Sunday, April 29, 2012

SMEs - why so many start-ups fail

I never stop being surprised at the overall low level of quality of start-up business ideas/concepts in South Africa. Way too many people are being pushed and pulled into the world of entrepreneurship, and yet they would not even survive in a protected franchise environment as a business owner as opposed to an entrepreneur. Research has shown that a clear harvest plan and business model are the two key starting criteria for a successful business. Anecdotal evidence I have accumulated over the years points to the validity of this research. I find it depressing that so many people know so little about starting a business. I think a large contributor to this poor situation is due to the extensive role of government in SME development. Would-be business owners are seldom evaluated properly, mainly because the evaluators themselves are incapable of assessing them. Development capital is handed out by accountants and bankers without any view to the entrepreneurial metrics, and a major emphasis on credit and financial metrics. I believe that the identification of the correct opportunity is half the battle won. A business essentially requires the following activities to occur in order to exist: 1. Sales management 2. Technical skills management 3. Admin management 4. Financial management 5. Marketing management Marketing, financial and admin management can all be outsourced. Marketing consultants and accountants are a dime a dollar. The technical skills and the ability to sell the product or service are however a whole different story. So if the correct opportunity has been identified, the would-be business owner has the technical skills and the ability to sell, who cares whether his financials are correct. Do them for him!! Manage them for him. However the problem is that here we will try to make every SME owner an accountant and business plan writer. No one is evaluating the OPPORTUNITY. This is where they fail - before they even start!!! This is why so many markets are so heavily over-traded. Sign writing, taxis, hair salons, funeral parlours, loan outlets spaza shops, garden services, pool services, etc. That is why so many fail. I do defer here to a number of private sector organisations who do this well such as Business Partners and GroFin. However, they are the exception rather than the rule. There are others that I have not named, so please do not abuse me. We need to change our focus in order to create more success and fewer failures. We will consider the harvest plan in the next article.

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