Too many SMEs died in Kenya within the last five years. Experts now give their take on how such businesses can be grown to the next level
By Ben Oduor
Did you try your hand on some small business but it failed to see its second or third birthday? I bet a handful has and it’s apparent the business died almost instantly. But you were not alone.
A 2016 survey by Kenya National Bureau of Statistics (KNBS) reveals that almost 400,000 Micro, Small and Medium Enterprises (MSMEs) did not see their second anniversary in the last five years.
The report also reveals that a total of 2.2 million MSMEs closed shop during the years of review, leading to lose of millions of jobs.
The report notes that most of the businesses died because of declining income, increased operating costs, tough economic environment and faulty business decisions. But what could have been done to save them?
Tabitha Karanja, the founder and CEO of Keroche Breweries- the first Kenyan-owned beer manufacturer, acknowledges the rough terrain startups walk as they strive to grow.
She, however, says getting into the murky waters of entrepreneurship requires one to come up with unique business ideas that answer local challenges- those that solve problems and bridge gaps.
The CEO has run her brewer for 20 years, starting off in 1997 at their matrimonial home with her husband Joseph Karanja, after their research showed that drinking patterns within the middle level and low-income earners segments of the market was underserved by the already established liquor manufacturers.
The multi-nationals at the time drew their niche in the upper markets leaving the low and middle markets with limited options. It is then that they felt there was urgent need to manufacture more affordable, hygienic and locally produced liquors.
She has, however, had to overcome myriad challenges. For instance, she was at some point forced to defend her company from claims by rival companies that she ran unethical and unhealthy business. But that did not stop her from pursuing her ambitions.
The company has now curved its niche on the lower, middle and upper classes with products such as summit lager, malt, valley wines, Sauvignon Blanc, Pinotage and Chenin Blanc.
Karanja says startups must nurture a global mindset while conceiving business ideas, craft attractive business plan and instill professionalism in whatever they do.
“Banks are attracted to clearly thought-out and visionary business plans. This, coupled with focused projections convinces financial institutions to buy into and finance your ideas. You also have to think global to attract business partners,” she says.
Even though it’s good to be ambitious, the CEO advises, entrepreneurs must start small.
“It is only by considering the micro status of the business at its conception that one is able to plan properly with limited resources and grow it to a bigger enterprise,” she says, insisting the startups must be ‘focused and work so hard to grow the businesses.’
Business financing, she adds, is equally important. “You cannot run an enterprise without acquiring loans at some point. Banks are important stakeholders in the growth of businesses hence you must confide in them armed with properly constituted business ideas.”
Dr Gilbert Saggia, MD of SAP East Africa says structuring the business properly and avoiding the ‘copy paste’ approach is the best strategy for growing a micro enterprise. He regrets that many businesses have died for offering the same services without any objective planning.
He says one has to be unique when approaching the market and have proper books and records of the business transactions.
“It’s essential to keep good records and books so as to attract capital for running the business. No institution will finance a disorganized business that will give losses rather than profits. Banks want returns, not losses.”
Dr Saggia also believes employing talented staff and automating services gives an edge to young businesses.
On planning to venture into business, Jeff Ngetta of Spire Bank says one should ask: Do I really have the requisite skills for running this kind of business? This, he says, can help the entrepreneur address local business challenges before thinking global.
He asserts that most SMEs are founded as ‘side-hustles’. The owners run them alongside their formal jobs hence fail to give them the attentions they deserve for systematic growth.
“With time, such businesses die since they lack the professional structures required to run a serious venture.”
However, to prevent the death of such an already started enterprise, Peter Kinuthia, Director in KPMG Advisory Services Limited says entrepreneurs should lay out a comprehensive plan on how they want to grow the business to the next level.
He shares sentiments with Dr Saggia that most SMEs die out because they copy business ideas, styles and approaches from each other. This, he says, floods the market with the same products making it hard to sell.
According to Patricia Ithau, a Director at Kenya Private Sector Alliance (KEPSA), most startups never look beyond their noses. They are interested in harvesting quick cash from the business hence fail to grow them to the future.
Starting up, she advises, entrepreneurs should always put some basic system in place so as to record whatever they do on daily basis. This gives a guide on any developments or drawbacks in the business.
She believes conforming the enterprise to the market trends is an important breakthrough for any business. In such a technology driven era, for instance, businesses should advance with technological changes.
“One of the best accounting software businesses can use to manage sales and expenses is the Quickbooks. It can keep the entrepreneurs abreast with the daily business transactions,” she advises, adding that entrepreneurs should work hard to grow their businesses and support the SME sector, which is the lifeblood of the economy.