Battered by the Covid crisis for over a year, Sri Lanka’s economy is tottering. Foreign investment is dismal; traditional exports – tea, apparel, rubber – are barely performing. Tourism has a very long way to go on the slow road to recovery. Our labour force employed overseas is suffering considerably and their capacity to earn precious foreign exchange is far less than in pre-Covid times.
In this global environment, it is vital that our domestic economy, already sputtering for lack of disposable income among consumers, be strengthened through entrepreneurship in the SME sector that has traditionally been a mainstay of the country’s private sector. We take a look at the challenges facing SME entrepreneurs globally and in Sri Lanka.
Key Challenges
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- Funding: Raising sufficient funding to launch an enterprise is often beyond the capability of Sri Lanka’s SME entrepreneurs. A rigid banking system that most often demands collateral is at the heart of the problem, since young entrepreneurs have little collateral to give. Banks are extremely risk averse and unwilling to fund without collateral. Initiating fundraising work is far more than most young entrepreneurs know. Unless the mechanism is well understood it will lead to much frustration. Government funding programmes disbursed through banks are also notoriously bound in red tape that young entrepreneurs cannot navigate easily. The restricted availability of funds allows little room for error in a new SME business, and the slightest financial setback is likely to lead to the business going bankrupt and being abandoned.
- Unrealistic expectations of profits: It can typically take up to two years for a new business to make money. Young entrepreneurs can be frustrated and give up when they are unable to achieve profits more rapidly, if they are carrying the burden of debts.
- Selecting products or services: Inexperienced entrepreneurs often lack the expertise to choose goods and services that would be in high demand and fast moving. They also often lack the trust in deciding which goods are of quality. However, the correct decision must be made, which can decide the ultimate achievement and failure in a competitive scenario. “One of the only ways to get out of a tight box is to invent your way out” – Jeff Bezos
- Competition: Dealing with already established competitors who would fiercely guard their market share can be daunting, given that a new startup would not have the resources to match the power of existing companies in that sector.
- Choosing partners: While it’s not easy to handle a startup on your own, choosing a partner or partners can be even more crucial, since the wrong choice of a partner can lead to the startup ending with a quick death, or having major trouble further on down the road.
- Marketing: Young entrepreneurs often don’t have sufficient knowledge of the most effective and cost effective methods of marketing and obtaining publicity for their goods and services – print, electronic, online, mobile, direct sales, etc. Effective and targeted ads are needed to produce results, in order to optimise investment returns. “Marketing is not the art of finding clever ways to dispose of what you make. It is the art of creating genuine customer value” – Philip Kotler
- Licensing/compliance: Young entrepreneurs can find themselves in a bewildering maze of approvals and licensing required by government, provincial government, and local government authorities, as well as other statutory institutions and regulatory authorities. Tax rules, regulations on incorporation, labour laws, labour laws, insurance – it's all in there. They'll have to live with it. An entrepreneur who is unlucky enough to become entangled in legal challenges – over property, debt, dissatisfied customers, etc. – will quickly lose his competitive advantages.
