The South african climate has long been fertile ground for start-ups and entrepreneurs. With incubators and accelerators for almost every industry, funders constantly in search of viable businesses to invest in, and government doing their bit, South Africans are no strangers to start-ups.
Here are Six Steps to Ensure our Start-ups Successfully Transition into Sustainable SMEs:
1. The Lone Ranger is a Fossil
Transitioning successfully from start-up to a small business or enterprise is a tricky balancing act; you need the income to drive you forward but not too quickly that you can’t expand staff at the same time.
Related: 21 Steps To Start-Up
Outsourcing – thankfully something South Africans are no strangers to – is still the best interim solution. Outsource your accountant, marketing and even you PA so that you can bridge the gap as your business transitions from one phase to another.
Also consider a business coach to guide you through this transition phase. The value of a coach’s guidance as you let go of the old and embrace the new, will ensure you don’t leave what’s important behind.
Bring people around you. That ensures you are free to focus on the core functions of your business, while they carry on with the peripheral functions.
2. Focus on What Matters
Throughout the start-up phase, and beyond, it’s important to set achievable goals and regularly review your progress against them.
However, instead of focusing on growth, stay focused on your key objectives and what makes you different from your competition.
Focus on your team and creating a great customer experience, rather than growth: Growth is a by-product of a successful business.
Progressing from micro to SME shouldn’t change your company attitudes and culture: these make you unique.
Hold onto these and incorporate them into your bigger profile as you develop your business.
3. Bloom and Grow
Your next big step is to hire a full-time key member of staff – a production manager, operations manager, perhaps a senior accounts manager. I know this is a large financial commitment, but you will see a return on your investment.
Firstly, the boost in moral will lift the spirits of the existing team, as this senior position will alleviate some of their workload. Secondly, the added seniority on the team will help support your leadership.
According to Paul Lees, chief executive and founder of Powwownow, which has gone from a start-up to a well-established SME in the last decade, believes that often the hardworking individuals who have built a business from the ground up, are not equipped with the skills to take it to the next level.
Invest in knowledgeable individuals, hold on the knowledge of the original team, and your business will transition start to grow.
4. Know What You’re Worth
In the beginning, most startups exchange low prices for their school fees. I.e. you and your team are still learning how this thing called ‘start-up’ works, so you charge lower fees as your service or product might take a little longer to be delivered, and might have a glitch or two. You probably also take jobs that might not be your core business, but you need the work, so you do it.
No problem. Learn, dig deep, eat humble pie, say yes and grow. However, you are not meant to stay in this phase forever.
With time, you gain experience, confidence and expertise. When you are ready to transition, you no longer need to stay in the cheap and cheerful seats. It is likely that your value and team have scaled and you now qualify to play in a different price league.
When you initiate the transformation to expand your business, be sure to evaluate clients and their worth.
- If necessary, walk away from a client or two who might not be willing to evolve with you.
- Be consistent and never compromise on your quality of service.
- Weigh up your strengths and weaknesses, what you enjoy doing and ultimately what gives you the best return.
- Prioritise these core areas of strength to drive your business forward.
- Identify what your ideal customer looks like, so that you can cater to their needs, and make your offering more attractive to them. A good marketing company or brand coach can help you with this.
5. Think Big, Act Small
If you’re an entrepreneur and you’re still in business, congratulations – you are doing something right. With only 10% of start-ups surviving, it is important that you don’t walk away from everything that got you here in the first place in exchange for ‘growth’.
- Startup Culture: Your culture is a foundational pillar when you’re a small company – it’s what carves out your reputation and generates those highly-coveted streams of repeat business. Have big goals, but protect the energy and agility of your startup.
- Start Somewhere: ‘Think big, act small’ also implies that each big dream has to start with that first small step.
