Small and medium-sized enterprises, or simply SMEs, are a key pillar of Kenya's economy, creating millions of jobs and driving innovation in key sectors of the economy. Small and medium-sized enterprises not only drive economic growth and development, but also support social transformation in communities through livelihood opportunities and poverty reduction.
However, the current economic climate, dominated by high interest rates, soaring fuel prices, increased taxes, reduced disposable income, and decreased consumer spending, threatens the long-term viability and survival of many small businesses. Sustainable growth strategies are therefore needed to strengthen the resilience of SMEs to such disruptive shocks while increasing their ability to grow into the future.
This requires developing “future-proof SMEs” that demonstrate a strong ability to overcome prevailing macroeconomic challenges while creating long-term financial, economic and social value. The term “future-ready” is said to have been coined by researchers at Aston University in the UK to refer to “a set of capabilities and orientations that enable companies to thrive in the future.”
They characterize future-ready businesses as having three key characteristics: long-term growth, social impact, and the ability to adapt. So how can small and medium-sized enterprises in Kenya survive difficult times and prepare for the future?
First, you need to invest in income and revenue streams that allow for sustainable growth. This includes product diversification and geographic expansion to capture a wider market. One of the things that hinders the growth of small businesses is focusing on only one product or market. Of course, this is not a walk in the general context of deteriorating consumer spending. But with a little innovation, small businesses can venture into uncharted territory and offer unique value propositions to their customers.
Consider the case of a company that thrived four years ago during the COVID-19 pandemic by devising imaginative ways to retain customers during lockdown by embracing home delivery. As the saying goes, never waste a crisis, use it as an opportunity to learn and grow.
Second, small businesses need to reevaluate their true purpose in society. Successful businesses address and solve real problems facing human society. In the process, you build a loyal customer base that continues to buy your products and services. All small businesses need to define what they do best and focus on that “sweet spot” in order to grow.
Third, SMEs need to develop a clear strategy to be able to adapt to the changing business environment. One such strategy is innovation. The above examples of companies that turned the pandemic into a huge business opportunity demonstrate that innovation is one of the most effective ways to overcome adversity.
In addition to adapting to dynamic market realities, small businesses must build resilience to ensure business continuity. This requires the construction of reservoirs that will act as a buffer during difficult times. In this way, companies can meet their obligations to customers, creditors, suppliers and regulators, and minimize the risk of serious liquidity problems.
Another strategy for small businesses to increase their long-term viability is to expand their business network. By joining private sector associations and industry associations such as chambers of trade, you can tap into a vast business ecosystem and grow your market.
However, when pursuing these goals, small businesses also need to manage costs in an efficient manner. Today, technology is streamlining business processes in unprecedented ways, saving time and money, and providing much-needed customer convenience.
While it's true that the majority of small businesses don't have access to financing, it's important to work with a financial partner who understands the needs of small businesses. Such financial partners can provide working capital solutions, especially when businesses are facing liquidity constraints, as many SMEs in Kenya currently are.
Innovative trade finance solutions can also go a long way in increasing a company's ability to enter new markets.
Julius Ouma, Acting CEO Faulu Microfinance Bank Limited (Marketing@faulukenya.com)
