There are 4 days left to get your entries in for the Finweek / Aurik Business Accelerators entrepreneurship initiative and one of the aspects which surprised both Pavlo Phitidis and I has been the number of struggling small business owners who have said they don’t want / need help to get their businesses going.

Having been involved in running a small business, incubating some struggling businesses and interviewing a number of entrepreneurs I am very aware of how tough it is to make a success of your venture.

Below is a great piece written by Dr. Rob Smorfitt for Finweek which I think is very relevant considering both these entrepreneurship bursaries and this on-going debate about small businesses needing mentoring.

Nominate a small business in Gauteng for a R250k entrepreneurship bursary.

Be successful, bury your ego

By: Dr Rob Smorfitt

Continuous and sustainable success is often an unattainable dream for many SME owners. Success can be viewed in two ways – what makes us successful or what stops us from being successful. The world is full of books on how to be successful, as your bookcase can quite likely attest to, but few authors address it from the other perspective. This article considers the top three reasons why SMEs do not achieve success.

The leading cause of SME failure is ego – I’m too smart to fail – I’m too smart to take advice – I’m too smart to need to listen and learn from others. It may not be the ego that you are imagining of the brash, socialising, fast drinking extrovert and is often the quiet, meek, mild, introvert. It must be remembered that ego is a prerequisite for entrepreneurs, so do not be surprised when it crops up. The fact is that most businesses are started on the premise of an entrepreneurial spark. However, the spark is soon extinguished once the risk is minimised and the stress reduced – they can now pay their bills. Then the ego begins to freewheel without direction and becomes a negative force.

Most businesses do not have a business plan or strategy, whether written or just resident in their minds. Too many businesses consider the fact that they are open from 08:00 to 17:00 to be a strategy. They ignore what’s going on around them because they know better (ego). They always know better than experts, consultants and whoever else presents a view that differs from theirs.  They are always right – and everyone else is a fool. They may express these views or they may just silently ignore the information and continue as before. Even as they see their businesses die. A strategy and a plan are just academic claptrap. They have never needed one before, so why now?  This is normally expressed after they tell the listener that their business is in decline mode, and the listener asks if they have reviewed their business plan or strategy. 

Another major contributor to failure is a lack of understanding about finance. The truth is, based upon research carried out for global institutions in South Africa, there’s a lot of finance available – for well-run businesses. Almost every finance applicant is ignorant of the different sources of finance and how to apply for them. A recent survey showed that whether the SME is one or 20 years old, the majority of SME owners did not understand the difference between bank finance and venture capital.

They may well claim to, but the survey highlighted the truth – they have no idea. They buy assets with working capital, they consider a loan of R100 000 to be ideally suited to a venture capital deal, and all banks are useless. Sure there are banks that have no real intention of funding SMEs, but there are banks which take SMEs very seriously. Most small business owners cannot read and interpret an income statement, let alone a balance sheet.

A cash flow statement or a cash flow timing statement may as well be part of the Dead Sea scrolls, for all the value they add.  They just do not have an understanding, but what’s worse they do not to learn how to. They have moved from being entrepreneurs with an external locus of control to being managers with an internal locus of control. It’s so much easier to blame their bank for their financial woes than it’s to learn a bit more about finance (ego).

How is your ego?

Dr Rob Smorfitt is a small business consultant. He has an MBA and a PhD in entrepreneurship.