How To Transition Micro and Small Businesses BY Stimulating Growth: Management Guidelines For Turbulent Times With Small To Medium Enterprises by Maureen Denton
Tasked to discuss creating a platform for business success in challenging times, I immediately turned to our great cultural icon, Louise Bennett.
“When trouble teck man, pickney boot
Fit him – an dat is true,
For wha day me prove it wid Cous Bella
Aunty pickinni Sue.”
Like Sue who lost her job as a nurse, [many entrepreneurs have had to pivot], quickly rebrand/transition, transform their business model, to survive and grow. But as necessary, how do we move from ‘me’ to putting in place and acting on a strategy for success, even if it means holding on to ‘macca’, that is taking the tough and painful decisions to avoid failure.
Keynote addresses are oftentimes delivered from a macro level, providing a panoramic view of the big picture. But I suggest that that picture is one we can all paint blind folded. My understanding is we are not here at this forum to wax lyrical or to be quixotic. Thus let me set the expectations by giving a warning, such that you would see on a cigarette box -- there will be no ground breaking, earth shattering or revolutionary ideas. What hopefully will be transformative will be the ability to operationalize on the fundamentals, the basic rules. In Sue’s world, not just blindly mimicking but calling out the food names, to actually practicing what we know. To move from words to actions –the ability to implement, to execute well - that is our biggest challenge at all levels.
By any measure, the global economic situation is very challenging and there is continued uncertainty in the global economy. The traditional economies of Europe are struggling, Spain and Greece are on life support. The US economy is trying to work itself out of the recession. The growth rates in economies like China and India are slowing. However, we cannot and must not wallow in or become immobilized by the current situation; and use these harsh realities to defend and or to justify our circumstances. We know in fact this situation is not new and will continue to recur at different intervals and in different places. Sue realized after crying and feeling sorry for herself that she had to find a way to survive – she had to hold on to ‘macca’ to avoid falling.
What Sue did, is what many countries have done and are doing. In spite of, or as a result of the global economic realities, a country such as Singapore has been busy reengineering itself from being just a major manufacturing site to a major service provider. Indonesia and the Philippines which had lagged far behind and was not a part of the Asian tigers are working on donning their stripes and sharpening their claws to force their way into this select grouping by implementing certain policies, upgrading their infrastructure, etc. with a clear vision of where they want to go and what they need to do to get there and more importantly doing it. Remember like Sue, they did not have to start from scratch but can learn from the experiences of their neighbors.
While the growth rates slowed considerably in the ‘developed’ economies, many countries across Africa have had good and consistent growth rates over the past decade. For some, Africa is seen as the next frontier, the next global economic powerhouse. What for me is particularly interesting about these growth rates is that the growth is not totally fuelled by foreign direct investment from the “developed world”. Foreign direct investment by other developing countries into Africa far exceeds FDI from developed countries. In addition, intra Africa investment is also significantly high and growing with South Africa in particular leading in this area. This points to the need not necessarily to abandon traditional markets and sources of funding, but to the critical importance of diversifying and building new relationships. Re-tooling and upgrading the old time South-South dialogue with a focus on building and strengthening economic ties. There is a massive amount of wealth and opportunities that no longer reside solely in the ‘developed’ economies. We must actively seek to explore these opportunities in such countries as South Africa, Angola, Equatorial Guinea, Nigeria, Brazil, China, and India.
We, in Jamaica, with our high debt burden and negligible growth rates over the past decade must urgently and collectively respond to the need to stabilize our economy and set ourselves on a path to meaningful growth. Everyone of course realizes this and it comes back down to the point I am hammering in today of moving from words to action. The transformation that is taking place in Indonesia, in Burma, is not based on words but concrete plans of action which are being diligently executed. We do not need another plan, but a plan of action that we will implement.
Micro, Small and Medium-Sized Enterprises (MSMEs) are catalysts for economic development and growth in any State, especially small economies with major unemployment and income distribution challenges. Small businesses are the backbone of most economies and research shows that they account for over ninety percent (90%) of all industries and fifty percent (50%) of Gross Domestic Product (GDP) worldwide.
Jamaica has rightly targeted the growth of MSMEs as an important component of its overall growth strategy. But as we are all aware many MSMEs do not succeed or they operate in mere survival mode. Due to a variety of factors, oftentimes they are unable to transition into high-performance, innovative organizations which accumulate wealth. The focus from a government perspective has to be the creation of the space and environment to facilitate the development and growth of this sector. There is a well written policy document and plans to meet the 2030 vision from the Ministry of Industry Investment and Commerce. The development of the concrete strategies and actions that need be undertaken and the systematic implementation of these would certainly ensure significant development and meaningful national contributions from this segment.
From the perspective of persons already running these enterprises or looking to develop one, a recent article in the Harvard Business Review posited that there are 2 elementary rules that are determinants as to why a company does well over an extended period of time.
Rule no 1. Better before cheaper—in other words, compete on differentiators other than price.
Rule no 2. Revenue before cost—that is, prioritize increasing revenue over reducing costs.
The bottom line is that if you want to succeed, you should concentrate on creating value using better before cheaper and on capturing value with revenue before cost.
In order to achieve this you need to go to the fundamentals. The key advise the CEO of Netflix gave after his company started to rebound, following the plunge of Netflix stock from almost $299 in July 2011 to about $53 one year later and the lost of almost a million subscribers during the same period, is the need to ignore the SHINY STUFF AND GO BACK TO THE FUNDAMENTALS.
In line with the return to the fundamentals, the way to adhere to the two rules is the need to focus on innovation and efficiency.
