1.

Diagnose the real and potential problems of micro and small business in

Ethiopia.
1.1. SHORTAGE OF RAW MATERIAL

Procurement of raw materials of required quality, and quantity competitive price is the most
serious faced by this sector. Though the institutional arrangements regard to the allocation
mechanism often work against the interest of these. This is more pronounced in the case of scare
raw materials that have to be imported. Besides, frequent interruptions in the availability of
essential raw materials prevent fuller and economic utilization of productive capacity of small
units (Simon Bridge, Ken O’Neil and Stan Cromie, 2003).
1.2. INADEQUATE FINANCE

Most of the micro and small enterprises depend on external finance or non-institution. Financial
assistance by the various agencies, like financial corporations and commercial bank, often falls
much short of their requirements. In order to supplement the institutional finance micro and
small enterprises have to approach the unorganized money market at terrible heavy rates of
interest or on suppliers credit on exceedingly unfavorable terms Private finance, ultimately spoil
the unit and cause for sickness in the small business (Balu, 2000).
1.3. LACK OF MANAGERIAL SKILLS

Small business are owned by one person or small group of people and managed by their owners,
who with all management usually with the other little help. In our country most of micro and
small enterprises launched without a feasibility report. Moreover, wherever such reports were
prepared, the purpose was to use them as advice to obtain institutional finance than to serve as a
plan to make the unit a success.

1.4. PROBLEM OF SKILLED MANPOWER

The success of a small enterprise revolves around the entrepreneur and its employees, provided
the employees are skilled and efficient. Because of inefficient human factor and unskilled
manpower create innumerable problems for the survival of small industries. Non-availability of
adequate skilled manpower in the rural sector poses problem to small-scale industries.
1.5. INADEQUATE CREDIT ASSISTANCE
Adequate and timely supply of credit facilities is an important problem faced by small-scale
industries. This is partly due to scarcity of capital and partly due to weak creditworthiness of the
small units in the country.
1.6. LACK OF MACHINERY AND EQUIPMENT

Small-scale units are striving hard to employ modern machineries and equipment in their process
of production in order to compete with large industries. Most of the small units employ out-dated
and traditional technology and equipment. Lack of appropriate technology and equipment create
a major stumbling block for the growth of small-scale industries.
1.7. ABSENCE OF ADEQUATE INFRASTRUCTURE

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 Ethiopian economy is characterized by inadequate infrastructure which is a major problem
for small units to grow. Most of the small units and industrial estates found in towns
and cities are having one or more problems like lack of power supply, water and
drainage problem, poor roads, raw materials and marketing problem. Thus absences
of adequate infrastructure adversely affect the quality, quantity and production
schedule of the enterprises which ultimately results in under-utilization of capacity.
2. Why some MSEs failed?
Starting a business is not easy, and there are countless statistics out there about the survival rate
of startup companies.

Here are a few popular ones:

 Only about 20% of new businesses survive their first year of operation
 The U.S Census data shows that new business creation is nearly at a 40-year low
 Half of small businesses fail within their first five years

The point is that while there may be some truth to these numbers, you shouldn’t let it kill your
entrepreneurial spirit. Instead, try to understand the major reasons why small businesses fail. If
you understand the mistakes of others, you can avoid following in their footsteps.

1. You start your business for the wrong reasons

The reason for business failure is often tied to the reason the owner started the business. Is your
primary reason for starting your own business the desire to make a lot of money? Do you think
that if you have your own business you’d have more time with your family? Or maybe that you
wouldn’t have to answer to anyone else? While those are benefits some successful entrepreneurs
achieve after years of hard work, they aren’t necessarily reasons to start a business.

