SMMEs should be supported using coordinated and targeted programmatic strategies in order to harness their full potential. Support strategies can be crafted based on key SMME categories that vary based on SMME tenure, growth phase and size.
Four key categories for consideration include:
- Experienced professionals and SMMEs: These are entrepreneurs and SMMEs that have been in operation for some time and through that longevity, have demonstrated potential for increased development support
- Suppliers: Entities within the value chain that affect quality, cost, delivery and time to get product/service or solution to market
- SMMEs that enable large supplier market penetration: Large enterprises can be an integral SMME development agent. They can engage SMMEs which allow large companies to penetrate previously untapped markets or leverage their competitive advantage in existing ones
- SMMEs in areas of targeted diversification: These are SMMEs which large enterprises can contract or employ so these large organisations can diversify further sectors they are already operating in
From these different categories, SMMEs can be selected by organisations and agencies for increased support.
To drive SMME competitiveness – essential to their sustainability – SMMEs can then be ascribed into two different classes. These are high potential SMMEs eligible for long term support and SMMEs that complement large enterprise strategy.
High potential SMMEs requiring long term support
In private finance, the term “unicorn” describes a start-up valued at over US $1 billion. While it would be a significant challenge for a South African SMME to reach that valuation, similar principles apply. in essence, the principle would be to support those SMMEs that have high potential of being scalable, innovative and grow quickly, with their success premised on long term support.
Their mechanisms of support are as follows:
- An ideation programme where selected entrepreneurs and stakeholders may participate. The purpose of the ideation programme is to promote effective research, idea creation, prototyping, testing, pitching and ideally, a launch programme. In this way, the programme adopts several characteristics of the Fail Fast start-up approach to business
- A market support programme. The goal of such a programme is aggregate long term market opportunities from a variety of organisations and supporting the entry of entrepreneurs and SMMEs into export markets
- Preferential funding to support the scaling of high potential businesses. Such funding can offer SMMEs favourable loan terms, such as lower interest rates over the long term or provided on the basis of receiving equity in high potential SMMEs
- Creating a platform to support business growth – inclusive of strategy, finance, procurement, talent sourcing and operations
SMMEs that complement large enterprise strategy
For large enterprises to become involved in SMME development, some mutual benefit should be enjoyed by large enterprises to support their involvement in the first place. One-way large enterprises seek to benefit from SMME support is aiding entrepreneurs and nascent businesses that support and complement their own long-term strategy. This support is targeted at strengthening SMME competitiveness, supporting SMME excellence where found and partnering with healthy SMMEs that will add value to a large enterprise.
The mechanism of support differs mostly from those enjoyed by high potential SMMEs:
- A tailored end-to-end ecosystem-based support system, inclusive of competitive levers, funding, business management, market access and technical support
- Use of a dealer/franchise model to enable SMME market penetration
- Sub-contacting model that supports suppliers and SMMEs in their selected markets and industries
- Long term partnerships, which can be leverage through supply chain arrangements, distribution partnerships and strategic alliances where applicable
- Long-term finance on favourable terms. Given the capital constraints faced by SMMEs as they seek to grow and operate, cash flow will always be central to supporting SMME success
If high potential SMMEs and those that complement large enterprise strategy can thrive and grow, they have the potential of driving economic growth and job creation in their target industries. If executed correctly at an economy of scale, SMMEs can be a force multiplier of societal change.
If your organisation wishes to learn more how it can benefit from working SMMEs, and how, visit Letsema’s website to learn more about our Economic Development service offering.
