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Are SMEs Fulfilling their Potential?

M Suresh Rao

Author: M Suresh Rao

Date: Thu, 2017-05-04 14:26

From media coverage it would seem that the future of Indian business has been revealed and it's all about New Age Ventures. Technology backed with innovative business models, set up by first gen entrepreneurs sourcing not just growth but prototyping too with external capital.

The reality is vastly different. The brunt of our business continues to be carried out by Small and Medium Size Enterprises from the manufacturing and service sectors managed by family business owners or first time entrepreneurs. The new generation ventures are the visible tip of the iceberg hogging all the attention.

The best of the SMEs bring with them a mindset typically Indian that enables them to be sustainable in the competitive world of business. The characteristic aspects of this attitude are:

  • Commitment to the venture by the owner(s) that straddles time, patience and money. The family or the partners work together allocating functional responsibilities and are led by an  accepted business head who is generally the senior most in age and experience.
  • There is  an unstated yet commonly accepted vision for the business. This brings in a transparent, hard-working organisational culture that does not have to undertake 'Retreats' for organisational revival.
  • A keenness for financial self-sufficiency which drives both operational and growth initiatives. The strategic choice is for risk-taking within  'affordable loss' limits, rather than maximising enterprise valuation.
  • They have mechanisms to  continuously bring in change with continuity. They understand the lethal impact of complacency on the profits and sustainability of the business.
  • A deep sense of pride in the company and its values. Again, the pride is derived not from the valuation the firm commands but from the recognition the brand receives. It comes from the esteem the owners or partners are  held in by the stakeholders - from customers to staff to trade, banker and society.

Of course, not all SMEs display all these features. That explains why SME success is pyramidal in real life. An appraisal of the  success factors confirms that 

  • None are genetic, all of them are generic, it is not that only a particular community is blessed with them. Without these essential factors for business sustainability, every business will land in trouble sooner or later. If the top management does not have the ability to adapt to the changing business environment, growth will become a casualty leading to quitting of the best employees and ossification of the enterprise.
  • All of them can be learned by entrepreneurs who have shown the basic competence to develop their business from start-up to  small business stage such as knowledge and skills to manage the finances of the business  as an efficient corporate manager would. A good understanding of business finance raises funding options and reduces dependence on the CA.

Owners who are profitable yet chose to remain small by choice are a different breed. They could be seeking work-life balance or personal growth beyond business.

Let us now focus attention on the many SMEs who do not have all the success factors for sustainable growth. These are the small business owners that are:
-    Finding it difficult to grow
-    Facing margin squeeze
-    Feeling "business as usual" is  not the way forward
And are looking for a solution.

Invariably, the solution boils down to upgrading MANAGEMENT SKILLS to the level required for the growth stage of the enterprise. The gist of management is serving a growing number of customers profitably. This is not rocket science, unless technology has indeed come to be the critical success factor for business survival. Question any SME entrepreneur on why (s)he is finding it increasingly difficult to cope with the challenges of running the company and the responses will indicate  the  widening gap in management bandwidth. Look at it this way: at the SME level, business is getting more competitive by the day, so  you have to 'win' over customers, retaining good staff is tough so you have to 'win' them over, finance is scarce so  you need to 'win' over your key stakeholders. The list of challenges is not exhaustive. They can wary, however, the solution is the same: a better way of managing the venture. 'Winning' in each of these situations requires application of tried and tested management knowledge and insight customised to the context.

It is not anybody's contention that attributes like passion, perseverance and patience are not significant to business success. Rather, these attributes are pre-requisites to management competence. It becomes the purpose of the enterprise team to channelise these attributes towards the goal of profitable growth through effective management. 
Can you teach management to an entrepreneur? The knowledge, skills and attitude that facilitate business success at different stages of the enterprise lifecycle are well documented and can be delivered through Management Development Programmes to the growth seeking entrepreneurs.

SME entrepreneurs have come through the grind of creating a venture out of an opportunity they sensed. They have prototyped the product, created the facility to make and market the  product, have a core  team and money to carry on current operations. They simultaneously take pride in what they have achieved and  are apprehensive of how to scale up profitably.
This is the ground situation today facing a large number of small enterprise owners at the lower end of the growth pyramid. A situation that can be overcome with a mind-set change that enables the entrepreneur to see himself primarily as a CEO of his venture. A CEO who finds it beneficial to equip himself with the knowledge, skills and attitude for effecting the transformation.  