The right reasons for starting a company — reasons that lead to building a successful company
— include these:

 You have a passion and love for what you’ll be doing and strongly believe — based on
educated study and investigation — that your product or service would fulfill a real need
in the marketplace.
 You have drive, determination, patience, and a positive attitude. When others throw in
the towel, you are more determined than ever.
 Failures don’t defeat you. You learn from your mistakes and use these lessons as business
tips to help you succeed the next time around. Studies of successful business owners have
shown they attributed much of their success to “building on earlier failures” and on using
failures as a “learning process.”
 You thrive on independence and are skilled at taking charge when a creative or intelligent
solution is needed. This is especially important when under strict time constraints.
 You like — if not love — your fellow man, and show this in your honesty, integrity, and
interactions with others. You get along with and can deal with all different types of
individuals.

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2. There’s no market or too small of a market

The best business ideas will fail if there isn’t a market for what you sell, or if the market
suddenly disappears because of economic changes or natural disasters.  While you can’t predict
disasters, before you start a business you need to determine if there’s a market for what you plan
to sell and if that market is big enough to be profitable. Keep in mind that “everyone” isn’t a
market. The market must be an identifiable group of customers you’ll be able to reach with the
marketing dollars and resources you’ll have available.

To avoid business failure after startup, business owners need to keep tabs on their market and
customers’ changing needs on an ongoing base, as well.

3. Poor Management

Many a report on business failures cites poor management as the number one reason for failure.
New business owners frequently lack relevant business and management expertise in areas such
as finance, purchasing, selling, production, and hiring and managing employees. If the business
owner doesn’t recognize what they don’t do well and seek help, the company may fail and go out
of business. To remedy the problem, small business owners can educate themselves on skills
they lack, hire skilled employees, or outsource work to competent professionals.

Neglect of a business can also be its downfall. It’s important to regularly study, organize, plan,
and control all activities of your business operations. This includes the continuing study of
market research and customer data, an area that may be more prone to disregard once a business
has been established.

A successful manager is also a good leader who creates a work climate that encourages
productivity. They have a skill at hiring competent people and training them, and they’re able to
delegate. A good leader is also skilled at strategic thinking, able to make a vision a reality, and
able to confront change, make transitions, and envision new possibilities for the future.

4. Insufficient Capital

A common business money mistake for failed businesses is having insufficient operating funds.
New business owners often don’t understand cash flow or underestimate how much money they
will need to get the business started. As a result, they are forced to close before they’ve had a fair
chance to succeed. They also may have an unrealistic expectation of incoming revenues from
sales.

It’s imperative to ascertain how much money your business will require. You need to know not
only the costs of starting your business but the costs of staying in business. It’s important to
realize that many businesses take a year or two to get going. This means you’ll need enough
funds to cover all costs until sales can eventually pay for these costs. This business startup
calculator can help you predict how much money you’ll need to launch your business.

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5. The Wrong Location

Your college professor was right — location is critical to the success of most local businesses. If
your business requires walk-in traffic or a professional location to meet with clients, a good
business location in the right community is essential.  A bad location could spell disaster to even
the best-managed enterprise.

Some factors to consider:

 Where your customers are

 Traffic, accessibility, parking, and lighting
 Warehousing or equipment storage needs
 Location of competitors
 Condition and safety of the building
 Local incentive programs for business start-ups in specific targeted areas
 The history, community flavor, and receptiveness to a new business at a prospective site

If you usually don’t have customers or clients entering your business establishment, the ideal
location for your startup could be your own home.  

6. Lack of Planning

Anyone who has ever been in charge of a successful major event knows that were it not for
careful, methodical, strategic planning — and hard work — success would not have followed.
The same could be said of most business successes.

It’s critical for all businesses to have a business plan. Many small businesses fail because of
fundamental shortcomings in their business planning. It must be realistic and based on accurate,
current information and educated projections for the future.

Components should include:

 Description of the business, vision, goals, and keys to success

 Market analysis
 Workforce needs
 Potential problems and solutions
 Financial: capital equipment and supply list, balance sheet, income statement, cash flow
analysis, and sales and expense forecast
 Competitive analysis
 Marketing, advertising, and promotional activities
 Budgeting and managing company growth

In addition, most bankers request a business plan if you’re seeking to secure additional capital
for your company.

