We’re all guilty of it at one point or the…
By Damilola Oyebayo
The purpose of every business is to create value for the stakeholders; the primary stakeholders include investors, employees and customers. In broad terms, every enterprise must seek to make profit, pay the wages of its workers, retain old and attract new customers. The negative impact of the current economic downturn in Nigeria is not only felt by individuals but also by businesses. For so many reasons, large corporations are expected to respond to the situation as effectively as possible by relying on internal (or external) management input, albeit Small and Medium Enterprises (SMEs) are not likely to have access to similar sophisticated mechanisms. Prof. Banji Oyelaran-Oyeyinka in a lecture delivered at the FSS 2020 International Conference defined SMEs broadly as businesses with turnover of less than N100 mm /annum and / or less than 300 employees. He also mentioned that according to IFC, “approx. 96% of Nigerian businesses are SMEs compared to 53% in the US and 65% in Europe”’; SMEs also contribute “approx. 1% to Nigerian GDP compared to 50% in the US or Europe.”
Since the Consumer Price Index (which measures the average change over time in prices of goods and services consumed by people for day-to-day living) has surged from 9.3% in October 2015 to 18.3% in October 2016 (as reported by the National Bureau of Statistics), it will not be difficult to appreciate how this period is a thorny one for SMEs in the country as cost of production is likely to have soared. Thus, this article will recommend various best practices that an SME can apply in a bid to keep and grow more customers despite the economic recession in the country. It will advocate a sequential strategy that flows from the internal business processes to developing better delivery modes of the SME’s product or services in the market. The bedrock of the approach is specifically innovation, in other words, SMEs must always strive to innovate across all facets (product development, branding, marketing, customer service, etc.) of the business.
The internal approach focuses on evaluating the various inputs (like business plan / strategy, funding, personnel, raw materials, etc.) that are needed to create a product or service in the market. Internally, an SME can implement three effective strategies namely; Cost-reduction, Prioritization and Human Capital Development.
Cost reduction: whether direct, fixed or variable, every business incurs costs while making a product or delivering a service, thus, when revenues deplete, a proper assessment of these costs could help identify improvement opportunities for effective management and invariably increase the profit margin. There are three basic financial statements that every SME must keep: profit and loss statement, balance sheet and statement of cash flows. These financial statements help track the performance of the business while analysing its strengths and weaknesses by providing a written summary of its financial activities over a given period of time. The profit and loss statement is a summary of business income and expenses over a specific period. The balance sheet provides details about the financial health of a business over a given period of time (monthly or annually) - it enunciates details about various assets the business owns, the liabilities owed and the value of the shareholders’ equity (or net worth of the business). The statement of cash flows is a summary of money coming into, and going out of the business over a specific period of time. Keeping these financial statements can lead to proactive financial management with specific results like maintaining profitability, easy access to loans, improving cash flow, monitoring and managing profit and loss statement and identifying cash flow drivers of the business for more accurate cash flow forecasting and efficient means of utilizing working capital.
Prioritization: SMEs are expected to have short, medium and long term objectives, however, the current economic condition should prompt SMEs to review these plans; SMEs should conserve cash as much as possible during this period. For instance, SMEs could diversify the revenue streams of the business or provide additional services with high yield; instead of expanding into new locations, brand the enterprise; or give the brick and mortar store a facelift; create an online outlet, etc. The objective is to ensure that more than enough cash is within reach to keep the business operations running.
Human Capital Development: One key aspect of innovation is the ability to nurture the talents within the enterprise so as to increase business performance; employees are the greatest assets of an SME, thus, dedicate resources towards their improvement so as to achieve better output in the interest of the company on one hand and for their personal growth on the other hand.
The external mechanisms bother on the interaction of the enterprise with stakeholders that are not within the organization, e.g. customers. The mechanisms are; High Quality Product / Services; Advertisement / Marketing; Branding; and Customer service.
High Quality Product/Services: ‘A good product markets itself’, there is no strategy as efficient, competitive, sustainable and defensible as delivering high quality product / services. Thus, the economic situation should not be an excuse for not setting a standard for excellence; it is more needed in a period like this as it might serve as the only competitive edge for an SME.
Advertisement/Marketing: This is the reason people argue that a good product does not necessarily market itself, invariably; it presupposes that as much as an SME is working tirelessly on research and product development/human capital development, considerate resources should be disbursed on advertisement/marketing; or what is the use of a good product / service that is not known to the potential customers/clients? SMEs should invest reasonably in advertisement, online platforms which are quite cheaper and targeted should be leveraged effectively to maximise cost.
Branding: This is an important factor that could spell success for any enterprise; it is what distinguishes an enterprise in the market. Printing the name of a company on delivery bag even if the company sells eggs could go a long way in convincing customers in staying loyal or to spread the word about such brand, this concept is also known amongst Nigerians as ‘packaging’, branding in this sense is the creation of a unique identity (offline and online) for an enterprise in the market. SMEs should not hesitate to outsource this service to experts.
Customer Service: Since customers are important to an SME, keeping them happy cannot be over-emphasized. Asides having professional interactions with them, some other informal acts can be of great influence, e.g. showing little acts of care and kindness can convince any customer that the company cares about them. Where practicable, SMEs should think of ways to harvest the personal details of its customers so as to engender a database which could come in handy when making advertising decisions among others.
While it is easy for everyone to blame the economic situation for slowed business performance, it appears this is the right time for SMEs to test the depth and viability of their business models and managerial structure. It then becomes imperative for the managers of SMEs to stay focused and ensure high quality value is provided for the primary stakeholders as earlier mentioned despite the economic recession in the country.
Can you identify other opportunities SMEs can leverage during this period? Please share your thoughts in the comments section below as I learn just as much from you as you do from me.
Thank you for reading!
Compliments of the season