Many entrepreneurs view access to finance as their biggest limitation in business, but according to a recent Growing SMEs event held in Kigali, Rwanda, where entrepreneurs, investors and industry experts discussed issues surrounding staring and growing a business, there are other more pressing issues prior to that concerning capital.
Randall Kempner is the executive director of the Aspen Network of Development Entrepreneurs (ANDE), a global network of organizations that propel small business entrepreneurship in emerging markets, and was speaker at the event. He argued that there are two other access issues that are more limiting than access to finance. The first of which is access to talent, the second is access to markets and then thirdly is the question of access to capital.
Access to talent
You may be the best entrepreneur in the world, with a brilliant idea for a business. You’re a charismatic leader, you are able to be a brilliant strategist, but there is no way you can do it alone (Kempner).
Kempner argues that one cannot build a successful company without having a great team, and having a great team with the right people is incredibly difficult in most emerging markets where small businesses must compete with larger companies who can offer more stability and pay to their employees than an average startup.
Access to markets
Even after the entrepreneur has assembled an optimal team, there are limitations as to how far the company can grow if it lacks market access.
Kempner explains that these barriers could be physical, caused by infrastructural challenges, such as poor roads, high energy costs, unstable electricity and internet, and various tariffs and business regulations.
But even more than physical barriers, you often have information barriers. The best companies in the world are the companies that understand their customers best (Kempner).
However, in many African markets, it is difficult to find industry or market research reports, which companies would require in order to gain a better understanding of the needs of their consumers. They therefore have to generate their own costumer information, which is difficult and time-consuming, especially in places lacking information flow. Therefore, the outcome is that customer understanding and research is often sidelined.
Access to finance
Even after the first two conditions of access have been satisfied, many still face the challenge of access to finance. Kempner explains that in Africa, angel and venture capital investors are scarce, especially those that invest in early-stage companies. Furthermore,
most banks in emerging markets don’t exactly roll out the red carpet for small and medium enterprises. Unless you happen to have a ranch and two houses and three cars to give them as collateral, they don’t want to make a loan (Kempner).
Although Kempner is primarily referring to larger businesses than the entrepreneurs that MYC4 has dealings with, he still raises some interesting points as to other limitations in access that the loan-takers may face in growing and developing their businesses.
In regards to capital, a counterargument could be made that these access issues are a “chicken or egg” situation, where capital is needed first, in order to conduct adequate research on needs of consumers and to pay the salaries of the skilled employees in order to retain them. However, regardless of the order, all three issues of access have a clear limiting effect on small businesses in the African context.
For a previous blog on innovations in internet access in rural Africa, click here.