Basic foundation for any small and medium enterprise (SME)

Chiedu Okonta

Chiedu Okonta, FCA, MBA (LBS), BSc accounting, a professional banker and an experienced Corporate Governance expert, is the chief executive officer of Rivergate Onyx Investment Limited, and the author of two books, Keys to Sustainable SMEs and Stamp Out Fraud From Your System. He can be reached  on +234 (0) 907 9103 248; and chieduokonta1@gmail.com (texts/chats/email only)

Every great business in the world today started at some point as a small or medium establishment. There are fundamental principles required for a solid foundation of an SME, which have been the major success factors of many businesses that have transformed from SMEs to long lasting global giants, of which these key factors are as follows:

Foundation

1. Distinguishing between the business and the owner/proprietor: This is a process where every business decision in respect of the entity should be based absolutely on the overall best interest of the organisation. This principle should apply to all areas of the business, including, but not limited to: choice of products/services; choice of suppliers, choice of business locations, staff recruitment, remuneration, discipline, expenditure management, management of the business resources, investment decisions, pricing decisions, among others. This is one of the most vital requirements for business sustainability. 

Though many people are aware of this factor, it is not easy to actually implement it in one’s businesses. This is because it requires a lot of courage, discipline and consistency to ignore the natural tendencies for sentiments, emotions, and impulses associated with humans. The driving force to implement this seemingly painful factor in an entity, is to insist on taking only such business decisions that satisfies the overall best interest of the business in the long run!

1. Documented vision, mission, & policies 

• There must be a documented clear vision and mission of the business. It does not have to be sophisticated. While the vision should point everyone to the destination of the business; the mission provides the direction or ‘the how’ to get there.

1. Policies: Each SME expecting to build sustainable growth ought to have its policies, which are the set of rules that must guide every action, every process and every member of the business. This is quite important to eliminate subjectivity and arbitrary handling of issues. It promotes standardisation and objectivity in arriving at decisions affecting every aspect of the business. The policy statement must cover every key aspect of the business. Broadly speaking, it  should include:  Human resources issues; expenditure issues, key areas of the business, operational issues’ accounting issues and corporate governance issues.

1. Communication: It should not just end at having the visions, missions and policies for the organisation, there must be clear and proper communication of such information, to all concerned. There must be a deliberate attempt to enforce the implementation of the vision, missions and policies, among all the stakeholders. In particular, there should be the willingness and readiness to enforce its application at all levels, with applicable consequence management for non-compliance.

• The key product or services for the SME

• Our choice of product or service to offer to our customers, to a large extent, will determine the extent of our business patronage.  The choice of the product or service to render must seek to satisfy the compelling needs of the people at your disposal. This is so important, because it is naturally irritating to anyone being forced to buy what he/she does not need. We need to bear in mind that products/services demanded at one location may differ from one location to another, and from time to time.

• The product/service should be the type required by customers 

The extent to which an individual would require a product/service would depend on the extent to which he/she finds the product/service necessary for his/her existence. A 50 percent price reduction in a 5-star hotel service, most likely, would not attract a medium/low income earner to patronise the 5-star hotel. Whereas, such individuals may not change their minds if the general price levels for basic food items increase by 20 percent.

The extent of changes in consumer demand for goods/services is measured in economics under elasticity of demand. In general, the more individuals are unlikely to change their demand behaviour for a particular good/service due to changes in prices, the more INELASTIC the demand for the product/service. On the other hand, if individuals demand behaviours are more prone to changes, in response to change in price of goods/services, then the more ELASTIC the demand for such goods/services.

Thus the more inelastic the demand for a product/service is, the more beneficial it is for the SME and vice versa.

Applying the principle of Maslow’s Hierarchy of Needs, the products and services that meet the basic needs of the society have proven to be the goods/services with higher INELASTICITY, which implies that the consumers would keep demanding for them irrespective of slight changes in prices. This includes the goods/services that meet the physiological needs of man, such as food, shelter, and healthcare.

• Non-seasonal products/services are preferred for SMEs sustainable growth

• It should be a product/service people buy and pay for immediately.

• Finally, it is better to have a product that attracts more customers than you can serve!

Competition can involve a lot of intrigues that could be very costly for any organisation. In order to reduce the cost of advertisement or the cost of competition, the entrepreneur, as much as possible, should strive to deal in products/services that have a ready customer base anywhere and anytime. This is better than having a product/service that would force the SME to be at the mercy of customers.

The SME must build competitive edge for its product/service

It does not matter how much a product or service is demanded by customers; in order to ensure sustainable growth, the SME should ensure in-built competitive advantage for its product/service. This is a process whereby the SME distinguishes its product/service offerings by providing excellent and superior customer services with personalised touch. The competitive edge can further be created by the SME that employs technology to boost speed and quality of its service offerings.

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