The SME mindset - whites

The first is a series of 4 blogs on the mindset of the four main race groups as I have observed them in South Africa. The intention is not to upset anyone but to try give each an insight into the other, in an attempt to get us moving forward. I have obviously generalised, and therefore ask that all readers not judge me until they have read all 4 of the blog articles. Then your comments are welcome.

However, back to business! Soon after 1994, things started to change – very subtly. It took me a number of years to notice that it was not business as usual. Whites started to battle financially in their businesses. These were SMEs who had previously been great lifestyle businesses. Profit margins kept shrinking and turnover was not growing in a controlled fashion.

Whereas in the 70’s and 80’s you could fairly accurately predict your growth, now you could not! Then the anger began to set in. It was all the fault of the new government. They did not know how or why it was their fault, but it was.

The first event was a new democracy. The joining of the WTO by South Africa was the second event that started the change. The third event was not so much an event as a management approach. Labour was cheap and plentiful, so it was used accordingly. It was easy to hire and fire, and unless you were a habitual offender the Department of Labour was, if anything biased towards the employer. This was highlighted for me when I visited Australia in 2000. I was simply visiting family, but I paid close attention to the SME environment.

What I noticed in Australia was that most of the SMEs I saw were literally one-man businesses. The best example to compare is the garden service. A man with a truck arrives. He has a cherry picker and a bobcat on the back. He offloads, gets the instruction from the client, does the job, and is done in an hour maximum. Then he is off to the next job. He is literally a one-man business - a highly mechanised and efficient SME. 

Compare that to the South African model for garden services. White guy with 10 labourers taking 3 or 4 hours to do the job. White guy shouts instructions, and labour do the minimum work for minimum wage. I can provide a host of examples, from professional to artisan. Or white guy sits in truck and waits until they are done. This is termed management.

The nett result is that the white business owners began to resent the new democratic government. However, they were in error. The real enemy was not our government, but rather our new exposure to the real world of open markets, globalisation and serious competition. Then there was the added factor of the Internet. How many book shops went out of business because of Amazon? I know a few myself!

White SME owners were just overwhelmed with change. No Apartheid, black equality, new government, joined WTO, new competitors, the Internet, globalisation and more. Engaging with white-owned SME owners has made it quite clear that many have not realised the world in which they have to compete is now a new world in many ways, and that they have to change – which they cannot or have not done.

I am afraid chaps, the easy days are now a part of history, and it is a true “only the fittest survive” scenario in play. Low margins are a reality for many businesses. Ever-growing sales revenues are needed to stay afloat. The Internet and its siblings such as social media, are all forcing their ways into our lives. Is it yellow pages or Google words? I thought it was Pieter Dirk Uys who said ”Adapt or die”, but the irony is that it was PW Botha when he was Minister of Labour. It has never been more applicable to white-owned SMEs than now. We must change to survive.

I have seen some of our better and best SME owners operate and I know we are more than capable. The problem is we need more converts.

SMEs - lack of growth part of a bigger problem?

I recently viewed a video that was being circulated on email. It showed Gareth Cliff asking questions of a music talent show hopeful. He asked the fellow what he did, and the hopeful essentially described himself as running a small spaza store. Gareth then said "Oh, so you are a vendor" to which the hopeful replied "No, I am a Zulu". While the video was being circulated as a source of amusement, I believe it underlines the serious divisions within our country.

How often do you hear people say I am a South African. Almost never. We are black, white, coloured Indian, Jew, Greek, English, Afrikaans, Zulu, Xhosa, Muslim, Hindu, whatever, but never South African.

In the USA they are Americans even when it is clear from their accents that they have only been there a short while. In Australia the same, In fact almost everywhere it is the same. But not here in South Africa.  When last did you hear a Zimbabwean say they are Shona. 

A Zimbabwean student once said to me, "Before I came to South Africa I was just a human being. Now I am a black person who is subjected to the worst racial treatment possible, from South African black people. You South Africans are not nice people." What an indictment of our society from a 21 year girl .

Until we see ourselves as a single nation we will continue to expend  energy on stupid and unnecessary divisions which add no value to our country whatsoever. Instead of learning and working together, and building strong country bonds between countrymen, we instead focus on dividing and ruling, encouraged by a government that claims to be a non-racial government.

It is time we put paid to this political manipulation, as it only benefits a small minority, and not our country. Then maybe we would have greater efficiency in businesses, less worker hostility to capitalism, and great growth in our country, which means our SMEs would be able to grow too.

SMEs - marking time!

I attended the conference in Bloemfontein. What a waste of time and effort. The losers - all the black SME owners that attended.

