has a turnover of up to R35 million and employs up to 200 people.

A fourth category of ‘very small’ exists largely due to the SARS concessions of turnover tax and the VAT threshold for those businesses with a turnover of less than R1 million.

Given the considerable differences between these various levels of enterprise, one would expect commensurate policy differentiation, but this has not been the case.

Micro enterprises

Much of government’s enterprise development focus is on micro enterprises where the majority of emerging entrepreneurs are to be found. But micro businesses are usually not so much examples of entrepreneurial flair as they are of brave attempts to survive until better days.

They need small loans, low crime and corruption, physical access to markets and help with registration, assistance in finding staff and managing cash flow, amongst other things. And they are not where the capacity for real job creation lies.

Furthermore, access to finance, a primary SME strategy, is not necessarily a route to success for micro enterprises. Crucially, they need mentorship and business skills transfer (delivered by qualified people, not bureaucrats) to make the transition to becoming established in the formal sector. Without the capacity to take on the next level of business practice, micro business owners will continue to be much more comfortable in the informal sector.

Small businesses need different interventions. Access to finance and a healthy cash flow are vital if they are to thrive. Yet they are often required to manage their cash flows on a knife’s edge in an economy where the tendency to pay late, both by government and big business, has become the norm.

While government has acknowledged this problem and instituted a 30-day payment policy for its small suppliers, the wheels of implementation turn excruciatingly slowly. Economist Iraj Abedian estimates that 40% of the one million jobs lost during the recession were the result of government’s failure to pay on time.

Small businesses also struggle with dealing with competitors, marketing, meeting market needs and infrastructure challenges, such as finding business premises, connecting water services and electricity, transporting stock and acquiring equipment.

While some of these issues are addressed by the Department of Trade and Industry (the dti) incentive programmes (such as the Black Business Supplier Development Programme or the Project Funding for Emerging Exporters Programme), they do so inefficiently at best. Bureaucracy gets in the way and the process is arduous – it takes the tenacity of a tortoise to benefit from these programmes and most business owners haven’t got the time; they find another way.

Job creators

Studies by the Global Entrepreneurship Monitor (GEM) and FinScope show that jobs are created by sophisticated small businesses, not informal or very small ones. National Treasury agrees, saying that small businesses with less than 50 employees create 77% of new jobs [National Treasury Budget Review 2011]. It is here that the primary thrust of enterprise development should be directed – a strategy to move established small businesses to the next level.

But we are not doing this. Our support programmes are confined to local initiatives and incubation centres that serve largely the micro and very small emerging entrepreneurs (SEDA, the dti’s Small Enterprise Development Agency, wants to roll out 250 of these over the next five years) and to ill-conceived and poorly performing funding initiatives.

Khula Enterprise Finance, for instance, has been floundering, partly because it underestimates the practical support needed by its beneficiaries and does not have the capacity to provide such support. Even our skills training programmes are missing the mark – companies that may access Sector Education and Training Authority (SETA) products are discouraged by red tape and complain that the level of technical training supplied by the SETAs is too low.

And what is being done for the medium-sized sector? Medium-sized businesses are usually sufficiently well established to be able to get on with the job without needing government intervention. But they do need a business-friendly environment in which to operate.

Encountering obstacles

Instead, in South Africa, our medium-sized businesses bear the brunt of our policy shortcomings and encounter severe obstacles to growth. These include; expensive and onerous compliance and regulations, poorly maintained, expensive and unreliable transport infrastructure, frequent water and power cuts, high cost telecoms, inefficient licensing and rezoning services, rocketing electricity costs, a severe shortage of critical skills and restrictive labour regulations.

These problems indicate poorly conceptualised strategies for enterprise development, developed by policy makers bent on supporting enterprise start-ups without any notion of the external factors that will inhibit the growth of these businesses once they become established.

When will the needs of the medium-sized business sector be taken more seriously? We don’t need more incubators and more funding to achieve 8% levels of economic growth. On the contrary, it’s time to take the second M out of SMEs and urgently focus on making it easier for established companies to do business in South Africa.