Originally published on: https://goo.gl/yFcQTw

 

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Every business starts small. There are numerous successful enterprises in the country that operates successfully and have become popular nationwide. While there are others which have failed when tried expanding business. Why? Whether the difference can be spotted? As the article states there are owners who are extremely profitable yet chose to remain small by choice are a different breed, is the work-life balance they are looking for or the apprehension of scaling up ? Not to deny with, there are challenges and so apprehensions. However, strategic approaches can be brought in for sustainable growth these enterprises to utilize the full potential of the resources available to them. And this would require changes that would impact an organization’s ability to scale and operate further. When a business is small, there are limited stakeholders and so the information resides with them is easier to manage. As and when it expands, it creates turbulence due to factors such as structural changes in place; technology is needed to scale-up, and automation that is required to operate. In order to accommodate with the rapidly changing requirements, if the owner of the enterprise is able to accept the change, it could lead to sustainability. Otherwise the journey stops. This pattern of change mindset can be witnessed even in large established firms, which have gone bankrupt only because they could not sustain the organization with the shifting environment. Although thousands of small businesses are established each year only a small number remain are able to expand their businesses. Common contributing factors to the failure of these small firms are a lack of consideration given to the development of a goals and objectives, strong business plan, organizing and resourcing for the new projects and growth of people assets- nothing much but management skills, skills which can be trained and applied. A planned approach to the management and training of SMEs management will surely benefit not only from a competitive position in the market but also be well placed to regulate to changing and often undefined effects in the business environment.

The article rightly points towards the ground reality of India as of today.The pragmatism that any SME owner would have used while setting up his business can be much useful while scaling up too.With industries achieving high level of productivity it is imperative to scale up rather than treat it as a choice.This scaling up could be in terms of distribution channels,volume of production,new markets, etc.With changing regulatory requirements,better information sharing through digitisation it is essential to scale up ones own skills too which will help the business owners able to adapt fast and steer themselves clear of headwinds.

There are always two ways to approach a situation, either to wait for something good to happen, or to take charge and make the change happen. The success of a business could not be left to chance, the former case. As rightly pointed out in this article, it’s imperative for SMEs to upgrade their skills to survive and grow, particularly in today’s hyper competitive environment. It has become increasingly difficult to predict from where competition may come-in, and eliminate your business even before you realize. I believe that answer to the problem is much more than that offered by a Management Development Programmes; a possible solution could be to connect bright minds in industry with SMEs, pitching the deal as the chance to make a difference for the former. Having managed/ consulted companies of large scale, the solution design and perspective building would be quick to impart and have an immediate impact. The industry connect may also bring along access to other critical resources, and network. The remaining gap has to be bridged by technology – which could play a pivotal role to unlock value. The current environment, where several companies offer customizable and affordable solutions for SMEs, is surely a big plus. However, it’s important for SMEs to recognize the potential, and adopt the technology. This “mindset” change can again be encouraged by industry experts. Therefore, both the things combined can help SMEs to renew themselves, become agile, and grow rapidly.

Thank you professor Rao for giving good insight of the key success factors for SMEs. The best of the SMEs brings with them the typical Indian mind set of doing family own business in a highly competitive environment. You also shared key attributes and attitude which makes and SMEs most successful. • Sharing responsibility and managed by the senior most and most experienced person • Transparent, hardworking culture • Becoming financially self-reliant and continuously looking for the growth but sustainable and conservatism in leveraging finance • Continuously upgrading the required skills and being competitive to maximise the profit • Sense of pride by creating big brand image not only for making profit but also giving employment to many All SMEs do not do well in the business because they are not passionate and hard-working to achieve some milestones in terms of profitability and creating corporation brand Fundamental challenges of SMEs • Not ready to upgrade in skill and knowledge as well as not ready to adapt changes • Complacency • No clear goals • Understanding market dynamics and being conservative to change My Views: The article lacks in facts and providing data to substantiate their SMEs understanding. It is more of an opinion and theoretical. The author should provide lots of data on SMEs, Primary & Secondary data in terms of industry wide success & failure rates and their reasons. The opportunity and challenges and how SMEs can fully exploit the potential of world’s fastest growing GDP. The government of India’s policy to promote SMEs and provide supports. Even though some the ventures fail we should encourage SMEs to grow as it provides maximum employment to highly populated country. SMEs are the pyramid of any country’s growth.