In a post from Google’s Think Insights, Google’s former Senior Vice President of Adwords and AdSense, now Senior Vice President at YouTube, Susan Wojcicki explains, “No matter how ambitious the plan, you have to roll up your sleeves and start somewhere. Google Books, which has brought the content of millions of books online, was an idea that our Founder, Larry Page, had for a long time. People thought it was too crazy even to try, but he went ahead and bought a scanner and hooked it up in his office. He began scanning pages, timed how long it took with a metronome, ran the numbers and realised it would be possible to bring the world’s books online. Today, our Book Search index contains over 10 million books.”
- Update How You Do Things: ‘Think big’ also means it’s time you stop running your business with free-trial software and patchwork systems. If you want to compete with the big dogs, adrenaline and will-power are not enough to go the distance.
I know this is not glamorous or very ra-ra, but if you want to emerge as an SME to contend with, it’s time to improve your internal systems, software and policies. The systems you use now will buckle and fail under the strain of rapid growth.
Does someone in production consistently produce great work in record time? Map out what he does and how he does it, step by step, then make that a new production policy, so that your product delivery becomes reliable and consistent. A business coach could help you here.
Still using excel to handle your orders, invoicing and reports? It’s time to look at a more holistic, smarter approach that will scale with you. Business Operating Systems (BOS) – the next generation of ERPs – automate the admin of your business so that you are free to grow. A good BOS should cover quotes, production management, stock control, time keeping, reports, invoices and accounting. If you have a big budget, look at SAP. If you want software that will grow with you, and has friendly support, we like QuickEasy BOS.
6. Jack Be Nimble
Finally, never cease to innovate. Stay nimble. You’re the boss, right? That’s one thing that large corporates envy about SME’s: If you have an idea, you are able to immediately put it into action. Test it. If it works, great. If not, try something new.
The Rising Cost Of Small Business
Many of the hidden costs that tend to surprise small business owners are related to the employment of people. However, the silver lining is that there are ways to mitigate the risks associated with scaling a business and several tools available to streamline HR processes.
A small business starts with a visionary dream fueled by energy and grit. Founders build on that and attract a small team of people who can help breathe life into the business. But not very long after setting out on course, the harsh realisation of rising costs like insurance, permits, licenses, equipment, maintenance, taxes, shrinkage and utilities suddenly appear.
Poor Labour Relations Management
Extensive labour laws in South Africa require dedicated overseeing and management, which generally lead to additional costs of employing labour consultants or hiring human resources managers that are not entirely relate to the core of your business. However, left unattended, labour relations issues can and will shut down your shop.
Labour relations issues cost South African companies R14 billion annually. Many companies have costly compensation orders from the CCMA due to Line Managers and HR employees not complying with legislation regarding disciplinary matters.
A surprising statistic from SEFA suggested that of the small businesses that fail, 40% of them can be attributed to poor labour relations management, therefore managing disciplinary processes by the book is critical. There are useful templates as well as step by step guides available online to help managers through disciplinary processes and to avoid incurring penalties from the CCMA.
By law employees are entitled to at least 15 working days’ vacation leave in every leave cycle. Employers could face substantial penalties from the Department of Labour if they do not allow employees to take leave. Planning for peak and off peak periods in businesses is a critical part of drafting job specs and these conditions must be communicated to staff early on.
The cost of poor leave management will contribute to the company’s leave liability i.e. the amount of leave an employee is owed is noted as a liability in the general ledger. Annual leave that employees do not take is a hidden expense for a business that if left unattended, will accrue and create cash flow problems for the business.
Employers are advised to make use of a leave management tool that enables both the employer as well as their employees to keep track of leave days owed to employees and brings some automation in to the process.
The Basic Conditions of Employment Act ensures that all employees are “entitled” to a minimum of 30 days (for a 5 day workweek) and 36 days (for a 6 day workweek) paid sick leave.
According to Occupational Care South Africa (OCSA), absenteeism costs the South African economy around R12 -R16 billion per year. This equates to around 15% of employees being absent on any given day. The answer isn’t to go on a witch hunt throwing policy at employees and demanding doctor’s notes for even a few hours off work (employers are not allowed to breach medical confidentiality by requesting a diagnosis on a sick leave note).
