Enterprise Resilience: Six Critical Factors to Protecting Your Start-Up’s Future
An outline of the essential factors and recommendations for enterprise resilience
Last Forest, an Indian based biodiversity enterprise, ordinarily offers locally-produced premium organic products and services through a restaurant and physical shop. These are purchased from indigenous communities, giving them a sustainable source of income. But when COVID-19 hit, this small business was forced to move their business online. By opening a digital store they are now able to deliver their products to customers all across India. Even better, Last Forest has trained community suppliers to make face masks, resulting in two large overseas purchasing orders that have supported continued income for local communities.
Last Forest isn’t the only enterprise affected by the pandemic. COVID-19 has exposed vulnerabilities across the globe, with MSMEs feeling the full weight of the economic and social impacts. As the pandemic shows no signs of abating, 42% of MSMEs worldwide now face potential failure within six months. MSMEs make up a large part of local economies and communities, and building resilience to future shocks is essential to protecting local incomes and long-term employment for communities, especially those in developing countries. Enterprise resilience is an indispensable characteristic that helps MSMEs prepare for the unknown, allowing enterprises to prepare for drops in demand, medium to long-term business model disruptions, and substantial loss of income and livelihood. Like Last Forest, many enterprises have had to pivot to stay in business, showing their resilience even in the hardest of times.
What is Resilience?
There are two main understandings of what resilience really means: a functional and a dynamic interpretation. Functionally, resilience is the ability of an actor or a system to return to a steady state. But dynamically, resilience is about flexibility across time frames and stages of development within organisations like enterprises, or systems such as economies.
To better understand what resilience means for MSMEs during the COVID-19 pandemic, SEED interviewed 30 eco-inclusive enterprises. It found that, unsurprisingly, MSMEs have been strongly affected by the economic shock of the pandemic. Some enterprises have been able to stay afloat by leveraging their assets, capabilities, networks, and local relationships in order to continue addressing the needs of communities at the bottom of the pyramid, while others haven’t. This is where resilience comes in.
How exactly are MSMEs responding to the COVID-19 pandemic?
In terms of a resilient response, enterprises can be classified into three different categories: starters, movers, and champions. Starters are the enterprises which were able to sustain and continue operating in ordinary conditions but have struggled with the impact of the COVID-19 pandemic due to cash-constraints and market-dependence. Movers are the enterprises which adjust their enterprise practices and continue in operation, benefiting from stronger partner/customer relations and adaptability. These movers made adjustments at multiple levels, including utilising digital technologies and creating new organisational processes to build resilience against the negative consequences of the pandemic. The remaining third category, the champions, were able to transform their product or service portfolios or even change their organisational processes radically to respond to the shock.
The majority of SEED-supported enterprises interviewed for the report were categorised as movers, with a few landing in the starter and champion category. Overall, market resilience was the weakest factor across all enterprises, unsurprising due to the fact that the pandemic affecting markets everywhere.
Six Critical Resilience Factors
SEED identified six critical resilience factors for MSMEs, drawing on the interviews with enterprises that responded with the most adaptability to the pandemic in the interest of helping other enterprises to think about the different risks and coping mechanisms that they can use.
The first factor was business resilience, referring to enterprises’ ability to focus on a new product or service in order to meet the changing needs of the bottom of the pyramid market, ensuring that enterprises stay relevant with their customer base. Kibebe, an upcycling enterprise in Malawi, is one such example, showing business resilience by pivoting from selling upcycled waste products to producing face masks. They even temporarily hired new staff to meet the higher demand. Even now, Kibebe is pivoting its model to focus on producing PPE for hospital staff.
Financial resilience, another critical factor, is best demonstrated by enterprises that adjust their pricing and payment conditions to reflect irregular cash flows and an overall cash-strapped environment. Mycotech in particular, an eco-inclusive enterprise operating out of Indonesia to produce alternatives to animal-based leather, prepared multiple financial scenarios so that the enterprise could focus on maintaining their cash flows in each scenario. By preparing for multiple unknowns, Mycotech has developed resilience also to future financial shocks.
Organisational resilience, or the ability to be creative and innovative in moving to a digital workspace, has proved critical during the pandemic. Like most other businesses, enterprises have had to move online, using technology to work digitally rather than in-person. FAM Organic, an organic farming enterprise in Indonesia farms healthy and sustainable crops and teaches others to do so too. It already had used online channels such as an online shop prior to the pandemic, but also made use of digital tools to better plan farm activities, making farming more efficient and socially distant.
Ecosystem resilience is another essential factor, as enterprises must be able to rely on their business partners and other actors within their ecosystem for support during shocks. By checking regularly on their workers and training new employees to boost the number of waste pickers, Nelplast Eco, a waste management enterprise operating in Ghana, ensured a steady supply of waste for their waste management enterprise and was able to stay afloat.
The final two factors, market and impact resilience, are no less critical. Although COVID-19 affected every market, some enterprises faced greater challenges depending on their sector, location, or geography. Even when OnErgy, an Energy enterprise in India, experienced interruptions in revenues due to Chinese lockdowns at ports and reprioritisation of government funds away from its projects, they continued developing solar pumping projects to serve farming communities in need. And in terms of impact resilience, SEED’s eco-inclusive enterprises have continued to serve at-risk bottom of the pyramid populations by supporting their beneficiaries with donations and/or free or subsidised product or service offers.
How can intermediaries and policymakers support MSMEs?
Support organisations are absolutely critical to increase the resilience of eco-inclusive enterprises. They have a key role in identifying needs for financial and peer support as well as skill building. In systemic crises, whether they be biodiversity loss, inequality or COVID-19, the poorest and most vulnerable in our societies are the most at risk. By supporting enterprises with economic and social value built into their models, policymakers and intermediaries can stimulate recovery across communities.
Through the resilience interviews, SEED identified recommendations for how policymakers and intermediaries can support enterprise resilience against further crises. While many more recommendations are outlined in the report that you can read on seed.uno, a select few stand out as best practices for enterprise support. Firstly, local intermediaries can train enterprises to tap into local supply chains and can provide training on diversification and alternative products or pivots, which would help existing enterprises to explore diversifying their business. Governments can also ensure equitable access to support by setting up programmes to develop enterprise support in rural areas, as business support is all too often only available in cities. Finally, governments can encourage enterprise resilience by supporting early warning systems to recognise weather, drought, or other market crises that could affect MSMEs and help them plan ahead for future shocks.