As usual the organisers were more interested in reducing the speaking time of the white speakers and increasing the number of black speakers. Content and the quality thereof was irrelevant!!

In a country where it is an acknowledged fact that the Nationalist government actively conspired to provide inferior education to black people, that the ANC government continue to try and exclude whites from the process of sharing knowledge and skills is just not understandable. The whites in this country are not all racists, and there are many (the bulk) who want to make a difference because they want to and have the skills and expertise to do so. They also understand that we all have a shared destiny, and that they therefore need to make a contribution..

I have no illusion that all white "experts" are great, nor that all black "experts" are not, but the racism was just so blatant.

Many of the speakers were government lackeys who simply trotted out the same old lies, myths and promises. This was not my opinion, but that of some of the more experienced black entrepreneurs at the conference.

It is time that black SME owners started demanding quality speakers with tangible offerings irrespective of race, as opposed to this consistently poor bunch of uneducated, non-expert, government lackey, lying, promising, never delivering bunch they get now.A free lunch and a t-shirt will maybe buy votes, but are unlikely to help the SME owner progress.

SME owners need good and useful information and they need it from the best, not from racially profiled non-experts. Start to demand the best or remain nowhere in the greater economic scheme of things. Nowhere in the world have government lackeys made a useful and significant contribution to SME development.

PLEASE FIGHT FOR QUALITY PRESENTERS THAT WILL REALLY HELP YOUR BUSINESS.

SMEs - what SMEs need to do

SMEs are desperately in need of help and protection - from themselves. While it is easy to sit back and criticise government, especially when they make it so easy to do so, but surely we have responsibilities as well.

How many SMEs take advantage of government efforts to assist business?  How many SMEs complain in writing to government about what is wrong? How many SMEs have identified their weaknesses? Do you know what your weaknesses are?

The fact is that every business has these components:
1. Administration
2. Finance
3. Marketing (excluding sales)
4. Sales
5. Technical skills

The first three can all be outsourced to an external party such as an accountant or a consultant. However, the process of selling and technical skills are the two components you cannot outsource. These the owner of the business has to do themselves or employ people to do it. However, especially in a smaller business, this increases the risk of failure if staff resign. Furthermore early stage businesses can sometimes not afford these employees, so the owner has to do them.

But the admin, finance and marketing are also critically important, and outsourcing should be seen as a temporary status. It is imperative that business owners gain at least an understanding of these areas of expertise, such that they can interpret and make decisions upon the information provided by the accountant or consultant. Would you like to drive a car at speed with a blindfold on, and some one telling you when to turn and when to brake. Unlikely that you will enjoy the experience!

So the contribution SMEs can make is to improve their skills, as well as those of their staff. I am always reminded of the story and the CEO who was big on staff training. At a meeting with fellow CEOs in his industry, one of his peers mentioned the fact that they loved the fact that he trained people so well as they helped the industry to find good people. They then asked him why trained when he knew they might leave. His response was that if he did not train them, they might stay. Think about it!!

So in conclusion, the best thing SME owners can do is to realise their limitations and then ensure they reduce these by gaining sufficient knowledge to at least understand things, even if they are unable to do them.

SMEs - are government hindering or helping?

SMEs in South Africa will find that they are in a bitter sweet situation here in South Africa. Against government: 1. Rabid unions 2. SME insensitive bargaining councils 3. Poor government marketing of what they really do offer SMEs 4. Poor payment 5. Regulatory overload and red tape 6. Rigid labour markets 7. Slow decision making and implementation 8. An inactive Presidential SME Council that fails because of political appointees 9. BEE legislation that helps no one. 10. Too much stick and not enough carrot. Make the Nats look open minded. For government 1. Massive amounts of capital 2. Numerous interventions to assist SMEs 3. A desire to help The problem is that on balance I believe the overall impact is negative, but could easily be swung around if there was a political will to do so. If SMEs are so important, who is more valuable to the government? SMEs or the unions? I believe the SMEs are.

How many SMEs?

Everyone would like to know exactly how many SMEs there are. Do you include micro enterprises in this question? In South Africa the numbers bandied about vary from 1,000,000 to 3,000,000. There is no definitive answer however. The Cipro data is badly skewed due to political interference, with numerous dormant cooperatives, closed corporations and companies. No one knows how many sole proprietorships exist in the formal sector, and even less idea of informal sector "businesses". Many cities and towns have discontinued licencing of businesses, and so no one can do a census. From a research and economic development perspective it is a nightmare. The only realistic assessment of the number of economically active businesses possibly lies at SARS, the tax man for the uninitiated. However, they have steadfastly refused to divulge this information or provide access to researchers. So much for transparent democracy, which obviously contributes to the general failure to create jobs. Researchers cannot design interventions without an insight, which we cannot get. However, there a host of other reasons that contribute to the lack of information, such as the large number of state employees with sideline businesses.

