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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

6 Questions You Should Be Asking When Coaching

Top athletes have coaches because they’re winners. Business leaders should be the same.

Nadine Todd

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Dr Marshall Goldsmith

Whether you’re a CEO looking for a mentor, coaching your management team, or structuring a coaching programme for your managers to implement, there are six questions that can help anyone get better at anything.

The expert

Dr Marshall Goldsmith is a best-selling author and world-renowned business educator and coach. He has coached top CEOs, including Alan Mulally, former President and CEO of Ford Motor Company.

The key to a successful coaching programme is simple dialogue and establishing responsibility. The person being coached must understand and agree that success lies in their hands. They must take responsibility for their actions.

Related: How Business Coaching Can Help You Achieve Your Goals

The method

Once every few months, have a direct coaching session. Ask (or answer for yourself) these six questions:

  1. Where are we going?
  2. Where are you going?
  3. What are you doing well?
  4. Do you have suggestions for my improvement?
  5. How can I help you?
  6. So you have suggestions for me?

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Strategy

4 Ways To Develop The Leaders You’ll Need In The Future

One of the most challenging aspects of leadership development is consistently and effectively identifying the next wave of leaders.

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One of the most challenging aspects of leadership development is consistently and effectively identifying the next wave of leaders.

It can be easy for those at the top to forget that eventually someone will have to take their place at the helm. And ignoring that fact has lead to issues with succession planning, unwanted turnover and other challenges in leadership development in many organisations.

2016 High Impact Leadership research from Bersin by Deloitte asked 2,422 HR and business leaders from around the world how well they believed they could discover new leadership talent. Just 35 percent of respondents said they were above average when it came to successfully identifying and developing leaders.

To understand why this is, consider the typical leadership development paradox. Traditionally, the first step is to choose who has leadership potential, then develop their skillset. Logically, however, this makes little sense.

How is it possible to identify effective leaders if employees have yet to receive any type of leadership development?

Here are four ways to properly identify better qualified candidates for leadership positions:

1Stop choosing potential leaders based on unrelated skills

Gallup’s 2015 State of the American Manager Report, which studied 2.5 million manager-led teams in 195 countries, found that the top two reasons employees are promoted to management positions are because they were successful in a non-managerial role or because of their tenure with the company. Neither of those criteria have any proven correlation with leadership skills or relevant experience.

Create a better means of measuring for true leadership potential. Look at the culture of the organisation and envision what it would look like for someone to lead by those values.

Also consider how successful leaders evolved over time in the organisation. Then use that information to make a list of recognisable traits to look for as signs of leadership potential.

2Broaden leadership development to more employees

People learn and grow at their own unique pace. Requiring that an employee reach a certain position or be with the company for a certain number of years before they’re offered leadership opportunities holds back those who might be ready for more responsibility now. Or even worse, it might push those who aren’t yet ready into leadership roles.

Instead, let leadership development be a company-wide initiative. This gives more people the chance to take the next step in their career. It also creates a larger pool of possible great leaders to draw from across the organisation.

3Track progress and growth

Track progress and growth

There’s no way of knowing who is ready to step up and lead unless development is monitored. Remember that this is a process. Employees need feedback from their mentors and coaches to know for certain what skills they’ve mastered as well as where there can still be improvements made.

Develop a way to assess progress for different leadership positions, and be clear with employees and coaches about what success would look like in different situations. For instance, explain what is expected of a first time project leader.

Get everyone on the same page about the developing leader’s responsibilities and how that should guide their team.

Then collect thorough feedback from all those involved. Ask the leadership candidate what challenges they faced as well as where they think they thrived. Pose the same questions to those they supervised and organisational mentors.

Over time, this will reveal patterns that make it easier to identify who is best suited for leadership in the long-term.

4Focus on continual leadership development

There is no such thing as too much experience. There is always more that can be learned. After leadership candidates have been identified, continue to nurture them. This keeps employees from feeling that they have plateaued, which is unfortunately common.

The 2014 Insigniam Middle Management Survey: Middle Management’s Critical Role In Saving Company Innovation looked at responses from 200 middle managers from around the world. It found that only 15 percent of managers believe they will ever be promoted to the next level of leadership at their company.

