Critical Success Factors for a vibrant SME Sector in the UK and Malawi

Introduction

A recent article in the Harvard Business Review (June 2010) identified eight stimuli to move ‘the needle' of entrepreneurship in the right direction. See ‘How to start an Entrepreneurial Revolution' by Daniel J. Isenberg. Rwanda, Chile, Israel, Iceland and Ireland are cited as examples of developing practice.

The impact of the various factors is significantly influenced by the stage of economic development of the country, the level of accessibility to key enablers such as finance and cultural norms regarding entrepreneurship and wealth creation. For example, the UK may be considered to be fairly mature in this respect – if still not particularly well focused or ‘joined up', Malawi, in contrast, is essentially a cash based, rain dependant agrarian economy.

For the purposes of this article the eight factors have been additionally (and subjectively) categorised using a notional ‘time to develop'.

Short Term (say 6-12 Months - capable of immediate action)

1. Engaging the private sector

• In the UK, there appears to be no shortage of willingness to become engaged:
  • Many large companies are now working with SME's, for example, as part of their R & D value chain.
  • Some supermarkets will engage with small scale suppliers and have a local sourcing policy. There is some evidence of this in Malawi although supply side co-operatives and bargaining power are not well established.
• Both in the UK and Malawi, mentoring is now an accepted form of knowledge and experience transfer. Good examples are the SEEDA Merlin Mentoring Scheme in the UK and, on a smaller scale, Business Consult Africa's programme in Blantyre.
• In Malawi, mentors and mentees appeared to be more reluctant to engage. In a briefing session with mentors, I encouraged them to take more responsibility for keeping the relationship alive.
• Business Angels have not been immune from the economic downturn but still contribute significantly in the UK. In Malawi, funding tends to come in a more informal way from friends and family.

However:

• Banks continue to get a mixed press in terms of their willingness to support the SME market in both countries. This is particularly so in Malawi where only about 20% of the population have bank accounts, there is an acute shortage of working capital and a focus on a property 'anchor' to secure much of the business lending.
• Middlemen SME's often feel discriminated against when it comes to the terms of trade where suppliers demand upfront payment and buyers take longer credit periods and even then still settle late.

2. Encouraging and celebrating success

• As the saying goes – ‘success breeds success' - so role models who illustrate what ‘good looks like' are particularly valuable. They can have a catalytic effect at both a personal and business level. In the UK, personalities come in to play here such as Richard Branson and Sir Alan Sugar.
• A BBC television programme ‘Dragon's Den' gets budding entrepreneurs pitching their ideas to a panel of self made men/women who may then invest their own money if they find the proposition attractive. This is a good way of developing an understanding of what good looks like as well as appreciating the levels of creativity and innovation.
• Culture plays an important part here – which we'll look at again later. This is not just in terms of attitudes to success but attitudes to failure as well. It may be trite but it's true – mistakes are learning experiences. As they say, if you're going to fail, then fail quickly.

3. Subjecting financing programmes to market disciplines

• The UK SEEDA mentoring programme, which I was involved in, was provided free and funded by a £1m European Social Fund grant. It involved 70 mentors and 270 companies over a three year span. It was probably ‘forced' to chase volume as there were targets for the number of mentors and companies.
• In Malawi, the CBE (Capacity Building for Enterprise) project funded by the Scottish Malawi Business Group provides consultancy services to MSMEs (micro, small and medium sized enterprises). The project charges $150 per consultancy day which is upper tariff by their standards, 50% of this is recoverable – but in arrears - under a World Bank/Malawi Government scheme.
• This, of course seems counter intuitive. The need to kick start entrepreneurship is arguably stronger in Malawi yet they are subject to the more rigorous market approach. The constraint here would appear to be the principle of ‘Sustainability' where NGO's and third party donor funds are involved
• In both cases, from my experiences, the businesses being supported were modest in scale and scope and likely to remain so for some time. Nonetheless, the financial support was more justified in Malawi.
• In a recent survey s in the UK by Skillfair, 85% of freelance consultants felt SME's should pay for advice although a free upfront meeting was seen as a legitimate part of the sales process.

Medium Term (say two/three years - requiring a change of strategy/policy/regulation etc.)

4. Being judicious in emphasizing clusters and incubators

• The article suggests that the success of Silicon Valley was based on a number of unique factors which are not necessarily capable of being replicated elsewhere. So, as a model it's not seen as particularly helpful although other countries have taken this route also – see, for example, 22@Barcelona and the Design District, Helsinki.
• Blantyre has its own Trade Centre where a diverse range of businesses sit side by side. It wasn't uncommon in the country to see roadside stalls grouped by produce such as vegetables, mats, carpets and pottery. These were natural clusters but difficult to make sense of economically because of the concentrated over supply.
• The message here is that one size doesn't fit all. Isenberg in the HBR article talks about ‘an ecosystem' and NESTA in the UK talks about ‘mass localism'. In a sense these are evolutionary principles with a mixed ‘tight/loose' approach (circa Peters & Waterman) which encourages organic, spontaneous and experimental rather than forced development.

