By Ms Kyesubire Talitwala-Greigg,
The measure of the SME space must be the rise in profitability, an expandable portfolio and not just the number of businesses. We must focus on growing the SME sector as it is critically important for economic growth.
According to the World Bank, SMEs “represent about 90 % of businesses and more than 50 % of employment worldwide. Formal SMEs contribute up to 40 % of national income (GDP) in emerging economies.”
It is critical to ensure SMEs are growing and remaining profitable in the long run. SMEs support economic growth by creating new jobs, driving innovation through increased competition amongst peers, transforming the market landscape and growing the government tax base.
The World Bank estimates that “600 million jobs will be needed by 2030 to absorb the growing global workforce, which makes SME development a high priority for many governments globally.” It begs the question, what is the impact of SMEs in emerging markets like Kenya? Estimates say that 70% of all jobs are created by small and medium enterprises, ironically facing a never-ending lack of funds to grow.
Even though SMEs are the backbone of economic development, many struggles to grow. Strathmore University studied SMEs in 2016 and shared some interesting findings. First, every business faces the same challenges despite the level of the founder’s education. Education did not cushion the founders from challenges. Second, the more educated the founder, the more risk averse and the less likely to take loans. Higher education seemed to make founders more rigid and less likely to take commercial loans for growth.
Third, the largest source of funding was from family and personal savings. These sources are limited and therefore hampered the ability to scale. Finally, business growth is possible when the knowledge gap gets filled. The founders were unsure how to pitch for bigger jobs, apply for complex projects, and fill in complex loan applications, among other tasks.
The research also established that the antidote for these challenges is practical and applicable learning coupled with financial training that would make businesses investor ready. In practice, the first line of business financing is its sales. Consistent sales prove that the idea is timely, and the market is willing to pay for the goods to create a runway. This demonstrates the full potential of the businesses to investors and other business support organisations.
Most SMEs use their income from transactions, they begin to grow and require capital injection. Very few connect to the needed funding sources because they are considered risky. Key things that make enterprises seem high-risk are weak corporate governance structures, the founder as a key man risk, lack of income and financial systems, high staff turnover, lack of consistency, erratic growth, and poor credit rating.
Since the founder sets the tone and success for the business, when the leader is unfocused, the outfit will collapse. It is time to change the situation of SMEs dying before their 5th birthday.
This shift demands founders who are open-minded and ready to grow. It also needs a rise of stable and supportive enterprise support organisations and professional business associations. When the three elements align to provide consistent support to the founder and their teams, they can design market-ready products, meet market needs and grow progressively.
The SME Founders Association is a learning and networking association for founders, by founders, with founders. We are a collective of over a dozen business experts committed to turning the tide of failing SMEs. We believe that once founders understand their inherent gaps, whether internal or external, we can help them mitigate the same and build businesses that thrive and live well past the proverbial 5th birthday.
SFA assists business leaders to increase their capacity to see and harness opportunities, enhance their ability to prepare proposals and complex opportunities in challenging bidding processes and grow their capacity to handle more complex assignments and projects. Our focus is on connecting the founders to valuable experiential learning opportunities that address their daily pains of running their businesses and align them with accountability structures for consistent follow-up and growth.
We provide engaging weekly learning sessions, virtually and in person. The programs ensure the business owner has enough light for the step they are on, which helps them create time to run their businesses and make financial gains. We also believe in accountability and provide weekly and monthly forums to encourage honest sharing and connections that generate opportunities.
SFA have found that accountability and honesty have helped our founders focus on the right parts of their businesses, eliminate redundant tasks, streamline processes, and connect to affordable workforces that spur the business on to success. We also believe there are no magic bullets to change, so founders must put in the work, so why not make learning and accountability fun and measurable?
We are committed to expanding the capacity of the small enterprises in our fold to grow to mediums and then large corporations. We firmly believe business has a different combination of cash, contacts, and community. Each outfit must find its preferred combination of elements. Once the enterprise has the right combination, they are unstoppable and influential. We are purposeful about steering change and encouraging businesses to grow deep roots that provide reserves to the very end, especially in challenging times.
Ms Kyesubire Talitwala-Greigg, President, SME Founders Association.
