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systems, and any other changes, must be designed to take account of the particular circumstances of each business and the ability of the owner. This means that onsite individual consultancy, although it is more expensive per client than classroom training, is more suitable for the owners of micro-enterprises.

25.3 The special skills of micro-enterprise consultants

Consultants who are used to working with written records, however inadequate, may find it difficult to work with illiterate clients; the lack of any documents that even resemble formal accounts may compound the social difficulties of dealing with people who have no office and even no fixed premises. The consultant may have to meet the client in his or her shanty home in a slum, in a noisy temporary workshop or even squatting on the ground in a public marketplace, where discussions are constantly interrupted by customers, the client’s children or a crowd of curious onlookers whose presence severely inhibits the client’s willingness to share personal financial information.

Eliciting information

It is quite possible to elicit usable financial information, even from completely illiterate business owners, but it is not easy. The consultant must avoid any form of accounting jargon. A financial picture of the enterprise has to be put together from information which may be obtained in a quite different sequence from that to which the consultant is accustomed. It is usually necessary to crosscheck information, such as daily or monthly sales figures, by asking for the same information in different ways. A village baker may have only a very approximate idea of the total figure of his monthly sales, but he is more likely to know how many bags of flour he uses each month, and how many loaves of bread he makes from each bag, or how many loaves he sells each day, and at what price.

A successful micro-enterprise consultant must be able to elicit, collate and analyse information on the spot, and then assemble the information in a way that shows where the money in the business comes from and how it is being used, as well as giving a rough idea of the income and the costs over a period, which may be a day, a week, a month or a season, depending on the nature of the business and on the way its owner runs it. This is of course an approximate balance sheet and profit and loss account. This analysis is as useful for a microenterprise as it is for a larger business, and the consultant may find that the owner’s skill in managing his or her very small capital compares favourably with the management of resources in larger and more generously funded businesses.

The consultant must also use other senses. A roadside carpenter may state that he has no stock of partly finished goods, but a dusty pile of pieces of chairs under a workbench will show that this is not the case. Or a trader who says that she never gives credit may be observed to sell a bag of flour to a customer without any cash changing hands. Micro-business people do not usually

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deliberately deceive people who are trying to help them, but mistakes of this sort occur because of failure to communicate. The consultant must also use the sense of touch and even the sense of smell; a finger will show up the coating of dust on redundant inventory, and a smell can show up a fruit vendor’s poor stock rotation methods. Simple cleanliness and good order can often make all the difference to the sales levels of a micro-enterprise, and the most immediate advice might be to sweep the floor and tidy up the stocks. These are humble suggestions, but are often relevant in far larger businesses as well.

Respect for existing business practices

Micro-enterprise consultants have to develop a special sense of respect and understanding for their clients. When you observe what appears to be illogical business behaviour, you must ask yourself what you would do in the same circumstances, with the same pressures and constraints. You may conclude that the business owner is actually coping well with very difficult circumstances. Some market traders, for instance, turn their stock over once or even twice a day. Vendors, such as the people who sell newspapers and other items to car drivers waiting at traffic lights, display remarkable marketing skills in their choice of potential customers and their decisions when to cut off a potential sale because the traffic is about to move and there will be no time to collect the money. Sales representatives who work in a more formal environment can learn a great deal from this form of marketing.

Providing information

The owners of micro-enterprises are often unaware of their rights and obligations under the law, and this can be particularly important when the regulatory environment is being rapidly liberalized. Local officials may not know, or may not want to know, about old rules that have been relaxed or new rights that have been extended, and consultants can provide a vital window on the world.

Technology is also changing rapidly, and this can bring new opportunities, such as new materials to be recycled, new intermediary or maintenance services to be provided, and new markets to be addressed.

Governments, at the local and national level, have traditionally been hostile to informal-sector business, but this too is changing, and new sources of finance, training opportunities, more secure locations and new market opportunities are being made available. People working in the informal sector frequently lack the time, the facilities and the skills to obtain information about favourable changes of this sort, and it is often more difficult to disseminate information about changes in regulations than it is to make the changes themselves. In some countries, commercial radio stations now focus on the informal sector as listeners and as a target market, informing micro-business about changes in an informal way. Outside advisers can also act as valuable intermediaries in communication of this sort.

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25.4Outreach to micro-enterprises in the informal sector

There are, therefore, many ways in which consultants with appropriate attitudes and skills can be of significant value to micro-businesses. It is by no means easy to acquire these attitudes and skills, and the consultant may have to “unlearn” a great deal of what he or she knows before being able to work effectively with micro-enterprises. The major problem, however, is the tiny scale of each individual enterprise and the vast numbers involved. How can a consultant possibly reach out to more than a minute fraction of the people who could benefit from his or her services, and how can the costs be kept to a level commensurate with the likely benefits? The approaches described in section 24.6 are of interest, but here are some more ideas.

Picking winners

One approach is to concentrate on the rather small number of micro-business people who are real micro-entrepreneurs, with the apparent potential to graduate soon from the informal sector and to develop their businesses into prosperous formal enterprises. It is far from easy to identify these potential winners. Furthermore, the transition to formal status may not always be in the interests either of the owner or of the employees, since it involves costs such as registration fees and taxation which may not be covered by the benefits arising from improved access to formal resources. Nevertheless, many of the world’s large business corporations started in an informal way, and some of today’s micro-enterprises will be tomorrow’s big businesses: management consultancy may help a few more of them to achieve this.

