Government should incentivise small businesses to generate jobs
Steve Babaeko is the Chief Executive Officer of X3M Ideas, an advertising/marketing communications agency that is driving a revolution in the creative industry. In this interview with FEMI ADEKOYA, he explains why government should incentivise small businesses’ operations considering the role they play in the economy. Despite recession, he notes that Nigeria’s consumer market remains vibrant. Excerpts.
As an industry stakeholder, can you give an assessment of the Nigerian economy in the last one year?
One word, it has been challenging. If you look at half year results of most of the blue chip companies we have in Nigeria today; as we actually did some analysis on them, whether they are our clients or not, most of the ones that have published results maybe on their website or on a public domain, the trend observed has not been a very good trend. The economy is facing a very serious challenge at the moment and marketing communication is almost at the bottom of the food chain, so if it is affecting those at the top, of course marketing communications will be greatly hit because it is at the bottom.
I might not be able to speak in terms of percentage but I can definitely tell you that the profile of the industry has decreased a bit and we are feeling the pinch and I know most of my other colleagues are saying the same thing. If you look at it from the number of airlines that have just opted out of Nigeria in the past one year and manufacturers that have not been able to produce, the indices are going southward. If you look at the oil industry itself that used to be the robust part of our economy, they are also laying-off staff. If you look at the macroeconomic indices, once it is no longer positive, market communications will be heavily hit. So the first major reaction most of these clients have is to cut cost spending which actually should be the other way because this is the time to boost spending, create awareness and differentiation for your brand, but it is just that first reaction to say look our economy is bad, we have to cut our marketing budget.
Do you think the low purchasing power could be responsible for this decline?
You could say that, but at the same time, if you take a look at the Nigerian economy with a population of about 170 million people market, it means all kinds of brands are competing for market share. So this is the time to say whether the consumer purchasing power has dwindled or not, but with that dwindling purchasing power, there is still a lot of crucial purchase decision to be made. This is the time to stimulate the consumer decision to be in favour of choosing your own brand versus competition. No matter how bad the economy is going, this is not the time to cut down marketing communication strategy.
Do you see mergers and acquisition happening in the industry as a result of dwindling fortunes?
I think we are beginning to see semblance of that, because forever and ever, people will always find this market attractive as long as Nigeria remains one corporate entity coupled with the size of the population. You could go to Ghana, but you will end up doing like 20 per cent of the Nigerian market, but as long as the country remains one entity, that is going to be our competitive advantage over other countries and again, because the economy is so tough and so hard, it looks like people in the advertising industry have no choice than to begin to consider mergers and acquisition.
Some people are already doing a bit of that and I think we need to see more of that to be honest. I was discussing with another top senior practitioner and we thought it was a joke to see that the clients we work for, some of them are shutting down while some of them are laying-off staff, but at this point in time, more advertising agencies are opening shops. It is just a paradox. What we have found out that is that as more advertising shops are opening, there is intense competition among advertising agencies for the small piece of pie that is left, but I think eventually, common sense and the economic order of the day is going to make people start considering serious merger and acquisition.
Are you considering any?
We will be acquiring. We are working on a serious acquisition plan at the moment and we will be speaking about them soon.
How is technology and innovation disrupting operations in the industry considering migration of many consumers to social media platforms?
It has affected the industry in a big way. This is why you will find that most of the old traditional agencies are not able to be in tune with the current reality of today’s marketing communication ecosystem, they are either shutting down or are on their way out. So, you find out that new agencies that are more vibrant and more in tune with the digital nature of communication today are on the upswing.
Having almost scaled through the five-year test period for small businesses, how would you describe doing business in Nigeria?
It has been challenging. I can tell you the areas where it is hitting our head against the rock. One is infrastructure. If I tell you how much we spend to run our generators, it is a lot of money in a month and of course that will go into how much you are going to charge your customers to be able to remain in business. Getting the right human capital to work is another challenge. There are so many people that are unemployed and at the same time, there are so many people that are unemployable because the educational infrastructure that is supposed to provide a whole pipeline of fantastic graduate who are really good in different discipline to be able to come into the industry has since collapsed. So what you find is that out of the 1000 people looking for jobs, you are lucky to find about 10 that can even write good English. So those are the challenges that you face every day and that is not to talk about the issue of taxation.
When you are caught sometimes between the Lagos Internal Revenue Service (LIRS) and Federal Inland Revenue Service (FIRS), it is like being caught between the devil and the deep blue sea with issues of double taxation here and there. Those are still issues we have to address before you can say that you can breathe easy and establish a business. My own point of view is that, this is the point where government needs to begin to look at small and medium enterprises (SMEs) and say what kind of tax breaks can they give SMES, because looking at the high rate of unemployment in Nigeria, this is the time to incentivise SMEs for them to be able to employ labour and this is what most advanced countries have done.
