- The case of successful small businesses
“Expansion and modernisation of the nation’s productive plant is essential to accelerate economic growth and improve the international competitive position of American industry. An early stimulus to business investment will promote recovery and increase employment” – John F. Kennedy. This statement by the 35th President of the United States of America is the platform on which this piece stands. How is this related to business? Well, as far as successful nations are run like businesses, this statement can be applied to any business; small, big or large. The premise for writing this piece is the worrying trend of self-importance being displayed by founders of small businesses that are experiencing a boom in sales and gratifying themselves with the fact that demand always outstrips supply.
The nature of my job brings me into contact with many SMEs on a daily basis. Exciting times in Ghana’s economic history – indeed, the growth in numbers of startups in the past few years as evidenced by the ever-growing number of new business registrations at the Registrar-General’s Department can only bring hope for the future of our economy. The most advanced countries purposefully create the environment for its citizens to start businesses. This appetite is fanned by the support structures established which ensure such businesses not only grow but do so profitably.
According to an SME Competitiveness Survey published in 2016 by the ITC in collaboration with the AGI, more than 85% of enterprises are SMEs in Ghana. Yet studies suggest that the vast majority of SMEs fail to be competitive, to survive or to grow. The reasons for this are myriad, ranging from high cost of credit to challenges in accessing ready markets. While these challenges exist and fingers are usually pointed at government, others are self-inflicted.
Why would a small business less than 5-years old and doing well boast of not being able to meet demand? The main reason given is that their products are of good quality and in high demand. What happened to expansion to produce more and take advantage of the pull? The above scenario can go on for months without any clear attempt to expand – until an external competitor comes in with similar products, drives sales with increased volumes and sinks such small-thinking small businesses in the process.
No Business is Invincible
Owners of small businesses with great products must know they are not invincible. The present advancement in technology comes with a lot of lessons. A product that is relevant today may not occupy the same space tomorrow. Computers have moved from filling a whole room to finding space on a desktop, displacing itself onto laps and now the palm. In the future, you may just have to put on goggles and command things to happen with your voice.
Innovation is not static. The magical formulation today becomes the base for a higher formulation a few days down the line. Today, Google and other social media outlets such as YouTube offer many tutorials on various topics – such that people have started businesses not from formal classrooms but from social media. This reality should be good enough to inform young entrepreneurs not to be complacent.
The excuse of lacking capacity has emerged on several occasions when I engage entrepreneurs in this complacent category. At the bottom of the capacity challenges lies the issue of capital injection to expand infrastructure, acquire modern equipment with optimal capacity to meet market demand, and finally a team of workers with the right skills to support the process.
The high cost of borrowing from traditional financial institutions is a deterrent they’ll say. Production is kept at a minimum; marketing activities are almost non-existent; and investment into sales outlets is hardly discussed. The reason they give: investing in sales and marketing activities will lead to a soaring in demand of such products but there’ll be no capacity to meet the huge demand. This defeats the essence of establishing a business, and hence a good strategy is rather needed to take advantage of this high demand for products.
Reversing the Trend
It is a known fact that financial institutions are more interested in businesses that have prospects of growth and making good profits. That is the reason why risk managers are hired by these institutions. Owners of such small companies with positive outlook should approach the commercial banks for loans to inject into their businesses. Once the prospects are great, interest rates can be negotiated. For a financial institution to take a business seriously, a good business plan will be required. This should not be a complicated plan but one that sets out to clearly detail all the elements of a business plan in simple language.
Owners of such promising businesses should strongly consider the option of going into partnership to take advantage of market demand hikes. Joining forces with partners in the same business has the potential of creating a bigger company that has the capability of outstripping demand, and even creating new markets.
Last but not least, owners of such small business should pursue injections of investment in the form of equity. At a recent investment forum by a EU project hosted by the Association of Ghana Industries, it was revealed that there are quite a sizeable number of equity investors in Ghana with millions of dollars ready to be injected into profitable businesses in the form of equity. The period of owning 100% of your business is long gone, especially when you have a profitable business with great products which are in high demand but not available because lacking production capacity.
There is no glory in boasting of having a product that is in so much demand you cannot cope with that demand. Any business owner in this category who is content with such a situation is not in business but probably entertaining a hobby. It is time to seek help from professionals and astute industrialists who’ve gone ahead of the pack. The solutions proffered in this article are not exhaustive. There are several other ways of getting out of this situation and positioning your business on the path of real growth and profitability.
Johnson Opoku-Boateng is the Founder & Lead Consultant, QA CONSULT (Consultants and Trainers in Quality Assurance, Health & Safety, Environmental Management systems, Manufacturing Excellence and Food Safety). He is also a consumer safety advocate and helps businesses with Regulatory Affairs. He can be reached on +233209996002, email: [email protected]; [email protected]
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