Financial Times

Separate sharks rom the sprats

By Nilooka Dissanayake
What do small businesses need? That is one of the questions a team of IFC consultants are asking from all those whom they feel have a role in developing the small and medium businesses of Sri Lanka. IFC (International Finance Corporation) is a member organization of the World Bank Group.

They are talking to government officials, policy makers, the Central Bank, chambers of commerce, NGOs, funding agencies and banks and financial institutions. They also spoke to me because I represent a private sector organization providing attitudes, knowledge and skills for small and medium businesses and start-ups.
So, what do small businesses and start-ups need? To answer this in a logical manner, we must first answer another question: Who are small and medium businesses?

The National Strategy for SMEs (Dec. 2002) defines small businesses as those having an asset value (excluding land and buildings) between Rs. 1-20 million. Medium businesses are those having comparative values between Rs. 20-50 million. Those having assets valued less than Rs. 1 million are considered micro industries. But, do these figures reflect reality?

Another report - SME Baseline Survey dated April 2003, compiled as an ADB project - shows that the majority of small enterprises were clustered around Rs. 1-5 million and that the majority of medium enterprises tended to have assets valued around Rs. 21-30 million. The findings are from a sample of over 500 SMEs from six provinces and 11 economic sectors.

A definition is a double-edged sword because it can help SMEs and hinder them, often at the same time. In defining loan amounts, service charges, taxation rates and incentives the definitions can affect SMEs in unexpected ways.

Until we can sort out the definition, we cannot help SMEs in a meaningful way. We cannot provide services to sharks and sprats in common water, going by the same rules. We need to understand who they are and what they need before we can help them; before we can provide remedies to their problems. We need a bigger net for sharks, to keep them in or out and away from danger and smaller nets to protect and promote the sprats. Either way, the net should harm neither the sharks nor the sprats, but help both flourish and grow.

What SMEs need cannot be answered so easily and so lightly. If only we could. But to make SMEs flourish, there is one thing that we need to do: Make way for more and more business start-ups.

It is a well-known fact that all over the world, out of 100 business start ups, more than 90 fail. Only 5-10% succeed to celebrate their fifth year.

So, if we want a flourishing SME sector with many businesses, we need to help more people get into business and to stay in business.

First, look at getting into business. We are not talking of cottage industries here. We are talking of someone who will, in time, invest at least Rs. 1 million in their business. But of course, they hardly ever start with Rs. 1 million in ready cash. They will often have some savings they wish to invest in their business.

And many do not have a solid business idea. Even for the few who do, it is not in a condition to be turned into a business plan to obtain finances. A business plan then, and what we call business development services are still in their future. Right at the start, what they need is someone to sit with them to help them think out their business idea. They need to be made aware on how to gather their own material to prepare a business plan.

They need to learn how to do their own preliminary market research. They need to understand their cash flows and how to build a sustainable business model. In summary, they need to be brought to a level, both emotionally and with respect to their business idea, so that they are ready to obtain advice on preparing a business plan and getting their business started.

Until they reach that level of thinking and awareness, there is really no scope for business advisory services or consultancies.

If consultants and BDS providers have earned a bad reputation or put off so many would be entrepreneurs, it is because they attempted to charge for services from those who are not yet ready to appreciate them.

This is just my opinion. I have formed it over the past five years as a business writer, consultant and advisor. I meet so many of my readers.

So, what can be done to remedy the situation? Providing attitudes, knowledge and skills to bring dreamers and would be entrepreneurs to a level of awareness and appreciation is not easy. You can grow seedlings in one tray, but you need to plant each separately to make them flourish and grow. They need special attention and guidance. I feel that some service, like business service centres will pave the way for a good beginning. But, it is not a good idea to make this activity a profit centre. That will defeat the purpose.

If, as one of the IFC consultants pointed out, we wish to make the proposition a sustainable one, we can still run these centres, but depending more on the revenues they will generate providing business services at a later stage. We should plant trees now to harvest fruits at a future date.

Let us talk more about what small businesses need to stay in business next week.
We look forward to hearing from you. Please send in your views. You can reach us on ft@sundaytimes.wnl.lk or call on 075-552524.

The writer is the Managing Editor of Athwela Vyaparika Sangarawa (Athwela Business Journal), the only Sinhala management monthly targeting the small and medium sized business operators and its English version, Small Business International magazine.

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