If you look at the American economy, there is statistics that say about 75 per cent of the companies that make up the backbone of the American economy are actually the SMEs. So the blue chip companies account for less than 25 per cent. So how do you drive that SME category, how do you power them up, how do you incentivise them to even want to hire somebody is key. Instead of doing double taxation, this is the time to give tax breaks. I think we are getting those kinds of tax policies wrong a little bit around here.
What will you say is responsible for X3M ideas’ driving force?
Leadership has a strong role to play. I saw something that says a battalion of lions led by a sheep will always be defeated by a battalion of sheep led by a lion and I thought that was very profound. Leadership is very crucial today. How you motivate your team, what you bring to the table, what kind of incentive you use to motivate your team is very crucial and also being in touch with the reality of the ecosystem of marketing communication is crucial. You can see that how we have set up the kind of ambience and environment we create for our team is vital. The remuneration for your team and how regular you keep to it is also very important. Training is also a key factor and I think we have been able to check all the right boxes in that direction, so I will say I feel very happy where we are, but honestly, if you ask me, I will say there is still a lot that we need to do as a team to continue to stay ahead of the curve.
Where do you see your business and the industry in the next five years?
Engineering is going to drive marketing in the next five years, go and write it down. So if an agency is not looking at technology, you are putting a knife to your own throat and slicing it. This is where the industry is going. People will say Nigeria is still behind the curve, but I will say Nigeria has a way of evolving. How many people have landlines in Nigeria? But if you still go across Europe and America, lots of people still have landlines. We have moved from landlines to mobiles in just one stride and that is what is going to happen when it comes to technology. It is going to play the next big role in the way we operate.
Do you see any future for advertising in the traditional media?
No matter what we say about the traditional media, it will still be here for a while. It is not going anywhere soon, but if you see the emerging ecosystem now, it is going to be how brilliantly you can combine this traditional system with the new digital system. Do not forget that about 40 years ago when TV started, it was new media, but now we are talking about artificial intelligence and others. So many things are going to emerge in another two to three years which we will refer to as new media, but what will remain with us forever and ever is the quality of the big idea you want to drive across whatever channel. I think that is one thing for which we keep losing track. If you have a solid big idea that is transmittable across multiple platforms you have nothing to worry about, but what will matter is where you put it to engage with your consumers and I am sure with time, as we begin to perfect using digital media, we are going to see the equivalent between putting an advert on those platforms and the kind of engagement and brand equity building reach you get for the client.
What propelled you to entrepreneurship?
When I was writing our memo on the 1st of August, I quoted Forbes magazine statistics which stated that only one out every 10 start ups will survive. I wanted my team to realise that we are one of the 10 that survived. This is the fourth year. It is just that sense of daring. We love to take up big challenges on behalf of our clients and we also love to see it to fruition while also completing those tasks. If I look in the horizon, there is so much to be accomplished. I was in Stamford a couple of weeks ago for an executive programme for growing companies and by the time you convert your billings to US dollars, you are almost embarrassed to say that you are better than other entrepreneurs from other countries who have come for the same programme. So, you can see that there are still a lot of grounds for us to cover as entrepreneurs and as businesses in this country. We look forward to doing more and achieving more to get our team more fired up for the future.
Sustainability is key for businesses, what are the measures you have put in place?
It is succession planning. The system has to be able to run on its own. That is the difference between a one-man business and someone who is trying to build value into the future. If you do not start working on the succession planning like what we have started working on it now, you are going to run side by side with what most of the traditional agencies have found themselves in where after about 30 years, you are tired and can no longer run the business and there is nobody else to take over from where you stopped. It is very crucial, to sustain the dream of building an enterprise, you must work seriously on succession planning.
What will be your advice for upcoming entrepreneurs?
It is discipline. A whole lot of fiscal discipline is required to run a business and I have said it so many times that if you are working for people, pretend you are working for yourself and if you are working for yourself, pretend you are working for other people. I do my job here every day as if someone would fire me if I do not do so. I have a Board that I report to and indeed, I can actually be fired, so once you understand that, you will put in a 150 per cent in what you do. People go into businesses for different reasons, some people just want the title and do not care whether they make any difference.
I came into this business because I believe I can make a difference as an entrepreneur, no matter how much financial reward you get out of this, it cannot be compared to being able to touch the lives of your team members. I have shaped their opinion to see that as a businessman, you can do something differently and still win. For me, I think that is the most important thing I have always tried to achieve and that is the same counsel I am going to give to would be entrepreneurs. A lot of people believe that I can do it, so they can, but when you get into the frontline, you will realise that running a business is not as easy as it looks. You will have to make a difference.
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