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7. Overexpansion

A leading cause of business failure, overexpansion often happens when business owners confuse
success with how fast they can expand their business. A focus on slow and steady growth is
optimum. Many a bankruptcy has been caused by rapidly expanding companies.

At the same time, you don’t want to repress growth. Once you have an established solid
customer base and a good cash flow, let your success help you set the right measured pace. Some
indications that an expansion may be warranted include the inability to fill customer needs in a
timely basis and employees having difficulty keeping up with production demands.

If expansion is warranted after careful review, research, and analysis, identify what and who you
need to add in order for your business to grow. Then with the right systems and people in place,
you can focus on the growth of your business, not on doing everything in it yourself.

8. No Website and No Social Media Presence

Simply put, if you have a business today, you need a website and a social media presence.
Period.

In the U.S. alone, there were 307 million internet users at the beginning of 2022 and e-commerce
sales are predicted to reach more than $1 trillion.

At the very least, every business should have a professional-looking and well-designed website
that enables users to easily find out about their business and how to avail themselves of their
products and services. If you serve local customers, your website should include your address,
phone number, and hours of operation, and should be listed in Google My Business so it will
show up when shoppers search for what you sell by location (example: “Italian restaurants near
me”).

Even if you don’t have customers come to your place of business and/or you get most of your
business through networking and referrals, you need a website so potential customers can
research your business before they call you. If you don’t have a website and your competitors do,
you’ll lose out.

You need to have social media profiles on the services your clientele are most likely to use for
the same reason. If you don’t, you won’t look professional and will lose business to competitors
who do at least have profiles on popular social media sites.

If you have products that can be sold online, or you can take orders online, that’s an added
benefit. But at the bare minimum, you need a website that lets customers know what you offer
and how they benefit by doing business with you.

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When it comes to the success of any new business, you — the business owner — are ultimately
the “secret” to your success. For many successful business owners, failure was never an option.
Armed with drive, determination, and a positive mindset, these individuals view any setback as
only an opportunity to learn and grow. Most self-made millionaires possess average intelligence.
What sets them apart is their openness to new knowledge and their willingness to learn whatever
it takes to succeed.

3. Why some of them not growing well?

SMEs face challenges from increased competition, the ability to adapt to rapidly
changing market demand, technological change, and capacity constraints relating to
knowledge, innovation, and creativity. For many SMEs, however, their potential is often
not fully realized due to factors related to their small scale:

3.1. Lack of resources (finance, technology, skilled labor, market access, and market
information);
3.2. Lack of economies of scale and scope;
3.3. Higher transaction costs relative to large enterprises;
3.4. Lack of networks that can contribute to a lack of information, know-how, and
experience of domestic and international markets;

3.5. increased market competition and concentration from large multinational

enterprises caused by globalization and economic integration;

3.6. Inability to compete against larger firms in terms of R&D expenditure and
innovation (product, process, and organization);
3.7. Subject to “churning” and instability; and
3.8. Lack of entrepreneurial zeal, capacity, and know-how.

3.9. Lack of Information Infrastructure for SMEs

3.10. Low Level of Business R&D in SME Sector
Business enterprise expenditure on research and development (BERD) is an important
driver of innovation and economic growth.
The financial industry deals with information intrinsically. However, there is an
asymmetric information problem between suppliers and demanders of funds in general.
Information infrastructure is necessary to remedy this problem. Many big enterprises
list their shares on stock markets and issue securities in bond markets. Therefore,
institutional information sharing schemes of capital markets can facilitate access to a
wide range of information necessary to estimate the creditworthiness of big enterprises.
However, most SMEs have no connection with capital markets. Financial institutions
can closely and continuously observe borrowers, but it is costly to do so for borrowers
of small loans.
The lack of information infrastructure for SMEs exacerbates the information asymmetry
problem.

