Institutionalisation key to building sustainable businesses – stakeholders

The need for founders and managers of small and medium enterprises (SMEs) in the country to institutionalise their businesses has been stressed by stakeholders, who say it is a vital ingredient for building sustainable businesses.

Dotun Salami, chairman, Nextzon Business Services Limited, and former chairman, Accenture, says many businesses that started as SME or as family-owned and managed have ceased to exist after the demise or retirement of the founders, while some have refused to grow to become relevant and formidable institutions because they were not institutionalised.

According to him, institutionalisation is a process of transforming a business into a company that emphasises best practice; a company that will survive generations and increase shareholder value; a company where management, systems, procedures and culture can be sustained with little or no intervention from the founders.

Salami, who spoke at Nextzon-Stanbic IBTC Bank SME Breakfast Seminar last Thursday, with the theme ‘Institutionalisation: A Process for Sustainable Growth and Access to Funds by SMEs,’ notes that lack of institutionalisation has increased the mortality rate of businesses in the country.

He notes that companies such as Microsoft, Dell and Apple have been successful because they are institutionalised, as “the companies are better known than their founders, whereas in Nigeria, it is the founders and not the businesses that get institutionalised.”

Highlighting the challenges facing SMEs, he states that most of them lack operating and strategic plan, corporate governance and sufficient human capital capacity, structure and processes.

“Institutionalisation happens through careful thought. It does not happen by itself; you have to make it happen. To have a business that will outlast you, you need to have a vision, a plan, a structure with check and balances built into it. You need to separate ownership from management. Hire good people and pay them well,” he says.

“You and your business are not the same thing. The business can and should assume a life of its own different and distinct from the owner,” he notes further.

Continuing, he says: “If you want your business to outlast you, you need to diversify ownership because a business owned 100 percent by one person has much more lower chance of surviving than one with a diversified ownership. The more diversified the ownership, the more capital it can attract. The average lender would rather lend to a business owned by many than a one-man business because there is safety in number.”

Macauley Atasie, managing director, Nextzon Business Service Ltd, in his welcome address, observes that many businesses perish for lack of structural knowledge, adding that businesses need to position themselves in such a way that they can attract investors and competent people to work with.

He says: “Cash is not necessarily the major problem; it is knowledge, know-how, doing the right things and doing things right.”

Akin Oyebode, head, SME banking, Stanbic IBTC Bank, says Nigeria provides Africa’s largest SME opportunity after South Africa.

He however notes that SMEs in Nigeria are unusually challenged, especially in terms of access to finance and information, adding that Stanbic IBTC has been at the vanguard of supporting SMEs in raising finance.

He therefore advises business owners or managers who want to attract funding to understand their businesses and its needs, ensure that their business records and accounts are up to date, keep supply and sales records, maintain a good borrowing history and ensure the business is well capitalised.

On his part, Chijioke Nworka, International Finance Corporation representative, says most lenders look out for what he described as ‘the 5 C’s of credit’ – character, collateral, capital, conditions and capacity – to determine whether to give loan to a business or not.