Dr Ju­dith Mark

Ac­cess to fi­nance for growth has long been con­sid­ered a ma­jor chal­lenge for SMEs (Small and medi­um-sized en­ter­pris­es) glob­al­ly. How­ev­er, fur­ther analy­sis sug­gests that the mind­set of SME lead­ers in­flu­ences both ac­cess to cap­i­tal and the choice of in­stru­ments used when fi­nanc­ing growth. In Trinidad & To­ba­go, as it is for many small-is­land de­vel­op­ing states, where struc­tur­al chal­lenges to growth ex­ist, the lead­er­ship mind­set is par­tic­u­lar­ly im­por­tant in de­ter­min­ing how to fi­nance SME growth.

Lead­er­ship mind­set de­ter­mines how fi­nanc­ing is per­ceived, pur­sued and de­ployed as the busi­ness grows. The fi­nanc­ing chal­lenge is even greater as mar­ket con­di­tions change and as tra­di­tion­al sources and in­stru­ments be­come scarce, and un­fa­mil­iar ones emerge.

Ac­cess to cap­i­tal—the SIDS con­text mat­ters

What makes fi­nanc­ing SMEs in T&T and in­deed the wider Caribbean re­gion a greater chal­lenge when com­pared with more de­vel­oped re­gions, is the mul­ti­plic­i­ty of chal­lenges faced.

Caribbean economies like oth­er glob­al SIDS face lim­it­ed op­por­tu­ni­ties to scale lo­cal­ly due to mar­ket size, lim­i­ta­tions in the cap­i­tal mar­ket in terms of depth and breath and rel­a­tive­ly high bor­row­ing and trans­ac­tion costs.

In ad­di­tion, for many SMEs there ex­ists lim­it­ed knowl­edge of dig­i­tal fi­nanc­ing, hy­brid and cus­tom-tai­lored fi­nanc­ing in­stru­ments, on the part of founders, the man­age­ment team, and even the ad­vi­sors they re­ly on. This of­ten leads to un­cer­tain­ty and dis­trust in the fi­nanc­ing de­ci­sion-mak­ing process.

The growth para­dox—mon­ey or mind

Many SMEs have ad­vo­cat­ed that their fail­ure to grow is due to lim­it­ed ac­cess to cap­i­tal. How­ev­er, a ques­tion which emerges is what if the root of the prob­lem is not an ac­cess to fi­nance mat­ter but in­stead, a mat­ter of the mind or how the lead­er­ship views fi­nanc­ing.

Fi­nanc­ing may be sought for var­i­ous rea­sons such as keep­ing the busi­ness afloat, fi­nanc­ing to grow the busi­ness, or fi­nanc­ing to ramp up op­er­a­tions or to scale. While it is ex­pect­ed that these var­ied fi­nanc­ing ob­jec­tives will re­sult in dif­fer­ent ap­proach­es to fi­nanc­ing, as well as to the de­ter­mi­na­tion as to what is the best com­bi­na­tion of cap­i­tal for growth and con­ti­nu­ity, the mind­set of the leader can de­ter­mine the mix of cap­i­tal.

As SMEs grow, the fi­nanc­ing in­stru­ment re­quired varies from founder/own­er cap­i­tal in the ear­ly-stage, to third-par­ty cap­i­tal via a sale or an ini­tial pub­lic of­fer­ing at the oth­er. In be­tween these stages, fi­nanc­ing op­tions in­clude, grant fund­ing, an­gel fi­nanc­ing, debt fi­nanc­ing, in­ter­nal­ly gen­er­at­ed funds, gov­ern­ment-backed fi­nanc­ing, work­ing cap­i­tal, pri­vate eq­ui­ty, ven­ture cap­i­tal and in­vest­ment cap­i­tal from strate­gic in­vestors. The use and ap­plic­a­bil­i­ty of these in­stru­ments are of­ten­times linked to the mind­set of SME founders and lead­ers.

The sur­vival mind­set

Dur­ing the start­up and ear­ly phas­es of growth, many SMEs guard own­er­ship, avoid risk and ex­ter­nal in­jec­tion of cap­i­tal to keep the busi­ness go­ing. For this rea­son, many Caribbean busi­ness­es demon­strate a pref­er­ence for in­ter­nal­ly gen­er­at­ed funds, avoid debt, avoid ex­ter­nal cap­i­tal, and even avoid the use of new or un­fa­mil­iar tools such as dig­i­tal fi­nanc­ing in­stru­ments. The fo­cus is pri­mar­i­ly on pre­serv­ing cash and in re­sist­ing fi­nanc­ing where the risk is un­cer­tain and the out­come is un­known.

