Are you prepared for sudden change? Our masterclass series helps you transform your company’s potential into greatness. Our new masterclass series shows how to prepare your operations, technology, finance and people for unprecedented growth.
Today I’m going to look at the challenges facing Small and Mid-size Enterprises – or SMEs for short. For the purpose of this session I mean businesses with annual revenues of less than $750m.
I’m going to examine how you can scale your resources to allow growth, while making sure you stay flexible enough to respond to unpredictable market conditions.
I hope this presentation will give you lots of practical help, and show you some strategies that can make being a growing SME just as exciting as being a start-up.
OK, let’s start with a bit of background information ...
There’s no doubt that SMEs play a hugely important role in the world economy. For example:
In the European Union, for example, they employ two thirds of the workforce – and create 85% of new jobs. However, while SMEs have to grow to survive, they face constraints on their resources. Expanding is risky, especially when economic conditions are uncertain. Small businesses generate nearly 64% of new jobs in the US. SME’s account for 61.3% in employment, 28.5% in GDP and 8.4% in exports in Latin America. 95% of businesses in the Asia-Pacific region are entrepreneurs and small businesses, and employ 80% of the workforce
According to a survey conducted among SMEs by Economist Intelligence Unit (EIU) 73% of SME’s predict revenue growth in the next 12 months and 42% are looking to expand into new geographic markets.
So how do you provide the resources you need to be prepared for expansion, while making sure that investing in them doesn’t threaten your viability? In particular, how do you handle unexpected change – whether it’s a welcome big order or an unwelcome failure in your systems?
Of course, you can probably improvise for a while – people can work around the clock and you can contract for extra help – but that’s not a sustainable solution. What if the big orders keep coming – or the system keeps crashing?
The real answer lies in scaling. Building an operational platform on which you can expand, while staying flexible enough to respond to unexpected change. It’s all about pursuing growth while remaining resilient.
In the next few minutes, we will look at how SMEs are doing exactly this. In particular, we will focus on four key areas.
If you get these right, you will be well on the way to scaling your company so it’s ready for just about anything.
Operations is about defining the right structure for your growing company and establishing processes that will meet your future needs.
Technology is about taking advantage of robust IT systems that are available and affordable to SMEs for the first time.
Money is about achieving a balanced funding structure that will support, not hinder, your scaling process.
People is about recruitment, training and preserving your company culture.
Together, they will help you transform your potential into greatness.
So, let’s look more closely at your operational strategy. When you’re caught up in the energy of a fast-growing company it can be easy to forget that growth isn’t just about sales. You may well be able to sell it, but can you deliver it?
The key is to have the right resources available in advance. You need to work out what you’re going to need before it becomes urgent.
First define how you want your organization to look in the future. Will it function better with a powerful centre that controls everything or a lean organization with delegated decision-making?
Then, your operational effectiveness. Over the last few years, companies have discovered how many ‘back office’ functions they can outsource. On the one hand, this can cut operating costs and provide much-needed flexibility in terms of staffing and fluctuations in demand. However, make sure you aren’t outsourcing the things your company needs to be really good at.
For example, while outsourcing IT support or payroll processing may seem like a sensible move – and you’ll find lots of suppliers who are happy to take them off your hands – many companies have gone further, for example into IT infrastructure and HR functions. However, if these are core parts of your business, you may want to keep them in-house, where you have total visibility and closer control. Is it worth winning on price and flexibility, if it affects your ability to deliver the service your customers depend on?
Finally, new structures and processes. A typical problem faced by fast-growing businesses is that their systems don’t inspire confidence among potential investors. Scaling your business often means shifting away from a loose, informal structure centred on the CEO to a tighter, more formal organizational framework.
In fact, many people believe that the key to success in scaling is for the owners, founders or original managers to step aside. You need to establish simple departments, management structures, reporting lines and communications channels that work without their direct involvement.
It’s also vital to formalize processes throughout the company, from policies to functional responsibilities, and to establish standard, repeatable processes in areas such as administration, finance and HR.
Once you have the right infrastructure and expertise in place to help you run the business, pretty much everything in the organization takes care of itself.
Let’s move on to our second key area: technology.
While fast-growing businesses like yours face many challenges, one area where you have a distinct – and growing – advantage over your larger competitors is in IT. In general, you aren’t lumbered with old systems that slow you down, but can build capability as you grow.
