Small and medium enterprises, or simply SMEs, are an important pillar of Kenya’s economy, creating millions of jobs and driving innovation in key sectors of the economy. Apart from propelling economic growth and development, SMEs also underpin the social transformation of communities through livelihood opportunities and poverty reduction.
However, the current economic landscape dominated by high interest rates, fuel price hikes, rising taxation, decline in disposable incomes, and reduced consumer spending, is threatening the long-term viability and survival of many small businesses. Hence the need for sustainable growth strategies, to enhance the resilience of small enterprises to such disruptive shocks, while boosting their ability to thrive into the future.
This entails nurturing ‘future-ready SMEs’ that exhibit a strong capacity to overcome prevailing macroeconomic challenges while generating 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 traits: long-term growth, societal impact, and adaptive capacity. So, how can SMEs in Kenya navigate the tough times and become future-ready?
First, they need to invest in income and revenue streams that enable them to achieve sustained growth. This includes product diversification and geographical expansion to capture a wider market. One of the factors hindering SME growth is focusing only on one product or market. This is of course not a walk in the park in the prevailing context of deteriorating consumer spending. However, with a little bit of innovation small enterprises can venture into uncharted territory and offer unique value propositions to customers.
Take the case of businesses that thrived during the Covid outbreak four years ago by coming up with imaginative ways of sustaining clientele during the lockdown by embracing home delivery. As they say, never waste a crisis but use it as an opportunity to learn and grow.
Second, SMEs must re-evaluate their true purpose in society. Successful businesses are those that address and solve a real problem facing human society. In the process, they build a loyal base of customers who keep buying their products and services. Every SME must define what it does best and focus on that “sweet spot” to thrive.
Third, SMEs need to come up with clear strategies to enable them to adapt to the changing business environment. One such strategy is innovation. From the example above of businesses that turned the pandemic into a massive business opportunity, innovation represents one of the most effective methods of overcoming adversity.
In addition to adapting to dynamic market realities, SMEs need to build resilience to secure business continuity. This entails building a reservoir to act as a buffer for tough times. This way, the business is still able to meet its obligations to customers, creditors, suppliers, and regulators thus minimizing the risk of severe liquidity challenges.
Another strategy through which SMEs can enhance long-term viability is through growing their business networks. Joining industry bodies like private sector associations and trade chambers allows them to tap into an expansive business ecosystem to grow their market.
However, in pursuing these goals, SMEs also need to manage costs efficiently. Nowadays, technology has helped streamline business processes in unprecedented ways thus saving time and money and providing much-needed customer convenience.
And while it is true that the majority of SMEs lack access to financing, working with a financial partner who understands their needs is crucial. Such a financial partner can provide working capital solutions especially when the business is facing liquidity constraints as is the case with many small and medium-sized firms in Kenya at the moment.
Innovative trade finance solutions also go a long way in boosting the ability of a business to tap into new markets.
Related Content: Kenyan Banks Have A Role To Play In Strengthening MSMEs
Mr. Ouma is the Acting CEO, of Faulu Microfinance Bank Limited. His email is Marketing@faulukenya.com
