Boom and bust: the only Somali business cycle

More Somali businesses fail than succeed in the UK because of poor business planning, lack of finance, poor management and poor choice of business location, among many other things. 

By Liban Obsiye (BSMG) — In Britain startup businesses have a very high failure rate as at least 1 in 3 of them fails in their first three years. However, despite this grim prospect, many others go on to succeed, expand and prosper and it is this that inspires many entrepreneurs in the UK to venture out on their own. The UK has some of the longest working hours in Europe and the majority of workers are poorly paid. Despite all the attention given by the press to bankers’ bonuses and the obscene amounts been paid to those that work in the financial district of London, the Office for National Statistics’ highly reliable Annual Survey of Hours and Earnings has found that the median salary for the majority of the full time workforce in the UK stands at £25,123. This may seem much for some readers outside the western world but the fact is that it is not as the average house price in the UK is above £100,000 and the price of everyday goods continually rises yearly if not monthly.

With such a low salary, extended retirement age, insecure job market and poor pension provisions, it is not surprising that many of the employed workers in the UK would rather start up their own business than remain in employment with such poor prospects. The climate for individuals starting their own businesses has never been better as the Conservative led coalition government has made it their flagship business policy to encourage greater growth through the creation of “a new generation of small businesses.” In aid of this policy the government has pledged to simplify the tax rules, provide business mentors and cut the bureaucracy that they claim made it hard to start up businesses under the last Labour government. As an inducement for would be entrepreneurs and future small and medium enterprise (SME) leaders, the government has pledged to extend government procurement to small and medium sized businesses by “cutting administrative requirement, with the aim of seeing 25% of government contracts going to SME.”

Many years before this coalition was formed and the above incentives were introduced, a large number of British Somali community members, many of  whom migrated from within the European Union because of lack of opportunities, set up their own small or medium sized businesses throughout the UK. The majority of these are located in Somali dominated areas and they usually are restaurants, remittance firms, small cafes, grocery stores and clothes shops. However, despite their relative small sizes, some of these businesses have regenerated and injected economic hope and wealth into parts of British cities that were once crime ridden, destitute and no go zones. They have also, through renting commercial property in these areas, increased the value of property and in the process improved the image of entire areas of major British cities such as Birmingham, London and Bristol. Some have become so successful that they have become brand names within the Somali community and now are planning to expand their products and service ranges in order to attract different customer and client groups. However, despite some of these forward looking, prosperous Somali enterprises, what must be made clear is that Somali businesses are not any different from any other enterprise in the UK and as such they are not immune from failure.

The fact is that more Somali businesses fail than succeed in the UK and the reasons for this are many. Among the most important are poor business planning, lack of finance, poor management and poor choice of business location. In addition to this many of the businesses lack clear objectives and even where they have this, because most of them are family owned and run, they have very limited, if any, human resources management as they rely on their familial ties and tradition to settle employment disputes.

All successful or aspiring businesses need to have a coherent, well researched and flexible marketing strategy in order to meet the needs of their consumers. Through this process they will be able to identify gaps in the market their company can exploit, fill and perhaps develop and expand in. However, most small businesses, including those owned and managed by Somalis in the UK fail because they do not do these fundamental yet simple things. Instead they rely on the quality of their products and services to be able to represent itself in a very competitive environment. It is unfair to say that no marketing is carried out by these small and medium enterprises but the little that is done is done through narrow channels and is not focused on diversifying the range of potential customers. As an illustration most Somali businesses that can afford it prefer to use Universal TV, a Somali channel which serves the Somali people worldwide but by doing this the UK Somali businesses immediately narrow their customer base to Somali speaking people and exclude anybody else who may like to try their service. If this was complimented with the distribution of flyers and other direct marketing tactics to attract non Somali customers and clients this would have provided some failed companies with a decent chance of survival.

Many Somali businesses in the UK try to grow too quickly and others have no plans for growth. The first group of businesses are traditionally crippled by too much borrowing from mainstream banks or family members and the second group are financially destroyed by owners who do not reinvest money that is generated into the business. Poor financial management has set many firms up to fail disastrously and where everything else is in perfect order and the business is still profitable, mainstream financial lenders blacklist those companies that have shown in the past to be unable to manage their financial affairs. “Sometimes when I deal with Somali business men I feel that they are very intelligent but have absolutely no clue about financial management,” remarked a trainee accountant who has worked with many Somali owned businesses. “It is as if they do not realise the importance of proper financial and business planning.”

Somali people generally are very pleasant and easy to please as customers and this leads to some Somali businesses adopting a very informal approach to their customer service. This is absolutely wrong as customer service should consistently be excellent and professional. “On one occasion I waited for my tea and slice of cake for 25 minutes whilst the shop owner chatted to his friends about an outing they were planning,” said one Somali customer of a local cafe. “He relied on the fact that he knew me and assumed I will wait. I did wait but I was not in any rush. But the question is would somebody else have waited?” Probably not and even if they had they may never have returned to that business again. Good customer service is one of the key things that make businesses successful. It is what creates profit and brand and business loyalty. If done well it allows the customer to identify themselves with the businesses and the key members of staff that work within them. Clearly from this, if the customer service is in any way less than perfect the chances of any business succeeding is drastically lessened as these businesses will not be able to retain their customers.

Location is vital to business success as a good location can yield huge financial returns for small and medium enterprises. A good location is one that attracts a large number of potential customers whilst minimising costs. Many Somali businesses, because they mainly target Somali customers, often choose the areas that their customers live in and these areas are not particularly pleasant enough to attract other more affluent customers that these businesses desperately need. Furthermore, because of their relatively small sizes Somali businesses do not invest in professional advice in key areas of their operations and as a result end up making many costly mistakes which bankrupts their entire operations.

Despite all the gloom above, there are now some Somali businesses that have taken the brave steps towards investing in city centre locations in some of Britain’s major cities in order to attract different groups of clients and others are now even instructing, and seeking, professionals for advice. The Somali people in general are extremely entrepreneurial and value self employment. The products and services they offer, especially in catering is of excellent quality and great value for money. All around there is evidence of better customer service in the form of better information, advice and service delivery. However, the number of Somali businesses doing this is very small and unless they understand the importance of better long term business planning, financial and general management as well as diversifying their customer base and the means through which they attract them, Somali businesses in the UK will never be able to escape the cycle of early boom and premature bust.

Liban Obsiye

Bristol, UK.

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