The article discusses the challenges faced by small and medium-sized enterprises (SMEs) in

obtaining finance, which is a critical issue for their growth and profitability. It highlights that

SMEs often lack collateral and financial history which makes it difficult for them to obtain

loans from traditional financial institutions. The article then explores two approaches to

entrepreneurship, Effectuation and Bricolage, which focus on internal resourcefulness and

making the most of what is available, regardless of long-term returns. The paper lists ten

strategies that entrepreneurs can adopt including embracing affordability logic, engaging in

networking and collaboration among others. By implementing these strategies, SMEs can

overcome funding challenges and achieve sustainable growth

Amoa-Gyarteng, Karikari

Munich RePEc Personal Archive

Munich Personal RePEc ArchiveOvercoming Financial Challenges forSmall and Medium Enterprises:Strategies for Entrepreneurial SuccessAmoa-Gyarteng, KarikariN/A25 March 2023Online at https://mpra.ub.uni-muenchen.de/116821/MPRA Paper No. 116821, posted 26 Mar 2023 14:10 UTCOvercoming Financial Challenges for Small and Medium Enterprises: Strategies for Entrepreneurial Success By Karikari Amoa-Gyarteng  Executive Summary The article discusses the challenges faced by small and medium-sized enterprises (SMEs) in obtaining finance, which is a critical issue for their growth and profitability. It highlights that SMEs often lack collateral and financial history which makes it difficult for them to obtain loans from traditional financial institutions. The article then explores two approaches to entrepreneurship, Effectuation and Bricolage, which focus on internal resourcefulness and making the most of what is available, regardless of long-term returns. The paper lists ten strategies that entrepreneurs can adopt including embracing affordability logic, engaging in networking and collaboration among others. By implementing these strategies, SMEs can overcome funding challenges and achieve sustainable growth. Introduction Small and medium enterprises (SMEs) are businesses with fewer than 100 employees and a lower annual income than large organizations. These enterprises are critical to the economy since they often create a considerable amount of a country's economic activity and provide employment opportunities. Nonetheless, despite their importance, SMEs frequently encounter a slew of problems that jeopardize their growth and profitability. The difficulty in obtaining finance is one of the most critical challenges. SMEs frequently face finance challenges owing to a variety of issues. For starters, they normally have little collateral and no financial history, making it difficult for them to obtain loans from traditional financial institutions. Furthermore, SMEs may lack the resources to develop a detailed business plan or present the requisite financial projections to get investor backing. Furthermore, many SMEs operate in high-risk industries or markets, making it less appealing for investors or lenders to participate in their enterprises. When SMEs are unable to source for funding, the consequences can be significant. Firstly, the business may not be able to invest in the necessary equipment, technology, or personnel to grow and compete effectively in the market. Secondly, the lack of funding can also result in the business being unable to meet its financial obligations, such as paying suppliers, employees, or rent, which can impact its reputation and financial stability. Furthermore, if the business is unable to access funding, it may be unable to take advantage of new business opportunities, such as expanding into new markets, launching new products, or acquiring new customers. Hence, it is critical to build initiatives and dynamic capabilities that can assist SMEs to overcome funding challenges to expand and flourish. Within the last few decades, there has been a growing recognition of the funding difficulties faced by SMEs. In response, new approaches to funding have emerged that emphasize internal resourcefulness and dynamic capabilities. As Fisher of Indiana University demonstrates, entrepreneurs in these approaches focus primarily on resources that they can control, regardless of long-term returns. They concentrate on what they are willing to risk and are less concerned with context-driven resource constraints. These entrepreneurial perspectives are inspired by the "Entrepreneurial Bricolage" posited by Baker and  Nelson in 2005 and "Effectuation" approach postulated by Sarasvathy in 2001. Effectuation Effectuation refers to the process of creating something from what is available and involves a collaborative and co-creative approach. The Effectuation approach recognizes the entrepreneur as an analytical individual who employs the principle of affordable loss to arrive at the most cost-effective solution available. This perspective posits that enterpreneurial ventures often have limited external resources but can operate the business without external capital. The approach outlines a strategic method for entrepreneurial success, as depicted in the accompanying figure. The entrepreneurial cycle commences with a resource analysis performed by the entrepreneur, who asks a series of questions to assess the means at their disposal and determine the most appropriate course of action. Through communication and engagement with stakeholders, the entrepreneur finds innovative ways to set new goals in line with  available resources.                