Botswana were very organised with a database of just over 13000 businesses classed as SMEs. If you assume, without any real research or statistical validity, that Botswana, Namibia and Lesotho have similar population numbers, and Swaziland approximately half that number, a fair estimate for all these countries would be 45000 SMEs. Mozambique, Zambia and Zimbabwe all have bigger populations but do not necessarily have economies that are as developed, and i would therefore hesitate to make a guess for these countries. If you assume they have double the number of businesses you would estimate 135,000 in total for the countries surrounding South Africa. But this is guesswork and not research.

However, it does help to contextualise South Africa with business numbers in the millions compared to 135,000 to say 250,000, with approximately equivalent populations of say 50 million people.

I hope this answers the reader question in this regard. However, further input would be welcome in refining this response.
I do have exact data on some countries which is available commercially.
Rob

SMEs – SMEs struggling in South Africa. Why?

Many white-owned businesses have struggled since 1994. Many new businesses owned by all races since 1994, have found it difficult to establish themselves and grow.

Obviously the pre-1994 white-owned businesses allocate blame to the change of government. While this is a logical conclusion to draw, how accurate is it? There is no doubt that this had an impact on those businesses who had previously been a supplier to government, as government made an attempt to make their purchases reflect the country’s demographics.

However, what many of these business people have forgotten is that soon after 1994 South Africa rejoined the WTO. Furthermore, many businesses that had previously not been trading in South Africa due to anti-Apartheid trade restrictions, suddenly appeared at the front door to trade in South Africa and to use South Africa as a stepping stone into the rest of Africa.

Yes, globalisation had arrived! The problem is that very few South African SME business people have realised this. They still think they can continue to run businesses suited to lifestyle entrepreneurs without changing their businesses. They are still trying to understand why their profit margins have dropped and remain low. This is purely about globalisation. Thanks Walmart. While consumers may be happy with lower profit margins, SMEs are not. Low margins demand much higher volumes to stay in business.

The questions that this raises are whether these SMEs have increased sales volumes, have they tried to bypass the volume solution by becoming niche players in order to reduce the impact of the high volume/low price competitors? While my comments are based on anecdotal research, it appears to me that not many have changed how they do business. They all seem to be focused on the good old days instead of the future.

SMEs need to accept that they need to carve out a niche for themselves or scale up. The problem is that South Africa offers an incredible lifestyle opportunity, and this can distract attention away from the important issues. The problem is that our new SME owners have arrived bearing similar attitudes and expectations, and are wondering why they cannot make it. We all need to change our thinking going forward, because whether we like it or not we are part of the global village.

SME - types of entrepreneur

Research indicates a number of different types of entrepreneur. These include survivalist entrepreneur; salary replacement entrepreneur; lifestyle entrepreneur, small business manager, franchisee, copycat entrepreneur, franchisor, inventrepreneurs, serial entrepreneur, portfolio entrepreneur, angel funder and venture capitalist.

However these can be grouped into three (3) groups of people who act in a similar manner.

The first is the survivalist. The survivalist is often associated with informal sector survivalist businesses, but could also include the formal sector person forced through circumstances into self employment. This could be someone who has been retrenched.

The second group is the lifestyle entrepreneur. They vary in a number of ways, but generally are the same “animal”. For some the “lifestyle” is about working the hours they want, or the type of business (maybe a hobby) or about maintaining a lifestyle which includes holidays, and toys such as motorbikes, cars, caravans, boats etc. All of them have clearly defined “rules” on how they run their business. These rules are written in stone most of the time. Do not ask these entrepreneurs to work late or weekends.

The third group are the high growth entrepreneurs. These are the entrepreneurs who generate large profits quickly, normally create the bulk of new jobs in an economy, and are able to retire young. Notice I said “able to”; many do not and start the next business soon after they harvest from their business.

Where do you fit in?

The South African government has not recognised this current research, and consequently are not fine tuning their SME development strategies accordingly. This is a pity, as the job creation we so desperately need in South Africa is not being achieved as a result. It is time governments all over the world start consulting with SME specialists in order to understand the research findings in this area of expertise. This will assist in creating better SME development interventions.

