I visited Lagos Business School in 2015 on a senior leadership programme organised by Strathmore Business School. A big model fish interwoven with iron immediately caught my attention. Inside the belly of the fish was a man in blindfolds. On the wall next to the structure was a note in a picture frame. It explained that inside the belly of the fish, next to the man, were a saw, a mallet, a chisel, pliers, scissors and a phone.
It further explained that the man represents us, the belly of the fish represents our problems or challenges and the tools represent available solutions to our problems.
The note went on to state that available tools should be selected and used to solve our problems, but first, we have to find out what our problems are. To do this, we have to unfold our blindfolds to see properly.
Blindfolds are around us all the time. How often do we become aware of them and seek to find permanent solutions without blame game? Take the Covid-19 pandemic that has disrupted almost all companies; their product and supply chain and access to capital.
As a micro, small and medium enterprise (MSME), does this provide you with a problem whose solution lies in permanent closure like it has happened to big names in the hospitality industry? Or do you look at it as an opportunity to innovate and adapt to survive? How comes Safaricom can think of expanding regionally into Ethiopia, in the middle of a pandemic, while some companies cannot even pay salaries?
There are six main strategies that MSMEs need to pay very close attention to thrive.
1. A quality product should be at the heart of every MSME. Without a viable quality product or service, there would be no company. This embodies the vision and the existence of the company.
Quality can be measured on various dimensions including performance, features, reliability, conformance, durability, serviceability, aesthetics, and perceived quality. A product or service can be ranked high on one dimension and low on another. MSMEs ought to identify which dimensions they can compete on based on their unique value advantages. Excellent execution of product strategy will help a company improve and maintain quality, reduce costly rejection rates and eliminate spoilages. You may try several products before you get that one product that finds a sizeable profitable market.
2. Customer service has emerged as one of the key differentiators and drivers for growth and sustenance. We all know that the first impression lasts and MSMEs should strive to wow their customers. This is achieved not just by presenting aesthetically looking products, but most importantly, by the excellent appreciation of customers throughout the product delivery phase. Online experience should not traumatise a customer. This will assure you of loyal customers that will be a source of repeat visits as well as a continuous flow of referral businesses. You must have encountered a lady/man who served you with a stern face and no smile, and for sure, you have never gone back there. This represents a lost business opportunity to the owner(s).
3. Market access, also known as route-to-market, is a strategy that determines which distribution channels you use to deliver a product to your target customers.
A successful route-to-market strategy must have a sound business model that is efficient and cost-effective and ensures products reach the market quickly. If you have taken the Embu-Nairobi route, you must have encountered the miraa pickups speeding to Nairobi. Have you ever wondered why they cannot just use a helicopter and save all of us, the risks associated with those crazy speeds?
Poor route to market selection will mean failure of the business and you will not meet your customers on time, cheaply, and with goods of good quality.
To be winners, MSMEs need to be innovative and different in their approach to route-to-market and avoid the copy-paste approach that is all too prevalent. They need to utilise channels and approaches differently than those that are currently available.
4. Financing: Any business will require financing throughout its life cycle. Regular sources of funds range from savings, family support, friends’ onward lending, sponsors, commercial loans and shylocks. A financing strategy is integral to an MSME’s strategic plan.
Key in selecting an optimal financing strategy are cost and repayment arrangements. Some sources will agree on a long-term repayment arrangement, some will require short-term accelerated repayments while others will agree to deferred interest or principal arrangement or expect one bullet repayment at a future date.
However, not all MSMEs have access to quality financing, forcing them to resort to shylocks and expensive sources like instant online moneylenders. It is not very unusual to find a business running perpetually from Fuliza, Berry, Tala, Mshwari and even borrowing from one online lender to repay the other. The rates charged could be one percent per transaction, not one percent per month.
So if you borrow and repay 12 times in a month you will have paid 12 percent interest for the month on the total amount borrowed plus a standing fee of Sh50 per repayment transaction. This adds some Sh600 to the interest burden.
Cumulatively, your effective rate of interest could be in the 150 percent region per annum, eating into your profits and pushing you into failure. When you take a critical look at such MSMEs that rely on instant online lending, you will be shocked to find that most have uncollectible debt.
One MSME I encountered had 75 percent of its revenue tied to debt! However, all of these challenges can be avoided with a good strategic plan and a sound credit management policy.
5. Human resource strategy plays an important role in maintaining balance between employee satisfaction and performance, more so for MSMEs. Employees rank among some of the most important resources to any organisation.
How employees are managed may determine the failure or success of that organisation. Establishing a positive workplace culture and environment is a very output of any successful HR strategy. Human resource strategy will help MSMEs attract and retain good employees and improve morale. All these positive efforts will accrue back to the business in form of satisfied customers and more business.
6. Robust reporting strategies. Overall, every business needs a feedback system that informs how it has operated over a given time.
I have met several business owners who do not know how much profit or losses their businesses generate. You cannot run your business in ignorance and still plan to succeed.