While a sur­vival mind­set may work for some SMEs in the ear­ly stages, where busi­ness con­ti­nu­ity is the pri­or­i­ty, the per­sis­tence of a sur­vival mind­set char­ac­terised by fear, con­trol,and a re­luc­tance to give up any part of own­er­ship in re­turn for cap­i­tal, lim­its SMEs abil­i­ty to scale.

A scal­ing mind­set

Amidst the con­straints of the chang­ing busi­ness en­vi­ron­ment, an in­creas­ing num­ber of SMEs now view scal­ing as an op­tion for growth. This is par­tic­u­lar­ly rel­e­vant to SMEs in de­vel­op­ing is­land states where do­mes­tic mar­ket size is lim­it­ed, un­em­ploy­ment is in­creas­ing and dis­pos­able in­come is re­duc­ing. The scal­ing mind­set adopts a strate­gic ap­proach to rais­ing cap­i­tal.

The de­ter­mi­na­tion of mix of fi­nanc­ing, amount of cap­i­tal, terms, source and tim­ing is viewed in the con­text of how the SME can ad­e­quate­ly pre­pare for change and adapt to the busi­ness en­vi­ron­ment. A ma­jor con­cern is the op­ti­mal mix of fi­nanc­ing for long-term com­pet­i­tive­ness and sus­tain­abil­i­ty. This fu­ture-ori­ent­ed think­ing in­volves risk, due dili­gence, gov­er­nance, strate­gic part­ner­ships, hu­man re­source ca­pac­i­ty and ca­pa­bil­i­ty, share­hold­er and stake­hold­er ex­pec­ta­tions and sus­tain­abil­i­ty.

SMEs which adopt a scal­ing mind­set are open to risk, shared own­er­ship, seek in­for­ma­tion on new fi­nanc­ing in­stru­ments, and link fi­nanc­ing to in­no­va­tion, prod­uct de­vel­op­ment, ex­pand­ed op­er­a­tions, tal­ent de­vel­op­ment, tech­nol­o­gy en­abled ac­tiv­i­ties, mar­ket growth and cus­tomer-ori­en­ta­tion.

These SMEs are like­ly to use a more var­ied mix of fi­nanc­ing as what mat­ters is the im­pact of the cap­i­tal on the busi­ness, re­gard­less of source.

In ad­di­tion to the in­stru­ments used by SMEs with a sur­vival mind­set, SMEs with a scal­ing mind­set are re­cep­tive to oth­er in­stru­ments that pro­vide for mar­ket ex­pan­sion and in­creased pro­duc­tion. These SMEs are open to growth eq­ui­ty, ven­ture cap­i­tal, mez­za­nine fi­nanc­ing, as­set-backed lend­ing and co-fi­nanc­ing. For the founders and lead­ers, own­er­ship di­lu­tion is a strate­gic choice, and one to be used when need­ed to fa­cil­i­tate growth and scal­ing.

The lega­cy mind­set

For many founders of SMEs, leav­ing a lega­cy is about be­ing recog­nised for the con­tri­bu­tion made in cre­at­ing and grow­ing a busi­ness.

While cre­at­ing a lega­cy can be pos­i­tive, the ap­proach can have neg­a­tive con­se­quences ac­cord­ing to the lead­er­ship mind­set.

Em­pha­sis on pro­tect­ing the busi­ness via con­trol or re­luc­tance to out­side sources of cap­i­tal due to fear can cre­ate in­er­tia and sti­fle growth.

On the oth­er hand, where there is a scal­ing mind­set, to­geth­er with a pos­i­tive lega­cy mind­set, the fo­cus will be on open­ness to ex­ter­nal cap­i­tal, once it can can be de­ployed to cre­ate val­ue, de­vel­op tal­ent and cre­ate a sus­tain­able mod­el, pos­i­tive­ly af­fect­ing share­hold­ers, stake­hold­ers and the wider com­mu­ni­ty; the essence of a good lega­cy.

Re­stat­ing the

fi­nanc­ing chal­lenge

As SMEs in T&T and the wider Caribbean re­gion seek to nav­i­gate un­cer­tain­ty and pur­sue longevi­ty, the key ques­tions are, what is the vi­sion for the busi­ness, what is best mix of fi­nanc­ing, and how should fi­nanc­ing be de­ployed to re­alise that vi­sion. The an­swers to these ques­tions are root­ed in the mind­set of the lead­ers and founders.

For com­pa­nies in the Caribbean as well as SIDS glob­al­ly, the move from stay­ing afloat or sur­viv­ing, to suc­cess­ful­ly grow­ing a busi­ness by scal­ing, is linked to lead­er­ship mind­set.

A deep dive in­to mind­set may re­veal that trust, con­trol, ap­petite for suc­cess be­yond the lo­cal mar­ket, as well as life-time ex­pe­ri­ences de­ter­mine the choice of fi­nanc­ing.