Margaret Sibiya, chief operations officer (COO) of ICT-Works, talks about the common pitfalls facing small and medium businesses on the continent, and provides insights on how technology can overcome this.
Over the last two decades, the positive impact of SMEs on the economies of South Africa and Africa as a whole has grown rapidly. Small and medium-sized enterprises (SMEs) are increasingly being recognised as productive drivers of economic growth and development for African countries. Although many small businesses are growing into strong mid-sized enterprises, some fail to grow and exist month-to-month with no assurance of a healthy long-term future.
The reality is that technology and software plays an imperative role to ensure the growth of any business. Here are some of the most common pitfalls facing SMEs with suggestions on how best to overcome them.
Basing decision-making on information
The key objective of business owners today is to ensure that they grow their business and make the right decisions. This seems simple enough, but for most SMEs, obtaining the information that will enable them to make robust decisions which will lead them on the path to growth is extremely difficult.
Instead, SME owners tend to make decisions on gut feel, assumptions, or – at best – unstructured information. This lack of solid information to base decisions on is, without a doubt, the most common problem facing SMEs today.
I advise all SMEs, no matter their size or the stage of growth they’re in, to invest in software and technology that will allow them to have robust and relevant information at the tips of their fingers whenever they need it. Many businesses stay small and informal and use simple technology that does not require great use of national infrastructure. Business owners have to ensure that they can measure, manage and control their information, and the easiest and most efficient way to do this is through the right software that does it for them, to ensure transparency and accuracy.
Technology has advanced such that SMEs do not need to invest in expensive infrastructure, but rather take advantage of new technologies like applications as a service, to reduce the prohibitive total cost of ownership in technology.
Businesses need to ensure improved quality of information so that the decisions they take every day will have a greater effect on their business outcomes. There’s no better way to run a business than getting the intelligence right.
Achieving operational excellence
By their very nature, SMEs focus on outputs rather than operations. Small business owners usually do whatever they need to do to get the orders in, with little capacity left for the optimisation of operations.
The right technology and software represents a huge opportunity for innovation and competitive differentiators. However, in an effort to save money, companies often string together a number of solutions which can result in a set of disconnected processes. What would seem to be a one-time effort becomes an on-going problem as different development tools are updated constantly.
To overcome this and save money, it is important that SMEs invest in the seamless end-to-end technology and software as much as possible, to ensure optimal operational excellence.
SMEs around the globe tend to be inept at financial management. New start-ups are particularly vulnerable to this, and a lack of solid financial management, which includes the sourcing of funds to operate the business, and this has been the death knells for many new SMEs. Small business owners tend to focus on securing deals at all costs, disregarding payment terms that aren’t to their advantage for the sake of making their new customer happy.
The solution is for SMEs to agree on payment terms and a collections policy that meets their needs prior to entering into agreements with customers. These policies can change as the business grows and becomes more liquid, but it is imperative for start-ups to manage their collections in a way that maximises their cash flow – even if this is at the expense of a few customers who refuse to adhere to strict payment terms. Being slack on money management is a sure-fire way to go out of business quickly.
If SMEs are conscious of the common problems raised above and address them head on, there is a high success rate for a turnaround in growth and profitability. As a parting shot, it’s worth noting that there’s a big difference between running a successful business and being self-employed. The points outlined here in are aimed at lifting those SMEs that want to grow their business to greater heights.