Why innovation is vital for SME survival in SA

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It has been a turbulent 2017 so far for South Africa, with the country’s GDP contracting by 0.7 per cent during the first quarter, pushing the local economy into a technical recession.

This, in turn, has impacted negatively on consumer confidence. But, according to Anton Roelofse, regional general manager at South African risk finance firm Business Partners, although this can have a detrimental effect on small and medium enterprises (SMEs), entrepreneurial prowess and innovation will uncover opportunities despite the doom and gloom.

Roelofse says that the household consumption growth rate fell 2.3 per cent in the first three months of this year, with expenditure on food, restaurants, recreation, transport and clothing declining.

“As such, small businesses within these sectors are being negatively impacted as consumers have less disposable income to spend on their products and services,” he said.

However, Roelofse points out that following the global recession of 2008/09, it has become apparent that entrepreneurs with the necessary resilience and skill-set can overcome economic challenges and adapt their business models to the current headwinds they are faced with.

“By design, entrepreneurs are renowned for either finding a gap in the market or providing an innovative solution to a shortcoming within their communities, but need to stay ahead of trends to do so,” he said.

He refers to a Harvard Business study – “How to market in a downturn” – which reveals that no matter the LSM of the consumer, during a recession consumers will prioritise consumption by sorting products and services into the following categories:

  • Essentials: A product/service that is necessary for survival or perceived as central to well-being.
  • Treats: Indulgences whose immediate purchase is considered justifiable.
  • Postponables: Needed or desired items in which the purchase can be reasonably put off.
  • Expendables: A product/service that is perceived as unnecessary or unjustifiable.

“Small business owners and entrepreneurs need to consider these categories when looking to innovate their business models in order to leverage opportunities in an economic downturn,” said Roelofse.

“A good way of doing this this is to track how consumers are reassessing their priorities and what they place value on. For example, as the Western Cape is experiencing a devastating drought, purchasing bottled water has become an essential for many households. As such, SME owners throughout the country could consider transporting bottled water to the Cape and its surrounds.”

He said another developing trend is for small businesses to offer green energy alternatives due to the recent scarcity of power in the country. While this may have been an expendable service in the past, power shortages have made it essential, especially for manufacturing businesses.

“Although it may seem like the best idea to pull back during tough economic times and not risk growth, battling the business market during a recession ultimately boils down to survival of the fittest, and in the entrepreneurial world the fittest are the ones that innovate and adapt,” Roelofse said.

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Passionate about the vibrant tech startups scene in Africa, Tom can usually be found sniffing out the continent’s most exciting new companies and entrepreneurs, funding rounds and any other developments within the growing ecosystem.

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