Figure 1- Effectual Approach to Entrepreneurship Source: Sarasvathy & Dew (2005). Entrepreneurial Bricolage Entrepreneurial bricolage refers to utilizing a mixture of available resources in innovative ways to tackle new challenges and seize new opportunities. The entrepreneurial bricolage approach posits that entrepreneurs use what is on hand and combine resources to make something out of nothing. This process is exemplified in figure 2, which outlines the choices available to entrepreneurs in challenging business environments. The cycle highlights the strategies employed by entrepreneurs to overcome obstacles and make the most of available resources. Selective bricolage enables the overcoming of resource constraints and fostering long-term growth. However, it is important to emphasize that excessive bricolage, as depicted in the figure, may limit growth potential.             Figure 2-Bricolage Approach to Entrepreneurship Source: Baker & Nelson (2005:354). As an entrepreneur, how can you foster these principles? The article points to ten strategies to try: 1. Embrace Affordability Logic: Entrepreneurs should focus on using the resources they have access to, instead of waiting for external funding or support. By embracing the affordability logic, they can make informed decisions and take calculated risks, without being overly constrained by the need for external resources. 2. Engage in Networking and Collaboration: Entrepreneurs should engage in networking and collaboration to build relationships and gather resources from others. By sharing ideas and working together with others, entrepreneurs can expand their resources and improve their chances of success. 3. Focus on Customer Needs: Entrepreneurs should concentrate on identifying and addressing client needs and wants, as this can drive resource acquisition and promote the development of new products and services. 4. Build Resilience: Entrepreneurs should cultivate resilience in order to overcome difficulties and make the best use of their resources. Entrepreneurs may better weather adversities and emerge stronger by developing a supportive network and being prepared for change. 5. Leverage Existing Resources: Entrepreneurs should leverage existing resources, such as skills, knowledge, and connections, to create new opportunities and build their businesses. By using what they have, entrepreneurs can be more resourceful and achieve more with less. 6. Build a Strong Team: Entrepreneurs should build a strong team of advisors and employees who can support them and help them achieve their goals. By working together, entrepreneurs can access a wider range of resources and achieve more than they could alone. 7. Develop Partnerships: Entrepreneurs should develop partnerships with other businesses who can provide them with additional resources, support, and opportunities. 8. Focus on Scalability: Entrepreneurs should focus on scalability and seek to create businesses that can grow and thrive over time. By planning for growth and focusing on scalability, entrepreneurs can ensure that they have the resources they need to succeed in the long term. 9. Utilize Data and Analytics: Entrepreneurs should utilize data and analytics to make informed decisions and allocate their resources effectively. By tracking their progress and using data to guide their decision-making, entrepreneurs can maximize the impact of their resources and achieve more. 10. Continuously Learn and Adapt: Entrepreneurs should continuously learn and adapt to changing circumstances and new opportunities. By being proactive and open to change, entrepreneurs can stay ahead of the curve and continue to make the most of their resources. In conclusion, by embracing the principles of Effectuation and Entrepreneurial Bricolage, entrepreneurs can be more resourceful and innovative in their businesses, and achieve more with less. These approaches promote a resource-oriented approach to business strategy, and emphasize the importance of embracing affordability, collaboration, experimentation, and continuous learning. Moreover, these principles allow entrepreneurs to be more adaptable and responsive to changes in their business environment. By focusing on what they have control over, rather than external factors, entrepreneurs can minimize risk and increase their chances of success. Additionally, these approaches can help entrepreneurs develop a growth mindset, and foster a culture of innovation and creativity within their organizations. The key to success with Effectuation and Entrepreneurial Bricolage is to continuously reflect and adjust, experimenting with new ideas and approaches as they learn from their experiences. This approach allows entrepreneurs to maintain a competitive edge and remain relevant in the ever-changing business world. In essence, embracing Effectuation and Entrepreneurial Bricolage can help entrepreneurs overcome funding challenges and achieve their business goals more effectively with little resources. References Baker, T. & Nelson, R.E. (2005). Creating something from nothing: Resource construction through entrepreneurial bricolage. Administrative Science Quarterly, 50(3), 329-366. Sarasvathy, S.D. & Dew, N. (2005). New market creation as transformation. Journal of Evolutionary Economics, 15(5), 533–565. Dr Karikari Amoa-Gyarteng is a Research Fellow at the Department of Business Management, University of Johannesburg. Reach him at kariamoa1@gmail.com   

Overcoming Financial Challenges for Small and Medium Enterprises: Strategies for Entrepreneurial Success

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Overcoming Financial Challenges for Small and Medium Enterprises: Strategies for Entrepreneurial Success

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