Allon Raiz is the CEO of Raizcorp, the only privately-owned small business ‘prosperator’ in Allon Raiz is the CEO of Raizcorp. In 2008, Raiz was selected as a Young Global Leader by the World Economic Forum, and in 2011 he was appointed for the first time as a member of the Global Agenda Council on Fostering Entrepreneurship. Following a series of entrepreneurship master classes delivered at Oxford University in April 2014, Raiz has been recognised as the Entrepreneur-in-Residence at the University of Oxford’s Saïd Business School. Follow Allon on Twitter.

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Strategy

What’s The Worst That Can Happen With A Disgruntled Silent Shareholder?

Whether a shareholder brings capital to the business, experience or connections, you need to ensure everyone has the same vision and values.

Kyle Torrington

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While we often hear that it can be bad to have a silent shareholder that does not want to play ball, it is not often that we make enquiries about how the governance of a company can be hindered by a disgruntled shareholder.

Most of us assume that as long as they own more than 50% of their own company, they are entirely in control of all aspects of the company and how it is governed. This is not true: Even if you are a majority shareholder, holding less than 75% of all the shares in your company can still result in headaches if a minority shareholder, holding at least 25% of the company, becomes disgruntled and neither participates in the decisions of the company, nor consents to the decisions being made.

What is set out below highlights, among others, why it is so important to give shares in a company to prospective shareholders over a period of time, rather than from the outset. This allows for shareholders to prove their worth without you potentially placing your company in a position where it could be held at ransom for many years.

Related: 7 Factors To Determine Who Are Your Employees (And Who Aren’t)

The illusion of holding more than 50% of the shareholding in a company

  • Many people assume that by holding more than 50% of the shares in a company they are free to do with the business as they please. This generally only holds true for basic decisions of the shareholders, such as the removal and appointment of directors. The most important decisions of a company are based on special resolutions. A special resolution requires that shareholders, either individually or collectively, holding at least 75% of all the shares in a company, vote in favour of a specific decision.
  • Examples of decisions that require a special resolution include:
    • Amending a company’s Memorandum of Incorporation
    • Approving the issuing of shares or granting of other similar rights
    • Authorising the basis for determining directors’ salaries
    • Disposing of company assets
    • Mergers and acquisitions.

So, what does this mean for you and your company?

  • If you are a start-up looking to raise funds, apart from some exceptions, you will not be able to issue further shares to new shareholders or anyone other than existing shareholders if there is a shareholder that is effectively dead weight.
  • Should you manage to vote a new director to the board, you will not be able to determine the basis on which they are compensated (their salary) without a special resolution.
  • If you intend to merge with another company, you will not be able to pursue this without a special resolution.
  • If you plan to raise money by disposing of or selling most of the assets of your company you will, once again, be prevented from doing so.

Related: Reality Check: You Probably Don’t Own That Work You Outsourced

Accordingly, it is always best when starting a venture to vest your shares over a period of time. This means that, for example, shareholders are only entitled to have their shares allocated to them after a certain period of time to avoid a situation where you have a dead-weight equity shareholder hindering the governing of your company, and requiring possible litigation to remove them.

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Strategy

There’s More To Team Management Than Leadership

When you’re running a business you need to ensure that your employees are on your side, helping you to make profits. Giving them job security, taking them seriously and treating them with respect, will go a long way in enhancing loyalty and productivity.

Henry Sebata

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The staff that work for you determine:

  1. How happy your customers are with your business
  2. The quality of the things that you sell
  3. The costs that you incur to sell your products and services
  4. Your risks – the things that can go wrong and how much it costs you

All of these things determine your profitability and how competitive your business becomes. How do you ensure that everyone is on the same side and helping you to make profits?

At work everyone believes that they are getting something (such as money) and are giving something in return (such as time and effort). They are weighing up in their mind “how much am I giving, how much am I getting in return and is this fair?” If they believe that they are:

  • Giving too much or
  • Getting too little
  • Then this is unfair, and they won’t work well (poor productivity – how much they produce).

