5 things African SMEs need right now

For countless businesses in Africa, the coronavirus crisis means revenue has evaporated, product supply is stuttering, and cash reserves are dwindling. Will they make payroll next month? Will they even be able to operate?

It’s hard to imagine life for entrepreneurs right now in Africa, where, even under normal circumstances, they must navigate political risk, weak consumer markets and unreliable supply chains – problems that would confound even their most battle-tested western counterparts.

At the African Management Institute (AMI), we found in a recent survey of entrepreneurs on our popular ‘COVID-19 Business Survival Bootcamps’ that 87% of business owners are worried about surviving the current crisis, while 67% say business has been hit hard since the introduction of social distancing, lockdowns, and curfews on the continent.

Of course, times are tough for SMEs all over the world. But few African governments can extend the stimulus packages, tax breaks, and SME loan programmes that richer countries are offering. And many local entrepreneurs lack the tools, exposure, and education to navigate the crisis.

There is broad consensus – at least in the entrepreneur support ecosystem – that SMEs are the engines of job creation for the continent’s economies. But what needs to happen to avoid massive business failure and subsequent job losses? What support do African SMEs really need? And what do they actually want?

AMI has been running ‘COVID-19 Business Survival Bootcamps’ almost daily since late March, attracting over 1,600 registrations from business owners in 17 countries. We’ve pulled together survey data from almost 100 participants, as well as qualitative information from participants, to reveal five areas where African SMEs urgently need – and want – help.

Admittedly our sample size is still small, but given the dearth of data out there, we believe it could be useful for funders, policymakers, and others trying to determine how to respond to this urgent need.

As background, respondents came from 17 countries, but are concentrated in Kenya and Nigeria, followed by South Africa, Rwanda, Tanzania, Uganda, and Ghana. 53% have revenues of between $10k and $500k, with more toward the lower end of that bracket, and the average number of employees was 10. We did not collect data in this survey on length of time in business, but typically, AMI works with entrepreneurs who have been in business several years, rather than pure start-ups. Businesses were from a range of sectors.

1. Money

No surprise here, Africa’s small businesses urgently need liquidity. More than 75% of entrepreneurs we surveyed believe a loan would help their chances of survival.

But what type of money do they need, and how much?

Not as much as you might think.

Our data shows that 51% of those who want a loan need less than $50k, and 81% need less than $200,000. The median loan size needed is $42k.

On average, these businesses employee 10 employees each. That’s not a bad price for job retention.

Clearly more answers are needed around what terms business owners would be willing and able to accept, and it’s likely that only a fraction of those that want loans would qualify for them. But there is a clear and urgent need for short-term financing to avoid a catastrophic wave of business collapses, and job losses. The need is here. Funders, please step forward.

2. Cash is king: Support with scenario mapping & cash-flow management

Cash is king, more than ever. 55% of the entrepreneurs on our bootcamps who are worried about survival cite cash-flow as their top concern. It’s always the first topic raised during our break-out discussion groups. Most business owners know how much cash they have, but aren’t sure how long it will last, and don’t have the tools or know-how to figure it out. Even owners of fairly substantial businesses often have a rudimentary understanding of cash-flow forecasting and financial management.

For many, running a detailed cash-flow forecast is a light bulb moment that prompts them to take the tough but necessary – and urgent – steps to cut costs. By listening to what other business owners are doing, they identify creative ways to cut costs and improve liquidity. One entrepreneur sold non-essential equipment, others re-negotiated supplier terms, while another managed to successfully negotiate down her tax bill!

We’ve developed some simple but robust tools to help entrepreneurs map out scenarios and forecast cash-flow, which can be downloaded from our online learning community or mobile app and immediately used in the business.

3. I’m struggling… where do I turn for help?

For many entrepreneurs, this is their first time leading in a global financial crisis, let alone a pandemic. ‘Unprecedented’ is an over-used word, but it’s the only one that works. Entrepreneurs are feeling the weight of responsibility – not just for livelihoods, but for the health and wellbeing of staff, customers, and contractors. Bad decisions cost jobs and even lives. Many entrepreneurs on our bootcamps comment on how helpful it is just to connect with others facing similar challenges.

We were fascinated to read about Technoserve data showing that entrepreneurs during social-political upheaval in Chile in the past 2 years seemed to benefit from an in-house psychologist. After years of embedding ‘soft’ skills and leadership into our business programmes, this resonated strongly.

That’s why AMI has enlisted our resident psychologist and leadership guru – also AMI’s co-founder and Chairman Jonathan Cook – to experiment with a free daily guided meditation practice for our entrepreneurs. Rise already has 150 registrations, just a few days after launch.

4. What about my people? Leading in a crisis

Business owners care deeply about their teams. While many are being forced to consider furloughs and lay-offs, just as many are working hard to protect staff, and want to know how to keep them safe at work, and motivated if working from home. In a quick poll we run at the start of each bootcamp, ‘My people’ is usually the second priority listed, after cash.

Right after lockdowns began, my inbox was flooded with emails offering up ‘WFH’ (work from home) tips. But most focus on superficial advice, not the deep work of leading through crisis – decisive action, clear communication, ruthless prioritisation, empathy, compassion, clear thinking, then more communication.

This crisis requires a new kind of leadership, whether you’re a venture-funded pay-as-you-go solar with a staff of 800, or a bootstrapped Nyama Choma joint with 10 serving staff. Most African entrepreneurs have never read Steven Covey, let alone had the luxury of a leadership retreat, or sessions with a business coach. So at AMI we’re working urgently on a ‘leading in crisis’ bootcamp, targeting entrepreneurs, but open to all.

5. Could there be a silver lining? What if…?

Finally, we know that entrepreneurs need hope. Not empty quotes about positive thinking. But practical tools to help them imagine, plan, and test new opportunities. They need to hear what others are doing. They need exposure to different ways of doing business – whether that’s a whole new competitive strategy, or simply a ‘how to’ guide for shifting their business delivery online.

Perhaps the most exciting – and encouraging – discovery from our data mining exercise, is that almost half of the comments captured from our bootcamp ‘break-out’ discussion groups focus on creating opportunities, rather than on dealing with problems. That’s an incredible statistic, given the context.

Even in the face of the toughest financial crisis in a generation, Africa’s entrepreneurs are resilient. They are alive. They are hustling. They will thrive, but first they need to survive. Let’s ensure they get the tools and the short-term finance needed to get them through this.

If you’re an entrepreneur and would like to join a FREE bootcamp, sign up here.

Rebecca Harrison is AMI’s co-founder and CEO.