However, I think we all know that while we can easily come up with definitions of these terms the actual achievement of these objectives is more problematic. Within the context of Jamaica, it is primarily in the areas of music and athletics where we have successfully executed and we know it is not by chance or by eating yam. Sue realized that she had to call out. She also found a way to sell off her products it seems long before her mentor.
Let me just run through very quickly some of the fundamentals.
DATA - While it is important to be passionate about your business that must be tempered by objectivity and facts. Your choices and decisions must be informed by hard data. You must have a clear, dispassionate picture of your company’s competitive position and profitability formula, you must pay attention to the fundamentals -- you must understand and manage the cost drivers and revenue drivers for your business. Everyone knows this, but do we practice it?
You must sell a superior product no matter what price point you are using. Product quality as a non-price factor is crucial in moving product. If you are competing only on price then you are much more vulnerable. It is very difficult in Jamaica to compete on the basis of price alone. The flood of cheap products from China and other places will quickly force you out of business.
You have to generate revenue. Sounds basic and obvious, doesn’t it? But isn’t that what kill businesses. Undercapitalization, poor cash flow and poor revenue streams are the leading causes of business failure. Those revenues are better assured by selling quality goods at competitive prices with good service.
Understand fully the regulatory environment in which you are operating -- taking advantage of whatever it has to offer but being very aware of the unthoughtful and punitive aspects of the system. The Ministry’s policy document discusses all the challenges faced by MSMEs and what needs to be done to address them; but be aware that while you will hear supportive rhetoric the system support is a work in progress. You therefore must build into your processes and cashflows what is required to comply. Fines, penalties and the cost of audits can cripple your business. Remember Sue was driven to tears and sent back home because she had no clue about the environment she was working in.
Sourcing of raw material. This is critical. It comes down to quality, availability and price. Do you source locally or do you need to import. It is one of things Fay McIntosh and I were talking with the young entrepreneurial students from St. Georges, the ones with the juices. Kiwi, for example, was one of the fruits in their delicious juices - which is not grown locally and is expensive. You have to analyse every aspect of the total costs of your raw materials. Here is where you might have to become dispassionate, “unpatriotic”. Do I support small rural poor farmers to grow my vegetables, or do I get it from a larger commercial farmer or from imports. That decision cannot be based on emotions but on straight numbers and looking at the entire picture.
Anywhere you go and especially in our small societies, the pool of qualified and ethical staff is small relative to demand. If you add qualities such as imagination, creativity and problem solving skills it gets even smaller. I emphasize devoting a lot of resources to recruiting, training and supervising staff. It is tempting to skimp on this but that will affect the quality of product and services which in turn will lead to lost in market share.
Be sure to balance formal qualification with practical knowledge and experience. You want people with good old common sense and technical skills.
I will simply say be ethical in how you conduct your business.
Your businessstarts and ends with you, so self-knowledge is crucial. You gain this self-knowledge by being reflective and by listening hard to what others say about you. It is really important to know the ways in which you are your worst enemy, instead of just focusing on your strengths. For many women the major area of vulnerability is being overly focused on weaknesses and to discount strengths.
Another noticeable vulnerability in our societies is a preoccupation with materialism, with having the accouterments of a successful life style and all the bling that goes with it to the detriment of other fundamentals. I remember my first visit to the office of Douglas Orane, the former CEO of Grace Kennedy, actually I should say cubicle. The move from big office to cubicle was an important indicator of moving away from the overinvestment in profiling and bling towards creating a business culture focused on reflection, creativity, productivity and better communication and thus an environment for innovation and meaningful risk taking.
Lets talk about innovation/ creativity. In preparation for this conference, I sent an email to quite a few persons here in Jamaica to ask how innovative, how creative are our business people. Without exception, the responses were that there was limited creativity in the business sector. They are like Sue was initially ‘me too’ ‘me too’. It seems to us ridiculous that Sue could have expected to sell anything by just saying ‘me too’ but we don’t realize that oftentimes that is exactly what we do in our small and medium term businesses. Remember that by the end of the day Sue realizes that she has to have a different approach in order to survive. Too many businesses are very uncreative in their approach to product development and their business model. Too many simply act as middle men or simply imitate in an unthoughtful way. In the land of Bob Marley, Jimmy Cliff, Buju Banton, Bogle the dancer, not Paul, Shaggy it wasn’t me, why are we not more creative in the business sector. It goes back to the question -- are we creating the environment that will breed and engrain creativity and sensible risk taking as a way of life. Are we creating an environment that allows us to dream and take the necessary risks to make those dreams a reality? Think about it --how creative and how much of a risk taker do you think our generation can be when in order to succeed from primary school all the way up was based on the ability to thoughtlessly absorb facts dictated to us and to regurgitate those facts at set times of the year when we sat exams. Do we know what humpty dumpty was and why it fell of the wall and why did the dish run away with the spoon. Those who rebelled against these restrictive environments were brutally disciplined. As we talk about building MSMEs, it requires providing kids with the space and the opportunity to be wantonly creative and to take risk. It must start early because the formative period when the brain develops is between 0-6 years. We need an education system and regulatory environments that facilitates creativity and risk taking and one that does not quickly punish success or risk taking by caning, imposing taxes and other regulatory inhibitors. I am not suggesting this is a problem unique to Jamaica. China, for example, is struggling with this – they realize that they must facilitate creativity/innovation.
The Caribbean novelist and intellectual worker George Lamming eloquently captured the Jamaican spirit when he said, “Jamaica is a small island with a continental imagination”.
Let us use this imagination to build our country one small business at a time.
This Article is an extract from a presentation made at Katalyxt 2013 Conference.