Opinions Fri, 16 Dec 2016

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Access to funding, contrary to popular belief is not the only reason why small businesses fail

- Opinion Piece by Derek Appiah, Microsoft Country Manager, Ghana.

In Africa, we say wisdom is wealth. This holds so true to the notion that very often small businesses don’t need money, but rather knowledge on how to grow their businesses in a number of ways, with access to funds being only one of the components of success, and not the only one.

In many of the interactions I have with founder entrepreneurs managing small and medium enterprises (SMEs), the most common refrain is that of funding, or rather, the lack of funding for their businesses. I imagine they are specifically referring to the lack of working capital to the business, instead of potential investors funding the business by taking equity positions. Of course, the high failure rate of SMEs has been a common phenomenon all over the developed world, and the developing economies alike. There have been any number of studies conducted globally to probe the reasons why start-up businesses fail, yet finance is but one of them.

Entrepreneurs are mostly extremely passionate about their business and love what they do and committed to its development. Unlike many people stuck in a job and complaining, these people enjoy what they do and are committed to their business. So, why do they fail, and why are SMEs so important to Ghana’s economy?

They are important to our economy simply due to the sheer scale of the sector. Statistics from the Registrar General’s Department suggest that 92 percent of companies registered are micro, small and medium enterprises. SMEs in Ghana have also been noted to provide about 85 percent of manufacturing employment, contribute about 70 percent to Ghana’s GDP, and therefore impact markedly on economic growth, income and employment.

Larger businesses also often benefit from small businesses within the same local community, as many large corporations depend on small businesses for the completion of various business functions through outsourcing and other functions. They are important role-players in the Ghanaian economy and should be provided with all the support required to promote their success.

Unfortunately, SMEs face a number of problems such as the absence of adequate and timely banking finance, limited capital and knowledge, non- availability of suitable technology, low production capacity, ineffective marketing strategies, lack of capacity to identify new markets, constraints on modernization & expansions, non- availability of highly skilled labour at affordable cost, bureaucratic delays and complex maze of rules in following up with various government agencies to resolve problems. In short, SMEs in African countries lack the needed infrastructure and strong government policies to protect and support them put up their best to contribute to economic development.

The other reasons why SMEs fail that are unrelated to finance include:

Growing too fast, failing to track their finances; overspending; lack of reserve capital; poor choice of location; poor execution’ an inadequate business model; failing to change with the times; ineffective marketing; and underestimating the competition.

One of the most effective strategies to improve chances of success for a small business is to modernize their business. A recent study conducted by the Boston Consulting Group found that tech-davvy SMEs grow their revenues 15 percent faster than those using less advanced technology. It was further found that they grew jobs nearly twice as fast as those SMEs that have not embraced modernization technologies.

The modernization of SMEs should not be a gradual process as the opportunity exists to migrate SMEs directly from no or very limited use of technology, to embracing the next wave of technology to profitably exploit the benefits immediately. Those entrepreneurs who are ready to employ new media, technologies and strategies that will help the success of their businesses will benefit almost immediately with modernization.

Indeed, with GDP growth of nearly 4% and competition among multiple mobile-cellular providers, it has spurred growth with a subscribership of more than 130 per 100 persons having a mobile contract in Ghana, and rising. Opportunities abound for entrepreneurs to embrace new technologies, and added bundled offers that go with it to make it easier to be online, connected and changing world.

This was one of the key drivers behind our collaboration with Tigo to establish support for SMEs in Ghana with relevant connectivity to maximize their operations and boost productivity through and initiative called Tigo Business SME Empowerment Roadshow. The initiative provides SMEs with the ability to tap into the power of mobile and cloud technology to increase productivity communicate and collaborate anytime, anywhere, from any device.

Our goal is to enable SMEs in Africa to start, grow and accelerate their businesses exponentially. SMEs are the future of Ghana and the future of Africa. Let’s take good care to make that future prosperous and monumental for decades to come.

Columnist: Derek Appiah

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