How solo entrepreneurship hinders the growth of SMEs

It is said that if you want to go fast, go alone; but if you want to go far, go together. By the look of things in the country's business landscape, many entrepreneurs are interested in going fast, notwithstanding that they still want to go far.

And that could be the problem with the small and medium enterprise (SMEs) sector, where solo-entrepreneurship thrives, especially among micro enterprises.

Flora Mutahi, founder and chief executive of Melvin Marsh International, the 30-year-old firm behind the Melvins Tea brand, describes this as 'the alone syndrome'.

Apart from entrepreneurs struggling with the strategy gap, limited leadership, ecosystem disconnect and capital misuse, Ms Mutahi notes that most startups are unwilling to open up their enterprises and would rather do it alone.

She references data from The Economist that 70 per cent of African businesses operate as solo-entrepreneurs. The data also shows that less than five per cent of businesses on the continent have access to networks or structured advisory.

"So, the other 95 per cent is you, God and your experiences," she says. "You cannot keep doing the same thing and expect a different result. And globally, mentored businesses grow three times faster."

While addressing a section of entrepreneurs at the Biashara Britam Network, organised by Britam Holdings, a financial services firm, Ms Mutahi associated these challenges with the low contribution of MSMES to the country's gross domestic product (GDP) when compared to established firms.

While MSMEs encompass 75 per cent of businesses, a majority with under five employees, they just contribute 40 per cent of the country's GDP.

"The saddest thing is fine, we contribute 40 per cent of GDP, but those who are way less than us contribute 60 per cent. This narrative has to change," she said. "We have all the potential, but we are stuck with survival."

Ms Mutahi noted that when she began her enterprise three decades ago, while she did not have a roadmap, she learnt how to build systems.

"I looked for mentors, coaches because I had to. Most importantly, I stopped trying to do it alone. That is another problem I find with SMEs. You saw the statistics, why are we trying to do it alone? If you really want to build a business to scale, you cannot do it alone," she insisted.

She said her stint as Kenya Association of Manufacturers (KAM) chairperson played a key role for her business, noting that though her enterprise was young, being in the midst of established firms such as Bidco, was eye opening, as she realised, they face the same challenges.

"For them, solutions are at their fingertips," she said.

Kenya has about 7.5 million MSMEs, 1.56 million licensed, while the rest operate unlicensed, according to 2016 figures by the Kenya National Bureau of Statistics (KNBS). These MSMEs are responsible for 14.9 million jobs and contribute 28.5 per cent to the GDP.

"Most of the unlicensed establishments were being operated at the household level," reads The 2016 National Micro, Small and Medium Establishment (MSME) Survey.

According to KNBS data, 46 per cent of businesses never live past their first year while 15 per cent do not survive beyond two. Some 11 per cent close between six and 10 years while 10 per cent do not live past three years.

The major reason for closure is shortage of funds, 29.6 per cent, followed by personal reasons, 22.9 per cent, and too few customers, 15.3 per cent.

There is also shortage of stock or raw materials, too many competitors and legal problems among them government regulations.

According to the KNBS survey, men and women associations are the leading support groups for MSMEs followed by other businesses and rotating savings and credit associations (Roscas).

Absa Bank Kenya Head of SME Banking Erastus Muthura noted that not having a structure, which encompasses a team, may make an entrepreneur not realise that it is time to scale. "You find an SME is ready for take off, but they do not realise it because they are not growing beyond the founder," he says.

This, he notes, is a very big challenge for successful enterprises where owners are not willing to open up their establishments for succession or bring in someone else.

"Succession planning is not just about bringing in your son or daughter. It is about bringing in someone else, who has a different set of skills, networks, and capacity to take your business to the next level even in your absence," he says.

Britam General Insurance Chief Executive James Mbithi points this out, saying that one of the reasons the financial services provider seeks to partner with entrepreneurs is to de-risk their entities and provide longevity beyond the founder.

"A number of sole proprietors, and people who play in the SME sector, are actually a disease way from being declared bankrupt," he says.

KAM Vice Chair for the SME Hub Ayusa Ondieki noted that some simple issues such as standards can be complicated to SMEs which makes having a team necessary.

"A simple thing like standards, even someone being aware that these are the standards, as an SME is key. Sometimes, as an SME, you do not have the capacity to know all the standard requirements," he says.

"That is why associations such as KAM give us that platform to network and avoid solo-entrepreneurship."