Whether intentionally or not, employees who have proven their leadership abilities are being told that their leadership journey is over – and this hurts both them and the organisation. Encourage a steady stream of highly trained and skilled leaders working their way up by demonstrating that there is no end to development.

In order to clearly see who the next wave of leaders is going to be, employees need to be given the chance to hone and exercise their skills.

That means redefining how leadership potential is identified and providing each employee with the chance to develop personally and professionally.

This article was originally posted here on Entrepreneur.com.

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Have You (Really) Put Your Business To The Test?

You should constantly test things in your business to see if they’re working. In that direction lies success.

Nicholas Haralambous

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There’s a pretty famous saying that people in business like to use: Always be closing, or ABC. It’s a very sales-driven concept that suggests that whatever you do, you should always be closing a sale.

I used to like that way of thinking: Drive your pipeline growth, work on the numbers and push the sales as hard as you can all the time.

That approach definitely works for certain types of businesses, but after a while it can be soul destroying work that leaves a business a bit hollow. So over the past few years I’ve been working on a tweaked methodology.

I call this method of building and selling: Always be testing or ABT.

Related: 3 Sure Fire Ways To Improve Efficiency And Find Your Business’s Productivity Sweet Spot

The concept is simple. You should constantly be testing things in your business to see if they’re working. If they are working, great, you can then start testing how to improve them. If they’re not working, you find out and can start testing fixes for the problem.

This applies to your team, your product, your day-to-day strategy for selling, customer acquisition and anything else you can think of.

Start testing yourself

The obsession with testing things started in my personal life. I was doing it without realising what I was doing. I started waking up 15 minutes earlier every month and after a while I was spritely and awake by 5:30am and walking my dogs or working while everyone else was asleep.

Then I stopped eating sugar for a while to see if I’d feel better. I did. That didn’t last but I then stopped drinking coffee to see if I’d sleep better. I did. So now I don’t drink caffeine of any kind after 3pm.

I found that I was constantly testing out everything that I did and tweaking my life accordingly. So one day I realised that this model would probably work in my business: Small, frequent tests with specific goals in mind to try to learn something new or verify something old.

Related: How You Can Make Those Sales When Nobody’s Buying (Yes It’s Do-able)

business-reporting-structure

Testing requires reporting

Setting up tests is not difficult. But tracking the results of the test requires preparation. Interestingly, when I moved Nic Harry from a pure e-commerce company into physical retail, I discovered how slow real world retailers have been to use technology to track changes they make in store.

With nicharry.com we have been able to test, tweak and track results for years. I have many tests and lots of data to pour through when I want information about a decision. I can make a change on the homepage and see if it leads to more transactions than the previous homepage tweak. If it works, great, if it doesn’t, I go back to the way it was.

I decided to take this type of thinking into our flagship store by treating each wall and window as a web page. We kept notes of which socks were on which walls and which socks sold better where in the store.

After a few months we had figured out which walls were the hotspots in the store. Then we started to move the socks around and see if we could influence who purchased what just by placing the socks in a different place.

This type of tiny testing environment helps me understand my stores, my team and me products with granular detail. However it wouldn’t be possible if my systems weren’t set up properly to help me track these changes.

Why test something that works?

People often ask me why they should test something that is clearly working. Well, what if one day your product stops selling and you don’t know why? What if your core revenue stream dries up over the course of a few months or years and you haven’t noticed?

Testing helps me to stay in front of my problems. I can think of a stand out example of a company that stopped testing and ended up losing: Blackberry. Do you remember them? I do, but not many people will in a year or two.

Related: 10 Brilliant Responses To The Customer Who Is ‘Just Looking’

It’s also worth remembering Kodak. Kodak was founded in 1888 and thrived for a century, literally. Then it stopped testing in the face of innovation all around the company and from within. In 2012 Kodak filed for bankruptcy protection. The ironic part of the Kodak story is that digital photography killed their business. Why is this ironic? Kodak developed the first digital camera in 1975 but didn’t test it in the market. They were worried it would eat into their existing business.

If only they had tested the product before they dropped it. Tests do not have to be large and complex. Implement systems that allow you to track the changes in your business whether online or offline. Then engage with your team about how they can help you to measure and manage the tests and then start with something small.

Testing for no reason is futile. It’s imperative to know what you’re testing and why. Once you’ve figured out your goals, start testing and never stop.

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