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Small and micro enterprises (SMEs) play an important role in the Kenyan economy. According to the Economic Survey (2006), the sector contributed over 50 percent of new jobs created in the year 2005. Despite their significance, past statistics indicate that three out of five businesses fail within the first few months of operation (Kenya National Bureau of Statistics, 2007). Education is one of the factors that impact positively on growth of firms. Those entrepreneurs with larger stocks of human capital, in terms of education and (or) vocational training, are better placed to adapt their enterprises to constantly changing business environments. As with many developing countries, there is limited research and scholarly studies about the SME sector in Kenya. An understanding of the dynamics of SMEs is necessary not only for the development of support programs for SMEs, but also for the growth of the economy as a whole. This study sought to understand how SMEs manage the challenges they face in employing various strategies. These challenges seem to change according to different macro and micro conditions. Competition from large counterparts, political uncertainty and emergence of bogus small firms were the top three cited challenges facing SMEs in Nairobi’s Industrial Area while delay in decision making and action to rehabilitate the business units, delay in disbursement of loans by banks and insecurity were the reported to be the least felt challenges in the study. This study employed stratified random sampling to collect data from 50 businesses using questionnaires. The data was analyzed descriptively using Microsoft Excel and presented using percentage tables. Relevant training or education is positively related to business success. The SMEs have among the following strategies to counter the challenges they face; superior customer service, effective marketing arrangement, continuously improving quality of goods and service delivery and use of security firms. The research concludes that business success is a consequence of embracing a mix of strategies.


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