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3.11. Insufficient Use of Information Technology in SMEs
Information technology has developed rapidly. Household ownership of mobile phones,
smartphones, and tablet computers has also spread quickly in the recent years. Accordingly,
more consumers have come to prefer Internet sales to over-the-counter sales and the e-commerce
market for individuals is expanding.
However, SMEs have been unable to sufficiently utilize such opportunities. Most small
enterprises do not have their own websites. For instance, in Japan while households ‘mobile
phone ownership reached beyond 90% and Internet users reached 90.58% of the population in
2014 (World Bank 2016), SMEs selling products and receiving orders via their own websites
accounted for only 10% of the total and less than 10% have their own online shops or market
their goods on Internet shopping sites (METI 2014).However, SMEs have been unable to
sufficiently utilize such opportunities. Most small enterprises do not have their own websites.
For instance, in Japan while households ‘mobile phone ownership reached beyond 90% and
Internet users reached 90.58% of the population in 2014 (World Bank 2016), SMEs selling
products and receiving orders via their own websites accounted for only 10% of the total and less
than 10% have theirown online shops or market their goods on Internet shopping sites (METI
2014).
Naoyuki Yoshino and Farhad Taghizadeh-Hesary No. 564 April 2016

4. Who is responsible for their growth or failure?

4.1. Micro and Small enterprises themselves because of
 Most of enterprises are starting their business without conduct market analysis or
market survey, without looking the problems and business opportunities in their
environment, they suddenly enter into business and as a result face losses.
 They face losses because they choose a new business that is not related to or contrary
to their knowledge, skill and attitude.
 They enter into the new business world without having enough business idea and
business plan before they start their business and results elude them.
 Joining into the new business without having enough startup capital related to their
business plan
 They don’t know about their customers class, attitude, culture and custom, purchasing
ability or purchasing power
 Not being able to balance the price of product and production cost.

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  The problems of setting the right place for their business
 Due to lack of awareness or advertising about the new business they are doing
 Lack of sufficient knowledge and skills related to their new business
 If the forms of business is a partnership, there is conflict between the members or
owners of the business, and management problem and
 When there is account recording problem
 Reluctance to accept the professional support provided by the government and not
willing to ready to accept support.

In general, micro and small enterprises themselves bear their share of failure due to these and
related issues.

4.2. Government
 The Government takes direct responsibility for the failure or success of
micro enterprises.
 Due to lack of formulation of indigenous laws, policies and strategies
based on Enterprises
 Not being able to deploy unemployment’s in their choose business
sector and not providing enough training related to their business area.
 Unable to providing enough credit for micro and small enterprises and
the loan process being boring or bureaucratic.
 Failure to provide professional troubleshooting support to MSEs
 Failure to creating enough market share connections.
4.3. The Community
 The community also like the government takes direct responsibility for
the failure or success of micro enterprises.
 They are not morally supporting and recognizing micro and small
enterprises
 The community is unable to use the products or services provided by
our country’s micro and small enterprises.

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NOTE: - If the three stake holders mentioned above, namely the enterprises themselves, the
government and the community, work in accordance each of the above, it means that there will
be positive results for micro and small enterprises.

5. What business strategies you recommend for MSEs and how to implement
these strategies?
1. Review your goals 
Not only should you set new objectives for the New Year, but it’s important that you get your
team on board. Be sure to review and share your 2020 goals with your employees. It may
also make sense to share these goals with your key customers. This makes them part of your
team and may encourage customers to refer business your way. 
2. Measure what worked last year and refine your plans for 2020
Take stock of your accomplishments from last year. What marketing and sales campaigns
worked? What PR campaigns got you into the local paper? How did the new customer
service system hold up? Did your accounting department provide all of the information
needed to make sound decisions?
Discover what worked in 2019 and reinforce it in 2020.
3. Get your sales team to review and follow up with past connections

The end of the year is always a great time to relook at potential leads and reconnect with people.
Get your sales team to go through their CRM and dig through all of the business cards they have
collected throughout the year, and reconnect with people – even if it’s just to send them a “happy
new year” message.

