It’s a story on SMMEs so I feel compelled to start it off by mentioning the well-known stat – small businesses are responsible for between 65% and 70% of the jobs created in South Africa annually, so they are vitally important engines of economic growth.
But there’s an issues with these engines, they typically don’t last very long. In fact most of them will need to be replaced by a new engine before the two year mark, and if your magnificent engine of economic growth and job creation makes it past two years it’s very likely to sputter and die before five years have passed.
Arguably the single biggest reason for small businesses failing within the first year is the fact that these businesses are often started as a survivalist venture. The owner has become unemployed or given up hope of finding employment after a long time on the market and moved into business ownership. The only problem here is that this person most likely has no clue on sound financial management and the planning required for a small business to survive, and grow.
Prof. Pieter Steyn, Principal at Cranefield College, says in an article which appeared on Business Essentials, that it is important to remember that your small business is a project. “The reason why small businesses fail is because projects are not properly conceptualised, designed, implemented and operated. Entrepreneurs who start businesses need to have a sound knowledge of how to navigate the entrepreneurial project. This includes first constructing the business plan and then operating the established deliverable, which is the business itself,” he explains.
When you lack experience, knowledge and planning
And if the project is not properly conceptualised, mapped out and finally implemented cash flow management is likely to be another major hurdle to long term success. Small business owners, especially those operating survivalist ventures, often don’t have the financial knowledge required to operate the finances of the business. These owners struggle to apply for funding successfully, or have no access to funding opportunities. Moreover, even when funded, the business is often not viable for very long as personal accounts of the owner and the business’ account is not separated.
In addition to the cash flow problems that stem from poor planning and insufficient knowledge, an inexperienced entrepreneur who jumps into operation without proper planning will not understand the market. The result is likely to be goods or services that are incorrectly priced, aimed at the wrong segment or never even marketed correctly.
It is essential that a great idea, one that could change the world, or even just make you some money, be followed up with sufficient planning: draw up a business plan, take a course in business management if you know this is a weakness, do thorough market research, partner with individuals or funders who possess the skills you lack. The advantages of partnering up with people who have skills you lack are plenty, not least of all is the fact that you could potentially benefit from being mentored by an experienced individual.
You have one go at taking your idea to market; if you miss the mark you will be hard pressed to make a memorable second impression.