SMEs - Will SMEs flounder or flourish in South Africa under Zuma

South Africa is going through immense political turmoil at present. Labour and the Communist Party are wanting a greater say in government for bringing Zuma to power. Labour is demanding the end to labour broking, of which government is an enthusiastic user. Umkhonto we Sizwe are attacking moderates like Kader. The ANC Youth League and it's leadership, using the term broadly, are demanding the nationalisation of the mines. Netshitenzhe has resigned. Trevor Manuel is under pressure to go from these same players. Look at our FPI.

Talk about supping with the devil. Zuma must be regretting his choice of partners I should imagine.

Labour broking is a direct consequence of labour market rigidity that has its roots firmly embedded in the unbelievably complex and labour friendly legislation in South Africa, which is further complicated by the CCMA who believe it is their duty to always award money to labour, even when finding in favour of business. Never mind the impact on inward FDI.

The efficiency of SARS in tax collection is sadly not recognisable elsewhere, mores the pity. Policies are uninformed by reality, and becoming more and more socialist as the days progress. Purchasing by government does not focus on sustainable business creation. I could go on and on, but the message would remain the same.

The fragile embryo stage SME component of our economy is very much like the humpty dumpty story, sitting on the wall. The question is how it will land, soft or hard. There is ample evidence that entrepreneurship prefers a free market (or close as possible) in order to grow and create new businesses and jobs.

However, the closer we move towards socialism, the more like we will have omelette instead of boiled eggs.

This means that the SME sector is under serious threat from these people, and as businesses we need to understand the seriousness, and tell Zuma that he has our support to follow the capitalist line, as opposed to the socialist line. He can get the votes he needs without these living antiquities and uninformed posers that claim to be the leaders of various fringe organisations.
Rob

SMEs in South Africa - why is finance difficult to access

SMEs in South Africa do struggle to raise start-up finance from banks. The question is why?

There has been little, if any, in-depth research into why banks are not lining up to lend to this large, risky, yet very profitable market.

I myself am hoping to research the following suggestion in order to see if it has any validity. The suggestion is that a major contributory factor is that SME and entrepreneur are being interchangably used in South Africa.

There is a continuum of entrepreneurial endeavour suggested by Burch, and I believe that the SME owner is not synonymous with being an entrepreneur. Some SME owners may well be entrepreneurial, but it is not a given.

Consequently, banks have no tools with which to assess these SME owners, which makes the loaning of finance to them extremely difficult.

SMEs - the new Companies Act

There is a new version of the South African Companies Act on its way. This is a highly modified version of the previous Act, and is supposedly coming into action later this year.

A key change which is interesting from a number of respects, is an attempt to introduce the equivalent of Chapter 11 in the USA as I understand it. The intention is to help businesses that get into trouble to get through the difficulties they are experiencing by giving them some temporary protection from their creditors.

The current system is prohibitively expensive and not particularly helpful to SMEs.

I am busy reviewing this new version of the Companies Act and will hopefully be able to shed more light on this particular topic in the next week or two.

However, it will require that the business be an incorporated business, in other words a company, remembering that the Closed Corporation will also disappear and become a simple form of company, on which I will also provide more information.

SMEs in South Africa - is tendering good for SMEs

How important is government business and large business for SMEs?

I believe it is very important, but there are riders here which must be considered. The purpose of government allocating business to SMEs, is to try and grow the SME sector, as growing SMEs are key players in job creation.

But how can these SMEs keep growing unless they receive continuous business. Sustainable SME creation and growth is completely dependent on continuous business from the buying organisation. But government and large businesses are strong believers that tendering is the best means to purchase the products and services they need. They feel the need to remain impartial in the purchasing process. Yet they espouse supply chain management as their credo. Supply chain management expressly guides the buyer to choosing suppliers that enhance the efficiencies of the buyer at every level. So surely tendering is in contradiction of this credo.

Is tendering an anachronism from the past? Is it not time for government and large businesses to treat the purchasing function in the true spirit of supply chain management, and stop resorting to tendering practices that “are objective” when in fact subjectivity is exactly what is needed.

If government policies are to achieve the goal of creating and growing SMEs, and large businesses are to find the efficiencies they desperately seek in their supply chain, through the use of SMEs, then we need to return to subjective purchasing practices.

Government and big business are equally as guilty in the South African context. I have heard senior people openly admit to simply keep changing supplier in order to supply orders to anyone who applies to be a supplier. This is counter-productive and in my mind counter-intuitive.

Let us create sustainable SMEs not one-order wonders!

SMEs in South Africa - the end of Closed Corporations

The Companies Act is about to undergo a major review. This has a number of good aspects and as with everything else in life a number of bad. The questions is whether or not you have a clue about this Act and how it will impact on you?