4. Embrace automation
There are so many great solutions available for automating reports, accounting, and more.
Embracing this technology will help you and your team save time and improve productivity
with accurate data.
5. Survey your customers
Get a fresh look at what your ideal demographics need, where business is coming from, and
what they expect from a company like yours. Customer surveys are a great way to understand
how you are doing from a customer’s point of view.
6. Research competition 
It’s always a good idea to see what your competition is doing. Take some time out to
discover what they are up to, what seems to be working, and how you can improve on it.
7. Identify new opportunities

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As you survey clients and examine competition, you will likely come across new business
opportunities. While you may be able to capture such opportunities immediately, many will
likely require research and careful planning to accomplish. 
8. Create a strategic plan
One of our key offerings at Business Success Consulting Group is our strategic planning
process. Not only must you take time to name your business goals, but you must also plan
out each step needed to accomplish these objectives. 
9. Network with potential clients and with peers
Networking is a great way to capture new clients, get inspired by industry leaders, and catch
up with peers. This face-to-face interaction often provides new methods of outreach for
businesses of all sizes.

10. Utilize global platforms

With so many global platforms available, one can likely support your company. Amazon,
Upwork, eBay, and even Facebook all provide additional platforms on which businesses can
sell both their products and services.
11. Find ways to establish customer loyalty
You have a fantastic product or service that customers love. Find ways to leverage that
customer loyalty with referral programs, online reviews, and more to attract new clients to
your business. Word of mouth is some of the best marketing you can ever obtain.
12. Focus on team building and employee training
Take time in 2020 to build your team and create a training program. Trained staff are more
confident, have a higher production value, and greater job satisfaction than those who are
untrained. Additionally, training staff in-house provides a more significant opportunity for
promotions within your business, reducing learning curves later on as an employee moves
into a leadership role.
Site: Author: Adi Klevit

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6. Take one MSE in your area and evaluate its business performance.
Silting Gojjam and their friends Beekeeping partnership founded in 2009 E.c in
Finoteselam city administration kebele shenbekuma Yedefas gewocha. When they were
starting their business, they were borrowed birr 180000 at 8% through revolving fund
system facilitated by the government. At the time of beginning, the number of members
of this business was male…….2 female………2 total………4.
At present, the partnership has kicked out the women and currently there are only 2 men.
The partnership has found a suitable place and enough space from the government. The
partnership repays the loan every six months. However the partnership was unable to
repay thed loan just by beekeeping, so it was forced to open a tej grocery by adding
value.
Currently, the partnership has been able to repay 100% of the loan.
6.1. Strength of the partnership
 100% loan repayment
 The partnership can earn income by taking the given place as an
opportunity to add value
 The partnership can promote its products and services by participating in
the exhibition and bazar organaized by the city’s employment and training
office.

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  The partnership provides the products and the services to the community
at reasonable price and quality.
 The location of their business is complete with infrastructure and is an
average location for users.
6.2. The weakness
 Disagreements and conflict between the members of the partnership
 Having a weak accounting record system
 Not being able to provide enough products of honey to meet the need of
customers.
 The slow growth of the partnership
 The partnership does not outperform competitor enterprises that provide
similar products and services in terms of price, product, quality, and
customer service.
 Mismanagement or not well handling of their customers.
 Although the partnership has been 6 years since the establishment, But
the capital level of the partnership is in its infancy when measured by its
growth level.
6.3. Opportunities
 The fact that the service and product provided by the enterprise, has a high
demand from their customers.
 The place given to the partnership by the government is based on the
standard, comfortable, convenient and appropriate for their business.
 The fact their workplace is customer centered and has complete
infrastructure
 Getting enough training in the new business they are engaged in and
 Getting close and continuous professional support of people who have
graduated in the profession.
6.4. Treat
 The place location of Siltanu Gojjam and their friends partnership is based
is a water source or tower of the city confirmed by the Finoteselam city

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administration, and the place may be seized by the government in the
future.

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