Thursday, September 04, 2008

Success Factors for South African Small Business

Entrepreneurs around the world share one common and crucial question, what will make my business successful? What do I need to do or how do I need to be of for this business to succeed? Is the business idea that will set me aside from the competition, it my leadership or management skills, or perhaps that of the team involved? Perhaps it may be the extent to which the company did market research and feasibility studies to understand the market and competition, the effectiveness of the companies’ business plan, business plans or business growth strategies, or is the ability to raise start-up capital?

Despite the wide range of books and speakers who claim to have answers to all these questions, the most reliable answers are guaranteed to come from entrepreneurs and business owners themselves. A recent research study conducted by Research Markets, looked at what more than 2000 South African SMEs had to say about the issue.

There is no clear set of rules for success and the specifics of what will work and what will not changes from business to business. However, SMEs can 'throw the dice' in their favour:
The Survey has revealed that there is a statistically significant correlation between resources used and the likelihood of being highly competitive. The implication is that business decision-makers stand to make their companies more capable of competing by taking advantage of the same resources.

Only 42% of SMEs in South Africa regard themselves as highly competitive. Therefore any resource that is associated with significantly more than 42% of respondents being highly competitive (more than 2% is statistically significant in this sample size) can be seen as having a strong correlation with being highly competitive.

The key findings of SME Survey 2007 reveal a range of resources that give small businesses a competitive advantage. Ranked among these are the smart application of available tools such as those from the technology and financial services sectors - but business owners still have to add a certain X-factor for business success.

Simply the use of computers in the business is immediately related to heightened competitiveness, since there is a direct relationship between the number of computers used and the level of high competitiveness among SMEs. Of those using more than ten machines in their environment, more than 46% are competitive; with more than 50 machines, the level of being highly competitiveness increases to 54%.
Affordable, high speed connectivity is next. 45% of ADSL users are highly competitive; of users of Mac and Linux software (which indicates a more mature technology consumer) 48% are competitive, while the use of any IT support services (end-user training, hardware and software sales support, Web development and strategic consulting) and Internet services (e-mail excluded) has a high correlation with competitiveness.

Danny de Beer, business development director at Fujitsu Siemens Computers, believes most SME owners are eager to find technologies and services to improve their efficiency but don't get around to it. "Many SME owners spend too much time on relatively arbitrary functions instead of paying a specialist to handle it for them. However, the problem is twofold: one is that the business owner may not trust the available service providers or know how to find them, and the other is one of cash flow," he says.

While de Beer says he can understand the business owner getting bogged down in peripheral tasks, he says SME Survey has shown the value of taking the time to establish supplier relationships to free up one's time to focus on strategic or revenue generating activity.

The use of professional business consulting services and financial instruments delivers further advantage, notably the engagement of a mentor. While only 10% of SMEs consult a mentor, 50% of these regard themselves as highly competitive.

Melt van der Spuy, director of business banking at Standard Bank, says those using professional and mentoring services are likely to have a more strategic, rather than operational focus. "These services are strategic by nature. The business owner who has recognised the need for specialised strategic support has moved beyond an operational focus. He is working on the business, as opposed to working in the business."

Van der Spuy adds that despite the findings of SME Survey, any successful entrepreneur is one who will see opportunity where there are challenges. This is the X-factor which he believes is essential for sustained success.

What keeps you up at night?
Small business owners are generally not kept awake at night by concerns about business strategy and rather focus their deepest concerns on operational matters. This has emerged from the results of SME Survey 2007, which has indicated that the most worrying issue for the small business owner, after crime, is cash flow-related. As a result, most business owners look to their accountant or bank for business expertise - but the few who make use of specialist mentors tend to feel more confident and more competitive than those who do not.

According to Arthur Goldstuck, SME Survey principal researcher, it is primarily crime that keeps the SME business owner tossing and turning at night. "That 27% cited crime as the most worrying factor came as something of a surprise," he says. Less surprising, however, was cash flow at 19% and the related issue of debtors next at 13%. "This was out of a 'laundry list' of woes that included options such as traffic and the threat of competition," Goldstuck says.

He says that with competition ranked fourth in the list - only 12% of respondents were deeply worried about what their rivals were up to - he believes most SMEs are not benchmarking themselves against others. "When competition keeps you awake, you're concerned about market share. This doesn't seem to be a bother for South African entrepreneurs, and is more a factor of the corporate environment."
Melt Van der Spuy, director of business banking at Standard Bank, says this finding demonstrates that the average SME owner is concerned about money and margin, return on equity and the future. "Most salaried people don't have these concerns as they have predictability of income and assurance of pension funds or other such structures," he says. "These are questions of operational efficiency; while essential, this focus must be balanced with due attention to strategic development of the business."

Van der Spuy believes the tendency to obsess around operational issues may be a limiting factor for the growth of the business and even a possible contributor to the high rate of failure for new businesses.
"This is both the scourge and the beauty of the smaller business. If you don't worry about cash flow, who will? It is a function of that which is most pressing to the business, but this has to be balanced with strategic insight and direction," he states.

In terms of the ports of call for the SME owner looking for business advice and business planning advice, Goldstuck says the accountant is turned to by 72% of respondents, with the bank second at 59% followed by legal advisors at 53% with just 33% of SMEs relying on business consultants. "What is of particular interest," he says, "Is that those companies which make use of mentoring or coaching are in the minority (9%), yet this is the biggest differentiator in this category in terms of high levels of competitiveness. 50% of those using these services regard themselves as highly competitive versus 41% of the rest, so it appears that such services are highly advantageous."

Van der Spuy believes the accountant is a good choice for independent business advice. "Even the banker is not independent and almost every business owner will not have a relationship of full disclosure with the bank. The accountant is likely to have the clearest picture of the business, certainly from a financial point of view," he says.

In terms of mentoring, Van der Spuy is a firm believer in the value of such services. "A mentor is analogous to a non-executive director who can provide independent advice and guidance. However, mentoring is not well understood or trusted, it is expensive and finding the right coach can be a challenge," he adds.

Finally, a surprise finding which Goldstuck says is very encouraging is the significant growth in satisfaction with government support. "This metric was first tested in 2004, with just 12% of respondents indicating satisfaction. This has grown to 34%, a dramatic turnaround which shows that while there is yet work to be done, government is moving in the right direction to support the emergence of entrepreneurial businesses."

SME Survey 2007 is sponsored by Standard Bank and Fujitsu Siemens Computers. It is in its fifth year and tracks trends and opinions of over 2000 South African SMEs.
Key Topics Covered:
- Introduction
- Executive Summary
- The blueprint for a successful SME
- What keeps SME decision-makers awake at night?
- Methodology
- SME Survey Research Methodology
- Sample frame
- Geographic representation and other filters
- Definition of an SME
- Sector representation
- The findings
- Demographic data
For more information visit
SOURCE: Research and Markets

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