5. Removing regulatory barriers

• Both communities are quick to point out the unhelpful regulatory, fiscal, support and macro economic environments in which they operate with bureaucracy generating so much ‘red tape'. Such is life; real entrepreneurs don't waste time on what they can't influence in the short term although this doesn't mean they don't lobby through the appropriate channels.
• In this respect, whilst the UK benefits from shared general interest groups such as the Chambers of Commerce and the Federation of Small Businesses, these are less well developed and therefore less influential in Malawi. Business Consult Africa was trying to set up just such a network,
• In Malawi, also, there are some other issues which can be discriminatory in terms of one business versus another. One is the application or rather lack of it in the tax collection process. In a workshop session which I facilitated, Malawi businessmen and women talked about how disadvantaged on price they were if they registered and were paying tax and competitors weren't,
• In addition, in certain parts of the bureaucracy there were ‘gatekeepers' who had to be ‘encouraged' to deliver what they were being paid to do anyway. The workshop participants labelled this as ‘corruption' although I could not possibly say this!

Long Term (say 5/6 years – endemic, behavioural and problematic)

6. Passing conducive legislation

• In the same way that structure follows strategy, I believe that, in essence, legislation should be used to appropriately underpin a proven and successful operating ‘ecosystem' if you will.
• Small business creation is essentially Darwinian – as in the survival of the fittest. Tampering with the system too soon creates artificiality unless there is demonstrable evidence for positive discrimination. Otherwise, this is not a place for legislators.

7. Approaching the entrepreneurship ecosystem as a whole

• Many of the pressures of everyday life for most of the stakeholders in this debate (owners, shareholders, politicians, legislators, ethnicity, customers and so on) mitigate against a systems based strategic view of what is happening now let alone defining what is good for the future. There is no steady state here; flexibility and adaptability should be the hallmarks.
• In Malawi, there are a number of ‘richer' issues also:
  • A view that it is unacceptable for external bodies to label Malawi a ‘failed state' as a recent report did.
  • The funding by China of a number of significant building programmes which are well publicised and allows them to present and propagate an alternative social and economic model.
  • The ‘soft' democratic state of Malawi and an understandable desire given the history of Africa in general for a workable consensus above conflict – see the debate on changing the national flag.

8. Modifying cultural norms

Notes

1. This change has been categorised here based on the HBR article which suggests such change is ‘generational i.e. ten years or so.

2. Malawi society allows for both business men and women.

• This table should not be considered as exhaustive but illustrative in terms of the barriers that need to be considered:

;

Issue

Malawi

UK

Work Ethic

• Generally energetic
• Will often have two jobs to supplement income
• Women have bonding ‘housekeeper' role particularly in rural areas
• Men generally believe there is a correlation between work, rewards and pleasure
• Men & women work
• City v rural not such a distinction

Family formation

• Average six children in rural areas & four in cities
• More career/income managed amongst professional classes
• High unmarried pregnancy rates

Infant mortality

• High say 30% under five because of the impact of malnutrition and malaria
• Western norms

Attitude to authority

• Generally compliant;
• Few avenues for dissent
• Generally disinterested but pockets and channels for agitation

Business Support

• Low take up of subsidised funding e.g. BUGS (26% 6/2010 against target 60%)
• Difficult to identify myriad of sources

Attitude to risk

• Followers rather than innovators
• Initial response typically ‘yes'
• Anaesthetised  by historical longevity of employment and prevalence of  public sector e.g. UK and Saudi Arabia

Wealth Creation

• Should not be conspicuous
• May literally hide money in the ground
• Few overt role models
• Immature banking habit
• Materialistic
• Personality Brands e.g. Richard Branson
• But backlash to excesses e.g. bankers

Profit Motive

• Trader mentality focused on ‘doing the deal' irrespective of economic fundamentals
• May be seduced by volume and attraction of new v existing customers

Symbols of Success

• Fat and apparently happy
• Cars are ok
• Usually some form of conspicuous consumption such as cars/wives/

homes/holidays/media attention

Entrepreneurship

• Usually runs in parallel to existing employment
• Still a minority of the working population
• Currently being squeezed by corporate downsizing and declining asset values of. houses and pensions

Scaling the Opportunity

• Little experience beyond sole trader
• May be just enjoying the lifestyle the business supports
• Franchising models available