Breaking the cycle of poverty with entrepreneurship

In my recent chat with former presidential spokesman, writer and businessman Ernie Abella, he asked me an interesting question: Can entrepreneurship boost the Philippine economy?

Nearly half of Filipinos, he said, quoting a recent survey, see themselves as poor. How can entrepreneurship break the cycle of poverty that so many of our countrymen have lived through for generations of their families?

I understand where the question is coming from. You might know of a sari-sari store in your neighborhood that remained small, stocked with the same goods it had 10 years ago. Rice farmers still go through the cycle of borrowing money for seeds and fertilizer, then barely making enough to keep some money after their debts have been paid, and then off again to another season of borrow-plant-repay.

Many micro and small entrepreneurs in the Philippines are what we call survival entrepreneurs. They live hand-to-mouth, scratching out a living day to day, never getting that chance to move up. I believe it is not a hopeless, inescapable cycle. There are ways to help small entrepreneurs help themselves.

One simple rule is cash flow management. Now before I scare off our small entrepreneur readers with business-school jargon, it is simply this: don’t use the business’ cash to pay for your personal or household bills.

We see this mistake often enough to keep repeating the lesson to people who come to us for mentoring. If you keep dipping into the store’s earnings to pay for, say, the electricity bill, you won’t get a true picture of how your business is doing. Is it making money? Did you see a decline in sales? How can you possibly get an accurate answer if the household’s cash is commingled with that of the store?

Worse, as the habit keeps eating into the working capital of the business, it might then become necessary to borrow money to replenish the business’ capital. And without the basic discipline of keeping household expenses separate from business expenses, how can you expect to be diligent with paying off debts and not borrow money to pay off the previous debt?

That’s the simplest lesson. There are other techniques for small businesses. If you run a carinderia, for example, do you compete on price or on differentiation? My thought on this is, if you compete on price, everybody loses. You have to offer value, and you can do that by offering something that your competitor can’t, or isn’t good at. Free soup? Better sisig? Bigger servings of rice? How can you retrain your kusinero so that you can shift the customer’s decision in your favor? How can you adjust your sourcing so you can offer more variety? How can you improve the dining area so customers will be enticed to visit your store?

This is what I have in mind when I speak about upskilling and upscaling MSMEs.

Go Negosyo is not alone in helping upscale MSMEs. Large companies in the retail and manufacturing sector have their own initiatives to help small business owners through training, market linkages and even credit. Beyond philanthropy, helping small businesses makes perfect sense for them because they, too, depend on the success of the small retailers.

For companies in the consumer goods market, the small neighborhood stores are the ones who directly connect them with the consumer. The fact that a lot of consumer goods companies focus on this segment of the market means it is a viable customer segment when taken in its totality. A lot of the big companies wouldn’t be big without them, and it is in their interest to train the small businesses and teach them how to be better at what they do.

When RFM was in the soft drinks business, we learned that if you cater to the mass market, you are hitting the bulk of the population; it is where the business is. This is where companies in the consumer goods business compete, it is where market shares are seriously fought. If you succeed here, you have made it. This is also true of the wholesale market; you cannot be a market leader without dominating the mass market segment.

Now what about protecting the MSMEs? Specifically, giving them a leg up against foreign competition? People have asked me about the potential harm that small business owners may face if all barriers to foreign investments are completely removed. I think the question should be reframed in this manner: Who will benefit if competition is allowed: the MSMEs or the consumers?

I think the consumers have to be protected first. Competition will come to MSMEs whether barriers are there or not. Digitalization made sure of that. Goods don’t have to be in the brick-and-mortar stores or need to be carried by formal distribution systems to be accessed by consumers.

But that’s not the only challenge looming on the horizon. With our neighbors in the ASEAN already eager to realize economic integration within Southeast Asia, Filipino products will be competing against those offered by the other ASEAN member-states. We cannot delay it or avoid it, but we can scale up our local businesses so they can compete.

That’s why we are already laying the groundwork for a cooperative relationship with the private sector of the ASEAN member-states. We are doing this through programs like the ASEAN Mentorship for Entrepreneurs Network, where we mentor each other’s MSMEs and exchange best practices, and with the Kapatid Angat Lahat sa Agri Program, which we are expanding to include our neighbors in the ASEAN and share best practices and create commercial values in agricultural commodities for all our countries.

The bottomline is, whether it’s competing within the neighborhood or within the region, there’s no way around it but to upskill and upscale our MSMEs.