SMEs have played a very important role in growth and development of Indian economy in last five decades. They emerged as highly vibrant and dynamic sector in Indian Economy and because of that power only they are considered to be as a backbone of Indian economy. They are playing major role in employment, growth and shaping the future of the India. As per the report from "Master Card" (Micro Merchant Market Sizing and Profiling Report) released in year 2016, 45% of India's GDP is govern by these SMEs and they are employing 46 Crores of People. This data itself shows the power of SMEs to the Indian economy. So from the above figures there is no doubt that SMEs are very critical and playing a vital role in the development of India. But still one thing needs to answer, is SMEs are really using their full potential ? Are Government is having enough support to these SMEs? Are SMEs not only looking for their growth but also at the same time they are thinking about nation ? Are SMEs creating better work environment and following all the laws and doing their business with ethics ? These are the question need to be answered if we really want to unlock the real potential of the SMEs. As mentioned in blog all business starts from scratch and then only move to the top. In this journey very few companies go to the top where as majority remains or restrict themselves as SMEs. This need to be analyzed. The major hurdle which SMEs or any new starters are facing 1. financial support 2. Proper guideline and management skills. 3. Awareness and easiness of government’s policy, rules and regulations. As mentioned in blog that these are not rocket science where we need to work very hard, but these are very essential things where we need to divert our focus. These are the things where not only people but also government to pay their attention. Government need to make their process more simple and sophisticated so that a Lehman person can also understand it very easily. Also there should be enough opportunity should be available in form of higher education, soft skills and other types of managerial skills to help these entrepreneurs to grow in their field. So in short to unlock the potential of SMEs not only government but also society and others to come forward to support them.

The article brings good clarity about the reality of SME Industry in India. SME has contributed to economic development in numerous ways such as employment creation in rural and urban area, goods and services at affordable price and sustainable development to the economy as while. It has been noted that the current era is of new age venture which is backed by advance technology and having support of external finance. However, the major contribution is from Small and Medium Size Enterprises which is mainly run by the family business owners or first time entrepreneur. The author has explained the typical Indian mindset while running the SME and characteristic aspect of SME. SME industry is mostly driven by family businesses and are led by the senior most member in the family. They are more focused on self-financing to avoid the risk and aiming at sustainable growth rather than maximizing enterprise valuation. On one side there are few SME who are profitable and decide to remain small and seeking for work life balance and personal growth. Whereas on another side, there are some SME who do not have success because of they are finding that the margins are narrowed, widening gap between management bandwidth, not upgrading the management skill. Further, SMEs are also facing a number of problems such as inadequate and timely finance from banking industry, skilled manpower, non-availability of suitable technology, identification of new markets. To make the SME successful, there is a needs of planned approach to train the SMEs Management, change their mind set from limited scope of family business to bring dynamics in business.

Prof Rao has explained the SWOT of SMEs very nicely. Their contribution towards the economy is significant. Their conventional method of working has been supporting them to sustain business even in tough competition. We do see more of SMEs and MSMEs are family owned business. But their aggressiveness is very high. I have seen many SMEs growing fast with owners who didn’t have any management education to earn business or manage it. Although management education will definitely break the conventional working style of SMEs, it will also take SMEs to another level. There are lot of developmental work happening around these segments. Organizations like CII, FICCI and SIDBI are involved in improving the infrastructure, working of these SMEs. Due to their old style of working, many of these SMEs has been identified as energy guzzlers. So breaking old style is very important. To do that it’s important for management institute design courses that will suit their developmental need.

This article gives very good message to new generation SME entrepreneurs, especially how they can achieve profitable & sustainable business growth by effectively using their new idea’s along with traditional way of doing business. In recent times, we have seen that many of the new generation businessmen are coming with the many innovative and great business idea’s however majority of them are struggling to achieve the profitable business growth in long run. Some of the critical reasons for their failures are; Current generation SME owners tends have a short-term mindset, they are aggressively focusing on expanding the business base even though they are making losses, apart from these reasons they are also facing conventional problems like inadequate and timely banking finance, skilled manpower, limited capital and knowledge, non-availability of suitable technology, and follow-up with various government agencies for approvals and to resolve problems etc. So, to make the SME business model more successful and sustainable, owners/ entrepreneurs need to equip with the very good knowledge, skills, good experience, approach with the mix of traditional and modern way of doing the business.

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