Too many businesses simply allow the government to do what they like, without providing feedback, whether positive or negative. It is imperative that you read the legislation and decide for yourself what the impact will be on your business.

So go to the following website link and review the Act. http://www.michalsons.com/wp-content/uploads/2009/04/companies_act_71_2008.pdf

Understand the impact.


If you have any problems with the Act then let us know on rob@smorfitt.co.za and we can forward your input to the government.

SMEs in South Africa - the African opportunities

As suggested in my blog 2 weeks ago, the African markets present a big opportunity for South Africa.

I saw some data which says despite the recession, Africa should still achieve 6+% GDP growth this year, albeit that it is off a low base. South African trade data show an increase in South African / Africa trade already, as well as the expected decline with USA and Europe.

The big corporates are already trying to penetrate these markets, but SMEs can do so as well.

There are a number of Africa oriented business magazines around. Have a look and get yourself informed. I purchased "African Business" and found a lot of useful information.

SMEs in South Africa - the recession challenge

According to the economists, we should shortly see the recession slowing its downward trend, flattening and by the new year growth should begin to return.

Key issues I believe will be the the following. The increasing price trend in commodities will need to continue. This will depend on the BRIC countries getting their growth above 7% again.

Government will need to keep the economy stimulated with infrastructural spend. Despite the deficit we are currently nursing, this is an ideal tool for stimulating economic activity in South Africa. The Government has a large budget to spend, so it will be crucial that the political appointment of senior officials is stopped with immediate effect, and business principles employed to ensure competency. Unskilled people cannot spend this amount of money effectively. A suggestion would be to get big business to perhaps second senior executives to assist in running these departments until the recession is reversed.

Similarly, banks are going to have to start lending. They cannot continue with their tight-fisted approach for too long as they need the profit. This is a global problem, but until they start lending on cars and houses, it is unlikely we will see the recession begin to reverse. So when you see car sales and house sales start to pick up, you will know we are on the right track for a reversal.

So hang in there, be innovative and use this time to grab market share from incompetent competitors.

SMEs in South Africa - a big market on our doorstep

While the European and USA markets to the north are of obvious and necessary interest to our technology industries, our manufacturing industries would do well to view the trends within the retail sector.

Our retailers are entering the African markets to the north, and finding it lucrative. As South Africans, we have an edge on the bulk of our African bretheren from the point of view of skills and experience in retail and manufacturing.

In respect of overseas competitors, we also have the advantage of shorter distances and hopefully lower costs as a result.

So let us attempt to build a series of lucrative markets in Africa for our manufacturers. They need to study these markets and see what the opportunities are. Global players are seeng the market opportunities in Africa so why not us?

Hopefully the new minister at the DTI, who apparently supports this view in general, will raise the profile of these opportunities and provide the funding and support to help SMEs enter these markets, and perhaps even to develop new industries to service these markets.

Heres hoping.

SMEs in South Africa - a big opportunity

Last week we looked at one of the biggest obstacles to SME development in South Africa. This week we look at some of the big opportunities available to SMEs in South Africa.

One of these opportunities are the government funded activities such as marketing assistance. The government funds many interventions which have been shown to be of enormous financial benefit to the SME. To get a handle on these, go to the DTI website at http://www.thedti.gov.za and spend some time reviewing all the opportunities available to you for accessing government funding to help your business. You have to work at this as government itself markets these amazing opportunities very poorly.

Another opportunity is the broad base of useful information and research available from South African universities, South African Department of Statistics, SARS and the DTI. Look at their websites and the university libraries to identify information useful to you and your business. Remember that knowledge is power, and therefore you need to gain as much useful and current information as is possible. Look particularly through dissertations prepared at the local university as it is normally research based upon local businesses.

SMEs in South Africa - the purpose

SMEs in South Africa as a blog is intended to alert SMEs to the macro issues in South Africa which are impacting, or going to impact on their businesses.

SMEs too often become mired in the micro detail of running their businesses, and lose sight of the "bigger picture".

This blog will help SMEs to find out what is happening that will impact on their businesses without having to spend a lot of time looking for information and then trying to understand the impact of what they have found.

Interestingly, they will also find anomalies that exist, which will help them to be a little wiser and more careful in their dealings with big business and government. At times these entities find themselves with conflicting imperatives, and often the SME cannot understand why certain decisions are made.

Then there are the global trends in SME creation, numbers and behaviour. These too will be visited on a regular basis, and their impact on SMEs in South Africa identified.

This will be a weekly blog.