HOW SMES CAN NAVIGATE THE DIFFICULT BUSINESS ENVIRONMENT IN NIGERIA

Small and medium enterprises (SMEs) are the bedrock of economic development in any country. The reason is simple. SMEs are the largest employers of labour, and therefore the driver of an inclusive development of a country. Like Justin Trudeau, Canadian Prime Minister said recently, “When small businesses succeed, we grow our economy, create jobs, and strengthen the middle class”. In fact, it is said that growth driven largely by big corporations does not always result in inclusive development. This is why a country with a high GDP growth rate still has a large part of their population still living in poverty.

Setting up and running a business is a difficult proposition, but it is even more difficult to run a business in a place like Nigeria, with very challenging business environment. It has been established that institutional environment places a limit to some extent, on the performance of a business, all things being equal. This means that the better the business environment, the better the performance of business in that area and vice versa.

Nigeria has been ranked consistently near the bottom of the league in terms of ease of doing business by the World Bank, ranking 145 out of 190 countries in 2018, even though there has been modest progress in the last few years.

Key challenges with the Nigerian business environment

There are many challenges facing businesses in Nigeria, particularly SMEs.

A key one is the difficulty in enforcing contract between parties, and this is due to the nation’s inefficient legal system. Business operations involve lots of agreement between several stakeholders and if you cannot enforce contract where the need arises, then it is very difficult to run a business. It takes a fairly long time to get judgment in an event where you have to go to the court to enforce contracts with third parties. This is particularly difficult for SMEs who may not have the resources and the time to go through such a tedious process. it tends to deter people who would have loved to start or own a business.  Business operations involve lots of agreement between several stakeholders and if you cannot enforce contract where the need arises, then it is very difficult to run a business.

Limited access to capital is another major constraint facing SMEs. Most businesses require access to funds from time to time to expand their business; meet short term fund demand and to take advantage of emerging business opportunities. The limited funds that are available through financial services companies come at a very unsustainable rate and unrealistic short tenure. This makes it very difficult for SMEs, who also faces liability of smallness and lack credit worthiness to access fund. SMEs are sometimes pushed to seek for funding from very unorthodox sources who in turn charge them even more exorbitant interest rates.

Volatile regulatory environment makes it difficult for business to plan effectively. Businesses require a reasonable level of certainty around regulations concerning their business operations. For example, there should be predictability around taxes that businesses are expected to pay. A situation where federal, state and local governments wake up and push through taxes and levies in a bid to shore up their internal revenue generation does not augur well for small business owners. It must be said that this situation is worse in some states than others.

Impacts of the challenging business environment.

The combined effect of these challenges on SME performance is significant.

The cost of running a business (transaction cost) is increased generally, as it could cost significantly higher to operate in a business environment with some of the difficulties outlined above. The higher cost of securing funds, multiple taxations, and high cost of enforcing contracts all add up, leading to higher cost of running a business, and this will ultimately affect revenue and profitability.

It is also very difficult for SMEs operating in a difficult environment to be innovative; the limited innovation is due to the absence of quality information and human resources needed for innovation. Even where information is available, research suggests that it is difficult to extract maximum value from them in a difficult operating environment.  Innovation is crucial for business survival and high performance, particularly in a competitive marketplace. Innovation is a source for new products or services which can bring additional revenue to the firm. Innovation in firm processes can also lead to reduced cost of operation, which ultimately impacts the business performance positively. 

Solutions

Whereas big corporates, particularly multinational enterprises, are able to manage the difficult business environment, it is very difficult for SMEs to do so. Some of the strategies adopted by big corporates include internalization of functions and services that would have been provided by the state, such as sourcing for capital and specialist human resources from their head office or other subsidiaries when the need arises.

Big corporates can also seek to influence government policies by making such policy change, a condition for further investment in the country. These and other strategies adopted by big corporates require a lot of capital and influence which SMEs does not possess.

Options open for SMEs to cope with the difficult business environment include the use of networking. When SMEs act as a group in the form of an association, they are able to exert significant influence close to that of a big company if done correctly. Such influence can then be used to advocate and influence government policies, for instance, in their favor. A good example is the Pillar of Association in Rivers state. This association is made up of trade or business associations operating in the state. They have over time been able, to negotiate taxes and permits with Rivers state government successfully. In the process, their members pay only legitimate taxes, and sometimes, the taxes are discounted for their members. Such discounts also benefit the Rivers state government, as the association is then able to ensure that all their members pay the agreed taxes, leading to very high internally generated revenue with a minimum cost of collection.

The association also defends her members against touts who might want to extort businesses operating in the state. They (Pillar of Association) have taken organizations to court in defense of their members in the past. This is really commendable. Such practices do not only protect her members, but deters others who might want to take advantage of her members in the future.

Currently, the association is in discussion with financial institutions with a view to structuring loans at reasonable rates, with good tenure and minimal requirements.

