2017: THE YEAR OF START-UPS AND THE SMALL BUSINESS

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In a few weeks, the familiar greeting of “Happy New Year” will fill the air as we all begin the journey into yet another year. Most Nigerian’s (including myself) are created with the most optimistic DNA enmeshed in us, as such, we will expect the new year to bring with it tidings of peace, love, warmth and a better economic performance for both our nation and our respective businesses.

I have themed the 2017 financial year, “The Year of Start-ups and the Small Business” and while it may sound like wishful thinking to many, I do believe that for those entrepreneurs who have been working on great business ideas, and have done all that is required to go to the market, 2017 is a great time to venture out. You may be wondering why I am so optimistic given that as a nation, we are enduring our worst recession in decades, inflation rate is over 18%, borrowing rates are above 30% per annum in most Banks, many businesses are failing, most of our friends and loved ones have lost and may soon lose their jobs, the foreign exchange market is in topsy-turvy mode, and the list of negatives goes on and on. I am however of the opinion that we may have seen the worst of the recession and while I cannot categorically state that things will get better, I also do not expect things to get any worse.

Let us examine our macro-economic environment. I like to define the macro-economic environment as “those extraneous factors which are beyond our control but have a major influence on the outcomes of our businesses”. Let us focus on two elements of the macro-economic environment that you and I are familiar with to support my optimism.

Political Environment:  By the end of 2016, the current Government will have spent 19 months or 40% of its tenure. Without doubt, the political landscape with 2019 in view is already beginning to take shape and as such, I envisage that subtle campaigns across all tiers of Government will start taking place at some point in 2017. These campaigns will attempt to reach out to the people and giving the current economic circumstance, any campaign that doesn’t have an economic appeal may fall flat to the ground.

I therefore believe, that we will see a replica of some Government programmes such as the Lagos Employment Trust Fund and the recently launched N-Power scheme across most states of the Federation. Where properly implemented these schemes have the potential to energize existing businesses and birth new businesses thereby combating unemployment and other social maladies. So we have a choice, we can start positioning ourselves to be beneficiaries of these schemes or join the majority and say these schemes don’t work. I will rather position myself to participate than hear of people who benefited from these schemes when the opportunity is gone.

Economic Environment: Nigeria is officially in a recession and signs of an immediate turnaround were dealt a further blow when the Q3 report from the National Bureau of Statistics revealed a negative growth of 2.24%. Some analysts suggest there won’t be a rebound until the last quarter of 2017 where an estimated growth of about 0.6% is envisaged.

Economic indicators from GDP growth rate to Inflation rate; from the balance on our foreign reserves account to our balance of payment position; from the barrels of crude oil sold to our foreign exchange market all reflect a weaker economy than in recent years. While I am not wishing away the challenges, I can’t but ask myself this question, in the 15 years of my professional experience, was there ever a time when I thought our economy was great? You may want to ask yourself that question. And if your answer like mine is an emphatic “No”, then it is yet another reason for me to be optimistic….okay “cautiously optimistic”.

I also believe that the Managers of our economy haven tried different things to steady the economy, would have learnt a thing or two. At least what not to do to an ailing economy. So I won’t be surprised if in 2017 we see some positive policy reversals, more stability and less tinkering with policies around the fundamentals of the economy. There is a direct relationship between the political environment and the Economic environment and our economic situation will form the theme for the 2019 elections campaign which like I said earlier will start at some point in 2017. This is another reason to be cautiously optimistic.

Here in Nigeria, many successful enterprises where birthed during seasons of economic malaise same way many closed shop. In my last two articles, “5 reasons why small businesses fail” and “What small businesses can do to survive their early years”, I had attempted to point start-ups and small businesses to a path of both survival and sustainable growth. In 2017, I believe that individuals or start-ups who choose to be optimistic in addition to doing the right things (I have mentioned some in my last posts) stand a chance of weathering the storms.

There is a hymn we sang in my primary school with the wordings “he that is down needs fear no fall, he that is low has no pride…” we are already beaten by the economic challenges we are faced with and are therefore down. Thankfully, when we fall down or are beaten to the ground, we have only two options. To stay down or to rise up. I believe we have nothing to lose in being cautiously optimistic, making a choice to stand up and not remain down on our backs.

The Small and Medium Enterprises Development Association of Nigeria (SMEDAN) suggests that there are at least 17 million enterprises in Nigeria and these enterprises contribute about 50% of our GDP and 75% of national employment. Those figures include you and me, it suggests that despite the harsh operating environment we find ourselves in, we have without all the required support from the Government, braved the odds and contributed immensely to our Country’s growth and development. I believe with the required Government support and an enabling environment, we can achieve more. Nevertheless, we can still achieve progress in the face of daunting challenges, an environment filled with pessimism and stories of a failing economy if we are armed with the right mindset and the right business model.