There are numerous tests for measuring entrepreneurial potential, but their effectiveness is limited with people of little education. Therefore the best way to select high-potential individuals is to get them to select themselves. Many agencies offer advisory services free of charge to micro-enterprises, on the assumption that they cannot afford to pay. They may indeed be unable to cover the full cost, but the best way of ensuring that clients are serious, and that they believe they can benefit from a consultancy, is to make a charge that is significant for them. If they are not willing to make a sacrifice in order to obtain a service, the error lies not with them but with the marketing or the quality of the service; this applies as much to management consultancy as to any other product.

Lower-cost consultants

Another approach to overcoming the problem of the cost of consultancy in relation to the scale of the individual enterprise is to employ less qualified and thus less expensive consultants. Although micro-enterprise consultancy is not easy, it is possible to train people with no specialist qualifications, and no more than three or four years of secondary education, to provide an effective and

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useful micro-enterprise advisory service. They need regular close support and supervision, and the organization and management of such a service is more akin to an extension service than to normal management consultancy, but such services can be cost-effective. In particular, such people may be more familiar with the problems of the informal sector from their own experience, and therefore be in many ways more effective than highly educated individuals.

Micro-enterprise consulting can also provide a useful form of training for consultants. People who are learning how to provide management advice to larger formal businesses can benefit enormously from being exposed to the informal sector and trying to advise the owners of micro-enterprises. They will probably benefit far more than their clients. Indeed, as long as they are closely supervised to ensure that they do not give wrong advice, management and business administration students from colleges, universities and business schools can be effective micro-enterprise consultants. Anyone who is running management courses should seriously consider introducing such a consultancy as a component of the course.

Working through groups

Another approach is working with groups, as already discussed in Chapter 24. Not only can this reduce the costs but, more importantly, many serious problems faced by people working in the informal sector can only be solved if they get together. Consultants can help them to see the benefits of sharing experience and undertaking joint action, and can advise their elected leaders on the effective management of their joint activities. For example, municipal authorities are often reluctant to allocate space for micro-enterprises, and the police and other government services may harass micro-business people unnecessarily; an individual can do little to prevent this, but if business owners come together and present a common front they can often achieve a great deal. Consultants can help with appropriate contacts and advise on strategies and techniques.

In other cases, micro-enterprises can benefit enormously from jointly performing certain functions, such as selling their products, purchasing raw materials or arranging for specialized processing, which require special skills or are not economical for a single unit to perform on its own. Micro-entre- preneurs often find it difficult to initiate and organize such common activities, whether or not they are officially registered as cooperatives, because the activities are so much larger and more complex than the micro-enterprises themselves. Management consultants can provide valuable technical assistance in this area. They can also help to dissipate prejudices concerning cooperative organizations, which in many countries have gained a bad reputation as a result of being misused for political purposes and of incompetent management.

Groups of small entrepreneurs can be informal and ad hoc, and may exist as long as the group members perceive a need to get together to discuss and resolve common issues, or to obtain a service that no one could afford individually. More formal groupings include associations of various types and degrees of formality, as well as cooperatives.

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Consulting for group activities of this sort is difficult. It is often tempting for the consultant to cease to be an adviser and to become effectively the manager of an enterprise or a grouping. The owners of the group themselves may allow or even encourage an outside adviser to do this, because their main interest is in the operation of their own micro-enterprises. The result may be that the consultant finds himself in the position of a full-time manager rather than an adviser, and the group becomes dependent on his or her continued presence. While this is a danger in any consulting relationship, it is particularly great in the case of group enterprises, where none of the members really “owns” the undertaking in a personal way. Such enterprises are like the proverbial village donkey: everybody feels that it is somebody else’s responsibility to take care of it, and as a result nobody does.

Management consultants working with groups of entrepreneurs or cooperatives must be sensitive to the variety of interests involved, in addition to avoiding the creation of dependence. It is also tempting for an outsider to advise, persuade or even compel the owners of micro-enterprises to form groups because it appears to be in their interests. Many group enterprises have a short existence because they have come together not on the members’ own initiative but because somebody else (whose livelihood did not depend on the group’s success) thought that this would be the right approach.

An effective management consultancy for a cooperative or other group of micro-enterprises will indirectly help the individual members by improving their access to credit, their marketing, their raw material supply or whatever other function the group organization performs on their behalf. This does not in itself improve the management of the individual micro-enterprises. It is possible, however, to reach the individual members through their group: training workshops can be organized for members who wish to attend, and the group’s managers can require members to maintain a certain standard of quality control or other improvements as a condition of doing business with them.

This must obviously be done very carefully, since the group’s managers are ultimately responsible to the members who employ them, but group pressure can be a very effective way of motivating micro-entrepreneurs to do what is in their own interest. The more successful members of a group are often willing to act as informal management consultants to their fellow-members, in order to improve the standards and thus the earnings of the group as a whole. An effective management consultant must be able to mobilize this multiplier effect, by teaching the opinion leaders simple techniques for making diagnoses and recommendations. The messages may seem elementary to an experienced consultant, but the communication task must be very subtly managed.

Alternative channels

Full-time management consultancy for individual micro-enterprises is not usually an economic proposition (see box 25.2), but there are other routes through which they can be reached. Many organizations are in regular contact with micro-enterprises: manufacturers and distributors of fast-moving

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