SA SME industry not for the unprepared
Macro and micro risks local businesses need to be aware of
Challenges such as strikes, load shedding and e-tolls reinforce the statement that starting and running a business in South Africa is not for the faint-hearted. Gerrie van Biljon, Executive Director of Business Partners Limited, however believes it is more helpful to think of it as ‘not for the unprepared’.
Biljon says that the difference in opinion reveals the other side of the risk coin, namely opportunity. “For the entrepreneur who is prepared for the intense risks of the local industry, South Africa is teeming with business opportunities to gain market share and fill unoccupied niches.”
In a risky environment, a simple back-up plan gives a major business a competitive advantage, says van Biljon. “Dealing with the risks upfront involves identifying them and possessing a willingness to prepare for these risks. This applies to not only the risks that a business owner has a measure of control over, but also macro environmental risks, which are out of the entrepreneur’s control and remain present no matter how the entrepreneur runs his business.”
Van Biljon says that load shedding is one such macro risk. “Nothing a business owner does will keep Eskom’s coal dry. There will be power outages, but business owners can and must be prepared for it. Back-up power generation is the most obvious safeguard, but an entrepreneur’s planning must include scenarios where suppliers or clients are incapacitated by power cuts. Anything from stock-piling to alternative sources of supply can be important parts of a business’s defence.”
In a developing country where a young constitution is still transforming long-established laws, new legislation, such as the Consumer Protection Act, is high up on the list of macro environmental risks, says van Biljon. “Although business owners should not give up on their right to lobby for more business-friendly laws, legislation is largely beyond their control. Again, the first line of defence is awareness, knowledge and preparation. A business owner who attends a seminar on the Consumer Protection Act, for example, has an edge over those who are oblivious of the new regime.”
Labour unrest, with its ability to paralyse entire industries, is beyond the control of any owner-managed business. “A business unprepared for labour volatility is vulnerable. Joining industry bodies and employer associations can form an important part of managing the risk,” says van Biljon.
He adds that another macro risk in South Africa is fiscal volatility, at present mainly in the form of fluctuating exchange rates. “It is not only exporters and importers who need to be aware of the risks caused by fluctuating exchange rates, but many businesses with a local focus too. For example, those whose supplies may be affected by a falling rand can prepare by cultivating alternative sources of raw material or by adapting prices timeously.”
Apart from these external macro risks, business owner also face a range of micro risks – those dangers inside a business over which the entrepreneur has control.
Van Biljon says that labour is one of the biggest micro risks for local businesses. “Although businesses have little control over the large union decisions that affect entire industries, the entrepreneur recruits, trains and shapes his or her team. Huge risks and opportunities face the business owner in his interaction with his staff, ranging from the risk of losing key personnel to competitors or ill health, to grievances that can spin out of control.”
He says that other micro risks are those inherent in the operations of a business. “There is a whole range of risks that require the constant focus of the business owner, namely loss of a major supplier or client, the dangers of cash flow drying up or business expenses creeping up. A continuous process of investigating and evaluating the overheads of the business should be done to manage these risks.
“Changing markets also require local business owners to rethink their marketing methods and even their business models. Early adopters of new products and technologies can gain a distinct advantage over their competition.”
All these risks may sound overwhelming and even impossible for a single owner-manager to handle, but van Biljon believes that it is possible for entrepreneurs to thrive despite them and that the answer lies in a systematic thinking and planning process.
He recommends that entrepreneurs analyse their business every six months and sort all the risks facing the business into various categories, such as market risks or operational risks. “For each of the categories, the entrepreneur must identify the possible impact of the risk, as well as the likelihood of it materialising. This assessment then forms the basis of a plan, which will consist of practical ways in which the business must prepare for the risks, for example through insurance or sourcing alternative supplies.
“With such a plan in place, South Africa becomes an exciting and fertile place in which to build a business, concludes van Biljon.