This kind of association exists in most part of the country. SME business managers should consider joining the credible ones as a way of managing some of the challenges in the Nigeria business environment.

Deliberate individual networking can also be undertaken by business leaders in a way that ensures that they have personal access to key decision makers in relevant private and public organizations. Such access can be exploited legitimately to mitigate some of the adverse effect of the harsh operation environment.

Another way SMEs can deal with the challenges of the difficult operating environment is through the use of consulting services. The use of credible consultancy services conveys credibility on a small business which can then be leveraged to secure resources, such as loan from financial institutions. Lack of credibility is a major challenge for SMEs and it is exacerbated in a place with a poor institutional environment.

An SME can also acquire credible information and know-how from reputable consultancies which can then be used to drive innovation in their company. Such innovation, as mentioned earlier, can help improve revenue for the firm.

 

Source:https://www.businessdayonline.com/opinion/article/how-smes-can-navigate-the-difficult-business-environment-in-nigeria/

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CUSTOMER RETENTION STRATEGIES FOR SMALL BUSINESSES

Losing customers costs businesses, a substantial amount of Money per year. But many small businesses are so focused on bringing in new customers that they forget about the ones they already have.

It is paramount to bring in new customers but maintaining the existing ones also help in expanding your customer base. Below are some tips to follow on maintaining your existing customers:

  1. Sell to old customers, not just new ones.

When planning out your marketing strategies, from direct advertising to search engine optimization, it’s natural to think about how to attract new customers. But put some of that effort into your old customers too.

“Old and current customers know us well,” the Speros explain. “Current customers will often work with us on larger projects than new customers that are just testing us out for the first time.”

Creating a sales and marketing funnel specifically for existing customers is not only key to growing your business, it’s often a better investment of your time and resources. It generally costs five times as much to acquire a new customer as it does to retain an existing customer, according to Forrester Research. If you spend more of your marketing dollars on old and current customers, you will see more return on a smaller investment.

  1. Understand their expectations.

Customer retention depends on customer satisfaction. But many times that satisfaction depends less on the goods or services you provide than it does on expectations. If a customer wants a one-hour consultation to double their revenue overnight, for example, they will be disappointed no matter how good that consultation is.

One of the most common mistakes [small business owners make] is to avoid having the conversation with the client regarding the client’s expectations. These expectations can often be unrealistic, unmeasured, and don’t match what they actually are trying to communicate.

As a business owner, it is your responsibility to initiate that difficult conversation. Customers should have a realistic picture of what they are buying, including the cost of their purchase, what it includes, what they can expect as a result, and any return or refund policy you may have in place.

If all these components are understood and expected from the beginning of a purchase, customers are much more likely to be satisfied at the end, whatever that end is.

  1. Offer to improve.

If for any reason a customer isn’t satisfied with their purchase or experience, the best thing you can do to retain their loyalty is to take responsibility and offer to improve. No matter where the mistake or miscommunication occurred, customers expect you to make the situation right – and doing so enthusiastically can turn even a disastrous situation into a loyal customer.

In fact, offering to improve, and making your customers a part of that process, can increase loyalty even in satisfied customers.

In their business, the Speros schedule reviews for every account to see where they can make customers even happier. “[We] have an annual review in person with each client to listen, evaluate, re-examine and refine [their] advertising strategy based on changes in the client’s business.” This personal attention not only makes clients feel valued and respected, it can also help you anticipate and avoid future problems.

If you don’t interact one on one with clients, you can still offer improvements. An email survey, either sent to everyone at certain points in the year or to each customer after a purchase, gives customers the opportunity to offer feedback and you the opportunity to make changes.

Once you’ve made those changes, don’t keep them quiet – let customers know exactly what you’ve done and how that will improve their experience. When they know you take their feedback seriously, they are more likely to give you repeat business.

  1. Communicate and connect.

Regular, personal communication is key to creating the feeling of personal connection that convinces customers to stay loyal to a small business.

Communicate regularly with your customers through a newsletter or email list, keeping them informed of changes, developments and special offers. If you are a local business with local customers, get involved in the community to create strong, personal relationships with them.

If you are working at a distance, it’s still possible to create a feeling of personal connection. Even if there is not time to meet with a customer in person, a call is important. It doesn’t have to be every month, but conversations, rather than just emails, create an emotional engagement that tells the customer that you are interested in them.

If you are able to send them, personal thank-you notes and other handwritten notes make loyal customers feel that you are loyal to them in return. You can also create real connections by responding directly to emails and comments on social media, posting content that shows the people behind the business, or finding events such as trade shows where you can talk to customers in person.

By communicating directly with customers, you encourage their engagement, which in turn makes them feel invested in your business. Through communication, a relationship is created, which often leads to a more loyal, long-lasting partnership.

