How to make small businesses grow

Published on Wednesday, 29 August 2018

Published by Aimee Hampel on Wednesday, 29 August 2018

Successful MSME entrepreneurs embrace innovation and risk-taking.
Successful MSME entrepreneurs embrace innovation and risk-taking.

“When I was just beginning, two cheese masters from Switzerland visited me to observe how I produce my cheese. They exited the plane and were immediately struck by 38C temperature and the Philippines’ notorious humidity. Before even meeting me, they resolved that you absolutely cannot make cheese in this country!”

Between bites of her flavorful white chevre on crackers, surrounded by orchids and a riot of luscious greenery, Olive Puentespina sighed and reminisced the difficulties she had to go through before making it as the Philippines’ top artisanal cheese producer.

Today, almost ten years later and with a growing business empire called Malagos Farmhouse Cheeses, we know that the two masters could not be further from the truth.  Olive belongs to a handful of micro and small-sized enterprises who successfully upgraded their businesses by using a combination of strategies to overcome challenges to enterprise growth.

Yes, her story is unique and yes, it is difficult to emulate her success. Countless studies have lamented the rarity of graduation from micro-to-small and small-to-medium enterprise. Enterprises usually languish in the micro or small-size limbo, with some firms just bubbling under the surface—but still unable to break through—despite financial and business development services they receive.

  Small business owners use different strategies to move up

Enterprise upgrading happens to an elite few who possess a few very specific qualities that allow them to navigate the company towards sustained growth. But which specific qualities are these? Surprisingly, the answer is not straightforward.

Upgraders use a combination of strategies to move up: in the case of Olive, it was a combination of innovation, education and a risk-taking attitude. In another case, Annapurna Kalluri, an upgraded 35-year old millet food producer in India, it was a combination of social status, networks, and motivation.

Annapurna is the CEO of the Mathesis Food Company in Hyderabad. Lacking the technical knowledge in food processing but determined to set up her company, Annapurna attended a nutrition course and went to several food processing training programs. She interacted with numerous entrepreneurs to prepare herself for the change from her corporate IT job at IBM to an entrepreneur. Since the technology to process millets was not available in India in 2008, she took it upon herself to approach various government agencies and initiate cooperation in developing millet-processing machines.

A decade on, Annapurna admitted that she herself would not have been able to imagine the extent of her success in bringing the company from a struggling processing plant to a multi-state distributor of millet-based food products.

  Immense human capital of entrepreneur is key to success for MSMEs

Sounds easy? There’s a catch.

Underpinning both success stories is an immense amount of human capital – and this human capital is concentrated in the entrepreneur. Studies in the newly published book entitled Asian Agribusiness Management show that in the critical first five years of the firm—when upgrading is supposed to take place—it is the entrepreneur’s decisions on innovation and risk-taking that seal the firm’s fate. It is also the entrepreneur’s personal and professional networks that determine whether he or she could interact with the right people or agencies that could enable the company to grow.

To acquire this immense human capital, the entrepreneur needs to be armed with education and skills. Education, both formal and informal, brings in both the know-how needed for production, as well as the creativity and a questioning mind to the entrepreneur, elements needed to initiate innovation. Skills that come from school training or from doing-on-the-job allow the entrepreneur to take calculated risks with minimal likelihood for failure.

Among ADB’s operational priorities in its recently released Strategy 2030 are the provision of education and training, gender equality in human development, and women’s economic empowerment. It’s clear that educated and skilled women play a pivotal role in the social and economic development of the region. Maintaining a focus on small and medium-sized enterprises will help our members empower their entrepreneurs. This way, success stories of small businesses will be the norm and not the exception, and we can celebrate more Olives and Annapurnas in region.