A recent survey by the Kenya Bureau of Statistics (KNBS) indicated that over a span of five years, more than two million small and medium enterprises (SMEs) closed shop.
Between 2011 and 2016, more than 2.2 million SMEs had shut down, according to KNBS, putting the average rate of collapse for the companies, mostly start-ups, at over 400,000.
The survey attributed the high rate of failure to a mix of factors, including a harsh operating environment that resulted in reduced earnings while increasing costs of doing businesses as well as the blunders by business owners.
This is a major concern for an economy that is in dire need of jobs even as the Government desperately has to grow taxes.
It is also a blow for local enterprises, with a huge expectation placed on SMEs that eventually transit to large enterprises.
Thus begs the question, is it possible to create a local company that can live past 100 years or will this remain a field of play for multinationals? This is not unique to Kenyan entrepreneurs but across the region, with management consultant Dr Rudolf Absil of Gemini Consulting noting that many business founders tend to outlive their businesses, which collapse in their lifetimes.
“Establishing a ‘hundred-year’ company is about establishing brands and companies that are sustainable in the long term. This is very challenging, especially in our environment today where many companies do not last longer than 30 years. Many founders may not see their companies last throughout their lifetime,” he said.
Dr Rudolf noted that for a firm to be versatile enough to last over 100 or even more years, it has to have a long term vision, which is then broken down into short term plans that then are revised to be in tandem with the changes in the environment that take place over time.
“If you want to have a perfect product, you must have diversity in your organisation and this enables you to counter any threat,” he said.
Dr Absil, who spoke in Nairobi at a conference organised by A&J Global – the Kenyan partner of Gemini Consulting, also pointed out the shifting of certain norms that have held true in the past but are relative in today’s environment.
These include the age-old belief that ‘big is best’. While noting that there are perks that come with being a big company including better returns to shareholders, it is always not true and sometimes smaller and more agile firms tend to be more profitable than bigger companies.
Thus while in terms of absolute numbers, a giant might be making more money, a smaller company implementing smart strategies could be raking in more compared to how much it has invested. “If you are the biggest player in the market, you are not guaranteed to be the most profitable. Only seven per cent of the 60 biggest companies are profitable”
“Big is not beautiful anymore. What is more important, do you want to be the biggest or the most profitable? What is happening today is that the winners are winning bigger and the losers losing in a big way,” he said.
Dr Absil also noted that cutting costs, an easy to resort to option or firms whenever they have seen a sign of trouble, was not necessarily the best route for a company to succeed.
Instead, the heavy focus should be on putting people first and enabling them to succeed during the transformation and beyond as well as installing a culture of continuous learning. “There is a common misconception about cutting costs. Just by cutting costs or losing weight alone will not get you across the finish line with a winning time. It is about creating a winning organisation by looking at your strategy, your costs, and your assets.
To grow, you need to increase your revenue and this can be through new products, bigger markets, better services or consolidation. But you also need to lower your costs while sweating your assets. Jotham Gichuhi of A&J Global, the Kenyan Partner for Gemini Consulting, noted companies have to change to fit in to increasingly changing the environment.
“Globalisation has brought challenges. How can we come up with a strategy to handle these changes that will keep on happening every now and then?
We have a lot of disruptions in the market and they leave us better or worse depending on how we configure our organisation to fit in that space,” he said.
“The strategies that we used to use years ago to manage issues and people no longer work. We are looking at how to play thin, remain efficient and effective in the market place.”