5 factors that promote the sustainability of a business
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By Shaun Portmann
THE PAST 24 months have not only been challenging for large organisations but also for smaller businesses and the entrepreneurs who have been innovative enough to create them.
While day-to-day operations often bring smaller hurdles that can usually be overcome, the onset of the Covid-19 pandemic has posed and continues to pose a big commercial threat, especially to small businesses.
According to a recent report published by the African Development Bank titled African SMEs through Covid-19 Challenges, Policy Responses and Recommendations, on the continent, 90 percent of all businesses and 80 percent of all employment can be attributed to SMEs. These businesses therefore need to remain resilient in order to continue on this positive trajectory.
We believe there are five key factors that banks and financial platforms need to consider in order to serve SMEs and MSMEs (micro, small and medium enterprises) well in the current climate. These factors are equally as valuable to the actual small and micro businesses themselves as they look to become lasting and successful ventures.
1. Affordable access to finance
According to the World Bank’s Enterprise Survey, access to finance and quality of infrastructure are among the top challenges faced by SMEs in Africa. The survey revealed that more than 25 percent of firms in Africa rate the availability and cost of finance as the most important obstacles. In sub-Saharan Africa, it is estimated that more than 60 percent of micro, small and medium enterprises require a loan and can’t access one. The clear need then is for affordable access to finance, tailored to each SME’s requirements, at low costs.
2. Go deep before going wide
It is incredibly important to market your product and service extensively to ensure that share of voice is cultivated within the market in which you operate. The concept of ‘going deep before you go wide’ is a universally applicable one. All businesses, whether large financial institutions, technology companies or growing SMEs, need to make sure that they are saturated in their current markets and have addressed the present needs of their customers as per their unique selling proposition before scaling to new territories or markets.
3. Embrace technology
The pandemic has led to a number of structural shifts in customer preference on engagement as well as day-to-day business operations. More than ever, digital transformation has become central to business survival and sustainability. Numerous reports suggest that more organisations than ever before have embraced technology since the pandemic’s onset. However, there is still a way to go.
Going digital can help SMEs reach a broader audience, increase their sales, and even lead to investment/funding and scaling fast. But the benefits of embracing technology run deeper. Digital tools can help SMEs reduce costs, standardise and automate business processes and reduce the reliance on manpower. Moreover, going digital will enhance the competitiveness of SMEs and their understanding of consumer behaviours.
And the continent is listening. Initiatives such as 10k SMEs Africa have realised the importance of going digital and, through providing digital skills, tools and support, have declared the mission of Empower 10 000 African SMEs to go digital to enable their businesses to stay open.
4. Unit economics is your friend
The failure of many businesses can be attributed, to an extent, to a limited understanding of all of the expenses that go into acquiring a customer, and delivering the product or service they are selling. Gaining a thorough understanding of these details and making sure you understand the core profitability of each product sale or service provision is important. A good starting point is to answer the following questions: How much incremental cash do you make with every unit you sell, and how does your cost of acquisition match up?
5. Slow growth is better than no growth
Adopting a growth mindset rather than a fixed mindset will aid in creating a positive culture that will inevitably reflect on the balance sheet. But you need to be in it for the long haul.
Shaun Portmann, Head of Commercial at JUMO
* The views expressed here are not necessarily those of IOL or of title sites.
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