May 04, 2017

Are SMEs Fulfilling their Potential?

M.S. Rao

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.

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