I believe 2017 will be a better year for the economy however marginal; new businesses will be born and entrepreneurship will thrive. I also believe 2017 will be “The Year of Start-Ups and The Small Business”. What do you believe?

5 REASONS WHY SMALL BUSINESSES FAIL.

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In the last ten (10) years, I have been able to speak to and work for hundreds of micro, small and medium scale enterprises. During this time, I have seen similarities amongst these entrepreneurs. One striking similarity is the passion that is always evident when an entrepreneur is describing the inspiration behind his or her business model and why the model was on the verge of heralding “the next big thing”. Sadly, passion and ‘big talk” are not often enough to help small businesses survive the first twelve (12) to twenty-four (24) months of their business life. The jury is still out as to what percentage of start-ups or small businesses fail within the first two years of commencement of business operations. While some researchers have put it at between 80%-90%, some others have put it at about 50%.

Following my experiences with small businesses especially here in Nigeria, I will outline a few reasons why I believe small businesses fail and what they can do to survive the first few years of possible turbulence.

The first part will focus on why start-up/small businesses can do to fail. I will conclude by focusing on what small businesses can do to survive their early years.

So why do small business fail?

The quality of the idea: The number one aim of a business is profitability and the seed that births profitability is the idea that is translated into a business model. Most often than not, entrepreneurs do not subject the quality of their ideas through the required rigor and stress testing before taking it to market. This is one main reason why small businesses in Nigeria fail. No matter how exciting and innovative an idea might sound, it is pointless taking it to market if its profitability and sustainability have not been tested.

Motivation and Passion is not always enough: In today’s Nigeria, motivational speaking and inspirational talk appear to be the new “cool” and as such many entrepreneurs find themselves listening to a lot of these speakers, as they attempt to start or reposition their businesses. While there is nothing wrong with the activities of motivational speaking and “coaching”, the reality of starting a business goes beyond the excitement that comes after being exposed to a “think big, dream large” session or a “don’t walk on the earth start from the sky” message. There are many other things that must support one’s passion or excitement – such as technical competence/skills, structured execution of strategy, effective cash-flow management, hiring the right people for the right roles at the right time to mention a few. These elements when mixed with passion, energy and excellence in the right business environment will help a great deal in achieving success.

Taking giant strides instead of baby steps/Poor planning: “The journey of a thousand miles, starts with a step”. This is a simple but difficult reality to implement for most small businesses in Nigeria. The “going concern” status of every business should be considered a marathon and not a sprint. Unfortunately, most start-ups today have elected to take giant strides at the commencement of their business operations instead of the required baby steps. In Nigeria, societal pressure sometimes pushes a lot of entrepreneurs to do things in the early days of their business. This ends up being detrimental to the medium or long term survival of such a business. They sometimes begin with incurring expenses that at best can be described as wasteful for example, setting up fancy offices, aggressive above-the-line marketing, acquisition of operational vehicles, a full complement of staff etc. While there is nothing wrong in doing these things, the reality is, most small business owners commit funds that should be used for the core of the business on non-essentials – which at best satisfy their egos and give them a false sense of societal acceptance. In no time, they have used up funds that should be used for the core of the business on non-core business activities.

No Staying Power: Most entrepreneurs, today, lack what may be termed as “staying power” as they give up their ideas once they hit any brick wall on their journey. Entrepreneurs are expected to brace up for turbulent times especially at the beginning when it appears that all that was thought through may have been wrong. The right mental attitude, coupled with a clear plan, proper structures and effective cash flow management will be required as you ride the waves. A dogged and resilient attitude in the face of serious opposition to the set objectives is most often missing in most entrepreneurs especially within the younger generation. The saying that life is not a bed of roses is applicable to businesses too. It may not always be smooth but entrepreneurs with staying power ride the waves and always come out stronger and more profitable.

Poor Records Keeping: Most entrepreneurs are guilty of not keeping proper records of activities concerning their businesses. Truth is,most entrepreneurs don’t set out with the mind-set of not keeping proper records; yet a large number fail to keep track of business activities or transactions.

In Nigeria, many micro and small scale entrepreneurs fund their activities from savings, friendly loans or even gifting’s from family members. These funds, which may come in form of cash in hand, are easily expended without keeping track of such outflows. Sometimes, assets may be purchased, transferred or even given out but most entrepreneurs fail to recognise and record these activities as they occur.

At every stage of business, from ideation right through to actual incorporation and commencement of the business, resources are deployed and put to use. Sometimes these resources are deployed so quickly that capturing them at a later date may either be impossible or done without the required accuracy. Absence of accurate records often leads to poor decision-making, and poor decision-making is normally the foundation for failure.