Kenyan entrepreneurs are great at launching their own small businesses. But like everywhere else in the world, not more than about 30 per cent make it past their third anniversary.
The reasons for such high failure rates are evident. Those with the energy and courage to go into business for themselves are rarely aware of all that it takes to overcome the multiple challenges that await them.
They may have a good idea but lack technical know-how and the commercial and administrative experience to see them through. They may just be copying what too many others are already doing. Not to mention that as they develop they may be floored by what is known as “founder’s syndrome” — the obstinate reluctance to share power and control.
Meanwhile, SME owners complain about factors such as poor access to finance and delayed payments from customers — even as suppliers chase them in turn. No wonder entrepreneurs everywhere see themselves as victims.
All this even before we get to the challenges emanating from government — impenetrable bureaucracy, skewed procurement and onerous taxes; problems with power and water, security.
Understandably, SMEs feel successive governments have been less than helpful to them. To where can SMEs turn for help? Well, as I learned recently from an event organised for those in the manufacturing sector by the Kenya Association Manufacturers (KAM), they can obtain really valuable support from them. KAM had gathered a bright collection of young entrepreneurs, over half of them women.
They manufacture juices and sauces, cosmetics and clothes, medical equipment and furniture, coffee and tea, water treatment and testing equipment…
And they were there to learn about KAM’s Business Growth initiative, a wonderful portfolio of services for its SME members.
I had been invited to contribute to the event, and I reflected from my own varied experiences on what I had seen differentiating the 30 per cent of SMEs that survive beyond the three years from the 70 per cent that do not — never mind how an even smaller proportion survive and prosper across generations. So much is to do with the values, attitudes and behaviour of the founder-owner, I said.
By their very nature many are reluctant to share power and control: they are poor at trusting and delegating, and uncomfortable with outside directors and the inconvenient input they may offer. I talked about Alec Davis, for many years the sole owner, chairman and CEO of Davis & Shirtliff; and also about Shashi and Shailesh Kanani of Hotpoint Appliances.
The leaders of both these successful companies were not only bold enough to bring in professionals under them to whom they felt comfortable delegating, they took the even bolder step of inviting non-executive directors (including me) to join their boards.
We were not expected to act merely as passive supporters and reinforcers of their own views and actions, but also to challenge them freely and openly.
In such ways the owners could move beyond the day-to-day juggling of the urgent — of managing their staff and cash, of issues with customers and suppliers — and hence create the mindspace to look outward into their broader environment and strategically into the further future.
I encouraged those in the room to find time for reflection, and also to write a journal and so reinforce such thoughts and intentions.
Later KAM chair Flora Mutahi reinforced this idea by quoting Michael Gerber, who famously advised entrepreneurs to “work on rather than in their businesses”. It is through this that she herself put an end to suffering from that all too common SME victim mentality, instead seeking support from mentors who were able to guide her. KAM CEO Phyllis Wakiaga stated that SMEs are the future for growth — never mind inclusive growth, and that is why KAM is so focused on helping such businesses prosper and grow to scale.
She spoke about KAM’s programmes, from training courses to mentoring to exchange visits; about helping them take advantage of the government’s desire to buy 30 per cent of its needs from locally made items, and about finding export markets, building partnerships for financial support, and supporting KAM’s SME advocacy caucus.
Nderitu Muriithi reported that in 2016 there were 7.4 million SMEs in the country, of which 1.6 million were licenced. Of the 14.9 million people employed by them, 6.3 million were with the licensed ones, of whom 3.2 million were in full-time regular employment.
But while accounting for 80 per cent of the jobs they only deliver less than a third of our GDP — a clear sign of poor productivity. We were also treated to gripping testimonials from beneficiaries of KAM’s SME services.
Rosemary Muthomi, vice-chair of KAM’s SME caucus and co-owner with her husband of Meru Greens, spoke of how KAM opened her eyes to what it took to expand their business. Before, she wouldn’t have dreamed of paying anyone a monthly salary of over Sh100,000, but now she does — knowing exactly what returns she expects from the outlay.
Next came ex-banker Ivan Isaaya, whose company Green Pencils manufactures pencils from recycled newspapers/. He talked about all the failures that preceded later success. Mary Thuo of cleaning company Cityscape introduced proper structures and systems thanks to the advice she received, and warned that you need to have enough knowledge to be able to take advantage of consultants.
Francis Kariuki of Vision Industries, a cosmetics company, thought he was doing well till advisers introduced to him by KAM showed him so much about what he was not doing properly. And finally Jane Maina told us about VertFresh, now a large-scale vegetable packaging and exporting company.
She’d had a dreadful experience with a consultant who produced an incomprehensible cut-and-paste business plan for her — a complete waste of money — and it was KAM that led to her understanding what it took to benefit from outside support. So here’s the bottom line, SME owners: appreciate that you need lots of help with capacity building. Or you’ll probably end up among the 70 per cent that fail before too long.
Mr Eldon is chairman of management consultancy The DEPOT, and is a coach and a director of various companies, as well as being chairman of the KCA University Council; [email protected]