- Cash flow management: “We were always focused on our profit and loss statement. But cash flow was not a regularly discussed topic. It was as if we were driving along, watching only the speedometer, when in fact we were running out of gas” – Michael Dell Cash flow is an important aspect of all businesses. Conversely, situations are not uncommon of business people having trouble paying the bills while waiting for payments due to be cleared. Delayed payments are a significant cause for entrepreneurs' challenges. The problem is partly caused by delayed payments, which is common in the business world. They do a job, submit an invoice, and get paid 60-90 days later. Meanwhile, from their workers or vendors to their dealers, they have to pay for their day to day operational expenses. It can be frustrating to get around waiting for payment – and if a client does not pay, they can run the risk of losing everything. “Never take your eyes off the cash flow, because it’s the lifeblood of business” – Sir Richard Branson
- Time management: An entrepreneur attempts to bite a little more than he could chew, in the hope that he learns to chew it quickly. This is a huge challenge for entrepreneurs who have to play many roles in their organisation. Therefore, time management is a vital task. They could do so much more if you would have more time. Set a few constraints ahead of time. Know what really matters most. Make the most of your time and productivity hacks. “I don't spend my time pontificating about high-concept things; I spend my time solving engineering and manufacturing problems” – Elon Musk
- Hiring talented people: The Team! The Team! The Team! The strengths of a team most often spell the success or failure of an organisation. To advance the business and hit new heights, all of the pieces must come together from the team. Once the organisation evolves and it is time to delegate tasks, a young first-time entrepreneur could find that his new employees are not up to a difficult job. Entrepreneurs should search for employees who have a positive attitude and expertise that complement the tasks. If they build a strong culture in the business that embraces the values they want, it's easy to attract and ensure loyalty to the right people. In small cities, it is difficult to find talented people because talented ones move to big cities to find opportunities. The recruitment process could take several days sifting through curriculum vitae. Entrepreneurs have to sit through interviews, to hunt for the strong dedication person out of so many qualified and unqualified applicants. “My biggest mistake is probably weighing too much on someone's talent and not someone's personality” – Elon Musk
- Delegation of jobs: “If you want to do a few small things right, do them yourself. If you want to do great things and make a big impact, learn to delegate” – John C. Maxwell This is still really a matter of great entrepreneurs and company owners. As an entrepreneur, one can be a very smart and creative individual who wants to invent or bring something unique to the market. But they can't do everything themselves. Instead of having a genuine innovative startup and market disrupting company, they are often stuck with a small business that takes an agonisingly long time to grow. Thus they are unlikely to go far if they're not willing to attract, externalise, delegate and, above all, inspire those people to do a terrific job. They need to hire the brightest, who are the best fit for them. “If you really want to grow as an entrepreneur, you’ve got to learn to delegate” – Richard Branson
- Cybersecurity: In this digital age, many entrepreneurs rely on cyberspace for much of their operations, especially publicity and sales efforts, as this is a very cost-effective channel. But this also lays the startup open to cyber-attack which can disrupt or destroy an organisation. Investing in costly cyber defense systems can be difficult for an entrepreneur who is struggling financially to startup a company.
- Commerce being too city-centric: This is particularly relevant to Sri Lanka, where far too much of the economic activity is concentrated in a few provinces, such as the Western, Southern, Central, and Northwestern. It’s very difficult for entrepreneurs in other provinces to get a startup going.
- Lack of mentors: Advice is very hard to come by when one is an entrepreneur trying to launch a startup. Having an experienced mentor who is willing to share his or her advice can make a world of difference.
- Risk averse society: Unfortunately, most Sri Lankan parents continue to believe in a culture where a safe job with “permanent” tenure and government pensions are the end goals. As such, a large number of the best and brightest are pushed into government positions and become part of the country’s bureaucracy. Few parents encourage their young adult children to use their innovative skills and take up entrepreneurship.
- Social presence: Young entrepreneurs often have no associates to seek advice from, and their friends and family may not understand their unorthodox course in life. “Someone is sitting in the shade today because someone planted a tree a long time ago” – Warren Buffett
- Stressful lifestyle: Entrepreneurs often suffer from very high levels of stress, as they must shoulder all types of burdens of their organisations, which are themselves not yet stable in the market. Entrepreneurs must know how to cope with stress to be effective or else their health will suffer if they're not coping properly with stress. “Don't let the noise of others' opinions drown out your own inner voice” – Steve Jobs
- The constant need for enthusiasm and effervescence: Entrepreneurs have to devote themselves to the business idea, to build their business on their own while they focus on their passion. “In carrying out e-commerce, the most important thing is to keep doing what you are doing right now with passion, to keep it up” – Jack Ma
- Funding: The Government should provide many more lines of credit, with the support of global funding agencies, that can be easily accessed by entrepreneurs. The risks to banks should be covered by the Government. Substantial grace periods should be provided for payback to reduce the financial burdens on startups and encourage entrepreneurs to take risks and enter the market. The requirement for collateral should be reduced substantially.
- Expertise and mentoring: The various chambers in the economy should play an enhanced role in providing guidance to entrepreneurs.
- Reduce red tape: The Government should remove bureaucratic barriers, through the introduction of exemptions and tax holidays or grace periods, for startups.
- Celebrate entrepreneurship: As much as big corporates are showered with awards, the Government should recognise and reward SME entrepreneurs much more, for they take remarkable risks and are truly the drivers of Sri Lanka’s economy.