 

Source: https://www.businessnewsdaily.com/5833-how-to-keep-customers.html

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BUILDING A BUSINESS LEGACY THAT OUTLIVES YOU

Ever wondered why many businesses barely continue after the demise of the founder?

While only a few still have the footprints of the founder on the sand of history. The difference is that one was built on the shoulder of the founder while the other rested on the corporate strength of the team. Thus, building a business legacy that outlived you implies that the business is on autopilot.

Such business runs with or without the owner’s daily involvement. What then could be the difference between a business that died with the death of the owner and those waxing stronger with the demise of the founder? The answer is the strong foundation laid by the pioneer.

Below are strategies to build a business legacy that will outlive the founder.

  1. The world is not about you:Those who held to power, whether in private or public service are those who think the world is all about them. Great thinkers think outside of themselves. They see their role as a fraction of the total process. One thing is common with everyone that has ever built a business legacy that outlived them. They chart the course and lead others in that direction. These sets of entrepreneurs acknowledge that the world of business is not all about them, but the impact they can make in the world. Pioneer of business legacy sees beyond the immediate gain to a lasting profit. They are interested in influencing their generation for better than only living large. They show this in their value system. In that regard, the dream of living a business legacy that generations will remember them for is their concern, than living in affluence at the expense of their workers.
  2. Tomorrow begins now:A future you cannot picture now, you cannot feature there-in. Building a business legacy is more than a wishful thinking. It takes a concise, deliberate, conscious and passionate effort. To these sets of people, success is not a game of luck, but when preparation meets readiness. They don’t leave their business plan to chance. As these great minds begin their quest for building a business legacy, they factor the next generation into the equation. Why? Because they know they will not be here forever. Apart from that, they realize people will remember them for either of these two things. One thing you ought to do, but, fails to do for your generation. Two, what you did for your world.

So, they daily improve on yesterday and because of that, they kept on building better relationships and adding value to them.

  1. Investing in people and not structure:As an entrepreneur, your greatest asset is the people. It will be a disservice to your business future when you concentrate your effort on building a business structure without building the people. But, if you build the people, they’ll build the right business structure that will stand the test of time. This you could do with constant training. Cast the vision of your business, test and change it with your team. They factored Internal and external training in their business plans. Workers are at their best when you address their personal interests and concerns. As a leader, be concerned about their welfare and you’re sure the welfare of the company will be their concern now and long after your demise. Building a business legacy that’ll outlive you require, you equip people who will take after you.

So make people see themselves as stakeholders now that you are still around. Then they’ll keep up the tempo of the business after your death.

  1. Believe in your team:Perfectionism kills dream like no other cause. Apart from wearing yourself out, no one will grow past the point where they were when they join you. If your dream is to build a business legacy, that’ll outlive you then, you must believe in your team. Mind you, nobody is an island of knowledge.

Obviously, any business that will grow beyond the foundation level must repose confidence in her team. That means you believe in the ability of your team to deliver. This you do by committing part of your responsibilities to some of them while you watch them perform. At times, you allow them to take initiative. Apart from that, you allow them to learn through manageable mistakes. Don’t forget you learn by doing. So, their first failure and set back does not imply that they are a total write off. The best of us never started this way.

  1. Remember, you’ll not be here forever:A wise entrepreneur includes retirement into his plan and schedule. Therefore, your wish to leave a business legacy will be a mirage if you fail to plan your retirement at an early stage of your business. When I say retire, I mean from the day-to-day running of the business. This is so because death has no specific time agreement with anyone. By that, you live as if today is your last chance in business but plan your life as if tomorrow will never come. With that in mind, you must put the needed structure in place through your team. For an example, start by relieving yourself of some activities and allowing your lieutenants take care of these things. Let the business run without you.

Also, separating your personal life from the business. That also includes running your expenses outside the company’s budget. One thing common with those who’ve built a business legacy is goal setting. They set a financial goal for themselves and that of the business separately. Apart from that, they set disengagement goals for them. As a result of that, they know beforehand when they’ll leave active service in the business. So, they grow people who will take over from them.

  1. Think like a leader: Creating a business is not daydreaming.It is a deliberate plan of action. This is the mindset of the successful entrepreneur. The choice is between being a leader of followers and being the leader of leaders. Hence, you see the latter surrounding themselves with the right-thinking people. This became possible because they are leaders who build sets of leaders that are success and result-driven. Leaders are creative. Therefore, they spur their team to think like them. You cannot build a towering business if you are the boss whose team cannot work without him. But an entrepreneur who is a leader is not afraid of modelling another leader who will take after him. A leader is not power drunk, he delegates authority with a corresponding reward mechanism for a job well done.

Building a business legacy that outlived you is not only a dream but also a possibility that is achievable. So, if it is in your heart, it will get to your hand. If you can conceive it, you can achieve it. All that is required is self-determination and the will to make the world a better place than you met it.

Source: https://smedigest.com.ng/building-business-legacy-that-outlives-you.html

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