Alternatively, employers can be proactive in managing absenteeism by monitoring leave reports monthly and quarterly taking regular health interventions (e.g. flu shots) before a peak sick leave season e.g. before winter. Maintaining a positive work environment where employees feel acknowledged and are encouraged to perform goes a long way in keep workers present and absenteeism on the low.
Is Unmanaged Stress Killing Off Our SMMEs?
Most SMMEs don’t make it past their first year. This is worrying for an economy in which SMMEs are a vital part of growth. A range of reasons are given for what is stifling these businesses, from financing to access to markets, but one factor has been completely overlooked: Stress.
It is now widely understood that Small Medium and Micro Enterprises (SMMEs) are key to a country’s economic- and employment growth, but something is amiss in South Africa. Our SMMEs are just not doing what they should and understanding why this is – and fixing it – will be critical to the future success and sustainability of the economy.
The common conversations around SMME failure rates point at six main culprits: (1) access to funding, (2) access to markets, (3) infrastructure challenges, (4) scalability, (5) tough regulations, and (6) skills/education. The problem is that we have known about these for years, and for all the efforts to address them, we are unfortunately not seeing the growth in the sector that is needed.
A recent survey by the Small Business Institute (SBI) and the Small Business Project (SBP) put the number of formal SMMEs in South Africa currently at just 250,000. These numbers are alarmingly low – especially when compared with international benchmarks. SMMEs in Organisation for Economic Co-operation and Development (OECD) countries, make up 95% of businesses, and employ between 60%–70% of the working population, contributing up to 60% to GDP. In South Africa, while SMMEs make up 98% of the business population, they only employ 28% of the nation’s workforce, according to Chris Darroll, CEO of the SBP.
And yet the government continues to pin its hopes on the SMME sector. Initiatives like the DTI’s Invest SA and the South African Investment Conference this October, that claims to have attracted billions in foreign investment to the country, have foregrounded the role of SMMEs in economic revival. And the Government’s National Development Plan aims to have SMMEs contributing 90% of job growth by 2030. It is likely that more money will be channelled into support for the sector, to join the billions that have already been spent on incubators and initiatives to help small businesses.
This is a good thing, but it is not enough. The numbers speak for themselves. To date, none of these initiatives has borne much fruit and this signals that we may be overlooking something fundamental. Our collaborative research at the UCT Graduate School of Business suggests that what is being overlooked is something that most of us find difficult to define, or even talk about: Stress.
Stress is under-acknowledged by most people, personally and professionally, and for varied reasons. And this can have devastating effects. If ignored in business, the human devastation is likely to have larger scale effects on job loss, workforce disengagement, health-related days off, impaired teamwork, sub-optimal decision-making, lowering of productivity, and ultimately fuelling a declining economy.
While access to finance and markets, infrastructure and scalability challenges, tough regulations, and not enough educated and skilled employees are all valid hurdles tripping up SMMEs, the fact is that they are perfectly normal hurdles to have in a competitive, emerging economy. Our research reveals that good leaders, who are able to get their businesses over each encountered hurdle, are also able to manage their personal negative stress and harness their positive stress.
Stress can, generally, be quite motivating, however it is generally accepted that there are three kinds of stress: (1) positive stress, which is chosen and does not last very long (like writing an exam), (2) tolerable stress, which is unexpected and lasts a little longer, but then stops and there is time to process, and (3) toxic stress or distress. Toxic stress is tolerable stress left to run on and on without end, without rest and without time for healing and processing. It is this third and debilitating kind of stress that business leaders are likely to experience, and in SMMEs it can be even more severe.
