Unpacking the SME market access challenge
Allon Raiz, Zaid Mohidin and others discuss the big disconnect between small businesses and big corporates
"Starting a business is like trench warfare, there are bullets flying everywhere," says Jason Goldberg, who is behind enterprise development firms 10X-E and Edge Growth, and is head of growth support of the Vumela Fund, a social venture capital fund.
Goldberg was speaking at the Business Day TV SME Summit held this week in Sandton, Johannesburg. The event provided strategies that SMEs can use to help dodge these so-called bullets, and show a measurable return on investment (ROI).
The event hosted a panel discussion where four panelists discussed the importance of access to markets, specifically the challenges faced by small businesses and possible solutions.
The panelists included: Martin Feinstein, CEO of entrepreneurial network, Enablis South Africa; Allon Raiz founder of the business incubator and sponsor, Raizcorp; Zaid Mohidin, CEO of New Generation Mindset, an enterprise and supplier development firm and Bernard Swanepoel, president of the AHI, a business chamber.
A broken model?
Because of preferential procurement requirements, corporates are actively looking to buy from small businesses, and SMEs in turn, desperately want to supply big corporates, however there is often a disconnect.
Feinstein said one of the reasons why the model is broken, is the current mechanisms of procurement - the ways in which products and services are obtained - and that big companies often apply the same old mechanisms to small suppliers.
"Procurement is a complex process at the best of times. It has a legal dimension, a commercial dimension, technical dimension and it's often very difficult for procurement decision makers to comply with internal policies and do justice to enterprise development and give opportunities to small businesses. So we need to see some degree of flexibility in internal procurement processes and decision making," Feinstein said.
Adding to the broken model are challenges with funding. Raiz said big corporates sometimes place too much pressure on small businesses to obtain funding.
"You're funding a model that is broken from the beginning. Effectively what you're doing is you're creating more debt for the future, because if you fund a model that is broken, you just reinforce the loss," said Raiz.
Although big corporates are to blame for some of the procurement shortcomings, SMEs also contribute to this failure, said Feinstein.
"I don't think business owners pay enough attention to what it means to be market ready. We talk about market access, but let's also talk about market readiness, which means having customer-focused solutions, knowing how to develop high trust relationships with potential clients and existing clients, positioning yourself as low-risk, because corporate buyers and decision makers don't want surprises and problems," he said.
Mohidin reinforced the importance of market fit and that it is important for SME owners to match their business model to what they want to accomplish.
"We see companies with this old strategic operating model. When you develop SMMEs, you need to understand what's the objective - is it to have a powerful supply chain? Is it to address the total cost of ownership? Once we understand the objective of the business, we can determine which mechanisms are right to empower SMMEs - that's access to markets," Mohidin said.
Yet another disconnect is the one between government and the private sector, which Mohidin said is a hindrance.
Swanepoel said government should not be the one driving the economy and that because the growth of the economy lies in the hands of SMEs, they should be supported.
"The small business sector needs to create jobs. And while you can't [expect a small business to create] a 1000 jobs, it's about creating one or two at a time. In the AHI we challenge our members. We have about 10 000 or 11 000 real businesses as members, if each of those businesses creates one or two more jobs, that would be stunning," Swanepoel said.