The ‘Big Pyramid Syndrome’ that held the scalability ransom is also set to shatter. The trick is to build smaller ‘pyramids’ and then graduate to bigger ones.
By Rachitta Juneja
Small and medium enterprises (SME) have been the focal point for driving business growth across the world and especially the MENA and ASEAN region in the recent decade. The segment has its share of challenges and more that impede growth. There are many changes in the way businesses function today than even 10 years ago. With the advent of new technology and a flexible mindset regarding customer experience and delivery, SMEs can look to break the barriers.
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The ‘Big Pyramid Syndrome’ that held the scalability ransom is also set to shatter. The trick is to build smaller ‘pyramids’ and then graduate to bigger ones. Scalability has to be sustainable. The entrepreneur and the investor have to ensure that the sustainability seed is present in the SME work environment at the inception.
The investor looks for sustainable revenue models and the capacity to scale. The investment could start with smaller scales and increase with result-oriented returns. The aim is to build and run the business, and there is no race to reach the summit and collapse due to bad management of finances. The availability of funding can make access to the procurement of raw material smoother, enabling SMEs to be profitable faster.
Customer Expectations vs Budget Challenge
The first challenge that the sector faces is the fulfilment of customer expectations. The area of concern is that customers expect deep discounts and freebies that may exceed the tight budgets of SMEs. Larger firms are imposing new challenges by delving into deep pockets and squeezing the smaller firms out of the market.
The SME segment can survive the onslaught by finding innovative ways to match and exceed customer expectations. New technology is the way forward. Cloud-based technology is highly complex but effective in reigning in costs. The smartphone penetration is high and this provides smaller organizations to survive and compete in the market even with budget constraints. Mobile applications and user-friendly software drive seamless delivery systems.
SME entrepreneurs have the pulse of the customer. They have fewer layers separating them from the field and so they have clarity on issues that impede growth. They are also prone to spot emerging opportunities faster. They have zeal and passion and this sets them apart from the more significant firms who are bogged down by red tape and approvals. SMEs have agility and flexibility on their side.
Entrepreneurs have a larger risk appetite and may be prepared to invest monetarily and ideate on something that may not show definite returns immediately. Larger organizations may hesitate to take risks as it translates into a more significant investment as per the size of the company. According to research carried out on entrepreneurial behaviour, SMEs have a bigger opportunity to gauge the changes in market direction and also act on it with immediacy.
Need for Smart Management
There is a catch 22 situation that SMEs across the globe face with recruitment. Talent is available cheaply, but the experience is not. Every business needs experienced and astute management to scale and sustain. Small businesses cannot always afford to recruit and retain the best managers due to budget constraints. Stock options are also not that attractive as the market capitalization is small. Larger companies can offer salaries, bonuses and stock options, which are far more attractive.
The key is to attract competent management which is passionate and dedicated. The hunt should be for managers with an entrepreneurial bent of mind. They should have a mindset that allows them to take ownership. The flexible work hours, laid back environment and freedom to execute innovation is a big draw for some recruits. The SME work culture allows employees greater freedom, an environment to explore their creative geniuses and break away from traditional management models. More and more higher-level managers are looking for the opportunity to be a part of a startup that expresses their entrepreneurial and dynamic abilities. The lure of building a team and sustainable business from scratch is irrevocable.
Technology has advanced rapidly due to cloud-based applications. The cost is no longer prohibitive. The pay-per-use applications have made operations smoother and within budget for smaller enterprises also. It makes the cost proportionally similar for large and small operations as the payment is not based on volume but use. Managers may decide to start small to test new applications for profitability. This is not always feasible for large operations. In many ways, an agile SME may actually tap the market more effectively than a larger company. Mindset and innovation drive success, not the size of the operation.
(Rachitta Juneja is the Chief Marketing Officer at Letstrack. Views expressed are the author’s own.)