Related: Why Innovative Employee Benefits Are Your Competitive Advantage

The manager needs to:

  • Know what people are thinking about what they are giving and getting and
  • Manage the giving or getting side
  • So that people become more productive

In a smaller business you sometimes cannot afford to pay more or provide the sort of benefits (pensions, medical aid, bursaries etc.) that larger firms can and so the staff may be unhappy, not be productive and be on the look-out for something better.

How do you increase happiness without money?

Everyone wants:

  1. Job security – knowing that you will still have a job next year – and that you will get paid on time.
  2. Contributing to the success of the business. If you train staff to have the knowledge and skills to do a better job and you then encourage and support them to do this then they are happier, and you increase profits. If you then share some of these profits with the staff that helped you to make them then everyone wins!
  3. To be taken seriously and treated with respect. If you do this then staff are happier, and they will also treat your customers with respect.
  4. To be part of the team. You can often do this by having a regular briefing on what your plans are and discussing ideas. Because staff are doing the actual work they will often have good ideas and then will be motivated to implement them – it was their idea after all!

Staff leaving you all the time is a can destroy significant value. If you implement the strategy above, you will have happier staff that are more productive and a more profitable business.

Read next: Understanding Your Responsibility As An Employer

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Strategy

Jeff Bezos Reveals 3 Strategies for Amazon’s Success

One of the richest men in the world shared his leadership tips for running a company.

Hayden Field

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“It remains Day 1.” That’s how Jeff Bezos, founder and CEO of Amazon, signed off in his 2018 letter to shareholders. He’s been propagating the “day 1” mantra for decades, and it’s meant as a reminder that Amazon should never stop acting like a start-up – even though the company now boasts more than 560,000 employees and more than 100 million members of Amazon Prime, the company’s paid service for free shipping on select items.

Here are some of the most useful nuggets of wisdom Bezos shared in his letter and during a recent onstage interview:

1. Standards are contagious

Bezos says he believes high standards are teachable rather than intrinsic. “Bring a new person onto a high standards team, and they’ll quickly adapt,” he writes. “The opposite is also true.”

If a company or team operates with low standards, a new employee will often – perhaps even unwittingly – adjust their work ethic accordingly.

He also says that high standards in one area don’t automatically translate to high standards in another – it’s important for people to discover their “blind spots.”

Related: Executive Director Hasnayn Ebrahim’s 5 Rules For Strategic Growth In Your Business

Try making a list of your duties, then ask trusted colleagues to tell you which responsibilities are your greatest strengths. If certain things from the list don’t come up during the conversation, it might be useful to think about how you can up your personal standards in those areas.

2. Set clear, realistic expectations

If you’re looking to raise your standards in a particular area, the first course of action is to outline what quality looks like in that area. The second is to set realistic expectations for yourself – or for your team – regarding how much work it will take to achieve that level of quality.

Exhibit A: You won’t find a single PowerPoint presentation at an Amazon company meeting. Instead, teams write six-page narrative memos to prepare everyone else for the meeting.

Bezos says the quality of the memos vary greatly because writers don’t always recognise the scope of the work required to reach high standards.

Related: Jeff Bezos: 9 Remarkable Choices That Shaped The Richest Man In The World

“They mistakenly believe a high-standards, six-page memo can be written in one or two days or even a few hours, when really it might take a week or more!” Bezos writes.

3. Stay involved with the people you’re serving

Whether you’re selling a product or service, it’s a good idea to make sure you never lose touch when it comes to the people you’re serving – no matter how high up the ladder you climb.

Related: Lichaba Creations Founder Max Lichaba’s Inspiring Journey To Entrepreneurial Success

Bezos says he still reads emails from his public inbox (jeff@amazon.com) as a way to keep his finger on the pulse of what’s happening with Amazon customers.

He says he believes focusing on what customers are saying is much more important for success than focusing on what competitors are doing, and he often compares customer feedback to company data to see where they misalign.

“When the anecdotes and the data disagree,” Bezos said at a recent leadership forum at the George W. Bush Presidential Center, “the anecdotes are usually right.”

This article was originally posted here on Entrepreneur.com.

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