Our research suggests that SMME owners tend to set very high, and often lofty, goals for themselves when setting up their SMMEs. And then they are constantly feeling stretched in either striving for these goals or ‘maintaining the course’. This can mean maintaining good business results, maintaining the customer base, where often 20% of the customer base accounts for 80% of the revenue, maintaining employment levels in changing political and economic conditions, maintaining pricing when squeezed for ever-lower prices while delivering good quality products and services, having their integrity challenged, and dealing with clients/customers who are not averse to replacing their products/services.
Another cause of stress for SMME business owners is that they mostly have internal loci of control, meaning that they take personal responsibility for outcomes and results and therefore blame themselves for every failure, and find it difficult to forgive themselves for deviations from intended results. In addition, an innate sense of accountability to their staff and their staffs’ families reportedly weighs heavily on business owners. Many feel similar accountability toward the broader stakeholder groups that their businesses serve.
All of these factors, which many argue are innate to the nature of business, place undue, long-term pressure (toxic stress/distress) on the cognitive, emotional, psychological and spiritual resources of individual business owners. This reportedly leads to drops in productive activity and motivation, withdrawal from relationships both personal and professional, low energy, impaired decision-making and ill health. And it also destroys resilience – leaving business leaders unable to ‘bounce back’ from personal- or business-setbacks, which is part and parcel of life and business. With a debilitated leader, the business is almost always likely to suffer, on a day-to-day basis and also in the long run. Like a virus, stress transfers to others.
An SMME’s success is inextricably linked to having an effective leader. And effective leadership is inextricably linked to effective stress management and self-care. It stands to reason, therefore, that improving the way SMME business owners manage their stress and boundaries could have a significant impact on improving business survival rates.
Along with offering business advice, funding incubators, opening up markets, attracting foreign investors, educating consumers, subsidising and improving infrastructure, the government should be looking at ways to encourage stress management and self-care into the daily operations of small to medium-sized businesses.
We need to get business owners educated about stress and self-care: about how exercise, sleep, diet, meditation, life-balance, self-forgiveness, and other-forgiveness affect them, their staff and their businesses. Effective self-care, of which stress management is a part, will enable business owners to courageously stay resilient in the ongoing stressful situations they will naturally encounter. This may, in turn, help to turn the tide in South Africa’s SMME sector so that it can drive the country’s economic revival like everyone hopes it will.
Many SMEs Start With Great Plans But Fail To Take The Big Leap
Most small-to-medium sized enterprises (SMEs) are aware of the benefits of good governance practice but, faced with limited time and resources, which could be costly in supporting growth ambitions.
- 27% of SMEs don’t have a vision that covers more than the next 12 months
- 45% of SMEs either don’t have a strategy, or one which covers only the next 12 months or less.
The latest global research, inclusive of Africa in supporting small business growth from ACCA, outlines the governance needs of SMEs. It highlights simple but effective practice over vision, strategy and human capital can provide them with greater flexibility, adaptability and resilience as they grow. This a huge factor in the long-term sustainability of the business, if put in practise.
“If you incorporate good practice for running your business from an early stage, your company is more likely to be resilient and is more likely to appeal to external investment,” explains Jo Iwasaki, head of corporate governance at ACCA. It is about leadership directing the company and being aware of factors both within and beyond their enterprise and build resilient organisations in the face pf the changing world.
The research also found that half (49%) of SMEs do not involve anyone external in their strategy discussions, despite the benefits experienced by those that do, which include additional experience and knowledge of the industry/sector (according to 46%), an independent perspective / constructive criticism (44%) and advice on their growth strategy (39%).
“There are a lot of daily concerns for the leaders of a small business, and often the biggest challenge is meeting day-to-day operations and cash management needs while thinking about the long-term future of the company. And while many leaders are keenly aware of the importance of resilience in the rapidly changing business environment and of buy-in from stakeholders, for example funders and employees, there often may not be the time to think or do much about it,” added Iwasaki.
“I hope that this research helps SMEs in focusing on some of the most crucial issues, and can be a resource not just to SMEs themselves but also to policymakers,” concluded Iwasaki.
How vision and strategy helps small business succeed is available at ACCA Global.