The key to success is making your IT platform cost-effective, flexible, dynamic and scalable. This often starts with cloud computing. You no longer have to tie up lots of capital in server farms or other hardware. Your people can use mobile devices to access endless computing power in the cloud, if that’s the way you want to go. What’s more, the price of cloud services is dropping by the day.
Now you can have all the capabilities you need – such as data storage and processing, teams of in-house specialists, additional capacity and disaster recovery – on an as-needed basis. Limited fixed costs keep you flexible, yet able to handle even a major surge in demand.
Cloud computing offers advantages beyond cost. For example, it provides much greater accessibility to management information. Software-as-a-service models mean that more people can get much more sophisticated data and analysis.
Entrepreneurial firms used to think that high-end technology was beyond them. Now they are realising they can utilise robust enterprise resource planning systems (or ERPs) and customer relationship management systems (or CRMs) on their tablets and smartphones.
Finally, remember that you’re more likely to scale successfully if you rely on general-purpose, rather than specialist, technologies. Writing customised software and custom built hardware is likely to lead to delays and capacity constraints. The more you rely on general purpose technologies to develop, build and deliver your products and services, the easier they are to scale.
Unsurprisingly, we also need to talk about money.
Naturally, finance is always top of mind for fast-growing companies. Scaling your operational platform must go hand-in-hand with financial preparation. For example:
Many businesses fail during a period of rapid growth because, in their excitement, they lose sight of their working capital. Always stay in control of your cash position and cash flow.
Keep your funding balanced. A balanced capital structure will give the business more resilience if markets change. Which means that interest rate changes or tight credit markets, for example, are less likely to hurt you.
Also, make sure you produce high-quality financial statements. As you grow, it’s more likely that new customers, suppliers and investors will scrutinise your financial position. Sound financial statements and balanced funding will do a lot to reassure them.
So, let’s end with possibly the most important factor of all: people.
As you might expect, scaling your business is as much about people as anything else. So when you’re planning for growth, you have to ask yourself one simple question: “Have we got managers in place who know how to run a bigger operation?”. If the answer is no, you’ve got work to do. People who have “been there and done it” will mean you make fewer mistakes, which will save you huge amounts of time and money.
This leads on to your recruiting policy and capabilities. Recruiting well in the early years of your expansion is critical, because this is when you’re bringing together the characteristics that will form the company’s DNA long into the future. The best people can always work for the best companies – and the best companies can always attract the best people – so don’t compromise. It may even be better to leave a position open than settle for second best.
So, what’s the key to attracting and keeping the best talent? Some say money. Fast-growing companies commonly pay more than larger, more established firms. And they often go out of their way to create a challenging and rewarding corporate environment – with benefits, a welcoming, stimulating workplace and a lively social life – to reduce staff turnover. Others vote for training, preferring to recruit bright but inexperienced people who can go through a standard, repeatable process and get promoted quickly. This has the additional benefit of creating a more loyal and committed workforce that has grown up with the company.
However, it is unfortunately true that, as the business grows, it may leave some long-standing employees behind. Of course retaining staff is important, but you can’t keep the wrong people in place for sentimental reasons. It isn’t fair on them; it isn’t fair on their colleagues who have to make up for their underperformance; and it isn’t fair on the company’s other stakeholders –suppliers, customers, partners and investors.
However, the real ‘secret sauce’ is your company culture. Your DNA. It’s vital to stay true to your values, goals, mission, vision, way of behaving ... to make sure it still feels right. This is one of the toughest challenges of all, but without it you can’t scale successfully.
Capturing the culture, articulating it and replicating it can be very hard, but one way to make it easier is to keep things simple. You can’t build a company culture on artificial things. It has to come from genuine, shared values that everyone understands.
In summary, then ...
When you’re trying to grow an SME, you face the twin challenge of ramping up resources while remaining agile enough to respond to unexpected developments. The answer may be to build a flexible platform, which combines an organizational base of robust structures, processes and funding with a scalable approach to technology and people.
The pace of business is continuing to accelerate. Competition is intensifying. Economic uncertainty is lingering. In the end, resilience and flexibility are critical.
The good news is you now have better access than ever to the tools and capabilities you need. Technology is more adaptable and cost-effective, helping you bring decision-making insight into every corner of your business.
This means that fast-growing companies like yours now have a clear – and growing – competitive advantage over larger firms.
It’s time to take up the challenge.
Thank you for taking part in this webinar. I hope you’ve found it useful.
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