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You’re reading Entrepreneur Middle East, an international franchise of Entrepreneur Media.
You’ve worked hard to start your business, had many sleepless nights, countless rejections and failures. At times, you even doubted yourself and what you were doing, but then you prevailed, and your business grew, and became successful. Nobody knows the pain you went through except you- and now your company is now labelled a small- and medium-sized enterprise (SME).
Shutterstock Sound familiar?
Let’s start by defining what a SME is. If you have a company which employs less than 500 people and generates up to US$50 million, then you qualify to be called an SME. It is important to note that SMEs are not so dissimilar to family-owned companies; it’s just the shareholder composition that is different.
According to the world Bank, “SMEs play a major role in most economies, particularly in developing countries. SMEs account for the majority of businesses worldwide, and they are important contributors to job creation and global economic development. They represent about 90% of businesses, and more than 50% of employment worldwide.”
For example, in the UAE, as of mid-2020, there were 350,000 SMEs, and they represented over 94% of all companies operating in the country. 73% of them operated in the wholesale and retail sector, 16% in the services sector, and 11% in the industry sector. Together, they employed over 86% of the labor force in the private sector, and made up over 60% of the GDP.
So, there you have it: the facts clearly illustrate the importance of this sector.
From my experience working in global companies and investing in and leading smaller companies, I clearly see the differences, challenges and opportunities SMEs have to prosper, especially now when the world has gone digital, and efficiency is what makes or breaks any business. So, here are my five tough love pieces of advice that SMEs would be wise to take to heart:
1. Productivity is not just a buzz word. Productivity is all about the effectiveness of each moving part in your company, and it is measured in terms of the rate of output per employee or unit. In simple terms, productivity is about completing tasks in less time and with less effort, which is vital to company profitability.
Multinational companies (MNCs) invest significant amounts of money to measure and drive productivity. They have a measure for each item produced and working employee, but in some cases, these metrics are buried in the company politics that MNCs are famous for.
SMEs don’t have to go to that length of investment, but it is important to be aware of and be able to measure the efficiency of each process and each employee’s contribution to the business. And if you find that their contribution is not impacting the business in a positive way, then maybe you should evaluate if that job can be combined with another.
2. Company culture is not fluff Every company has an established culture largely driven by its founders, whether overtly or organically. To some SMEs, building and investing in their company culture may seem like “fluff,” simply because they don’t see the value of it.
Let me make it simple: having a culture of fear is 100% less attractive to employees versus a culture of trust, where it is safe for employees to share their opinion, feel appreciated, and empowered to make decisions.
I have witnessed first-hand several owner-led companies (aka SMEs) that are driven by the owner’s mood or opinion. If he or she woke up on the wrong side of the bed that morning, then expect some impulsive reactions and decisions. The reason this happens is because most SMEs don’t have to answer to global company human resource (HR) policies, they make their own as they evolve and grow.
This type of company culture is detrimental for SMEs to attract and retain talent. Many talented employees could immediately seek a position in an MNC where their jobs are more secure and does not depend on someone’s mood. A little exaggerated perhaps, but nonetheless accurate.
There is enough evidence and research which confirms the correlation between a positive company culture and company performance, because it enhances employee enthusiasm and encourages better productivity.
3. Outsourcing expertise is a smart move SMEs can’t often afford to hire top talent, and even when they do, these relationships generally don’t last long. SMEs realize that they need help sometimes, and when they reach out to the well-known large consultants out there, a couple of things happen:
- They get intimidated and overwhelmed by the approach, and largely they don’t speak the same language.
- They get shocked by the cost of any initiative proposed.
- They generally get global insights and theory-based recommendations, when all they need is for someone to actually help them fix their problem, not create another one.
With the gig economy, which is expected to experience exponential growth in the next five years by an estimated 25.7%, SMEs have a great chance of securing the much-needed talent that is more suitable for their needs. With short-term contracts as opposed to permanent jobs, SMEs can benefit from the added expertise and experience outsourcing provides, without the hefty cost of having an additional expensive headcount on the payroll.
For example, if an SME decides to set a five-year growth strategy and be more marketing-focused than they have been in the past, they could hire an interim chief marketing officer (CMO) who has done this before and has learnt from their successes and failures. That interim CMO will help set the long-term strategy, put a marketing plan in place, and recommend the necessary resources to execute on the plan. The person can then come in to check on progress, which they are accountable for- a win/win scenario.
This is certainly another cost-effective way for SMEs to catch up to the fast-changing needs of business namely in digital (processes, tools, marketing, and communications), and in how to manage the new workforce and their everchanging demands and expectations.
4. Focus on the bottom line I don’t have to tell you that being good with numbers and being financially-savvy goes a long way for the success of any business, and I know that not everyone is good in this area- that is why we hire awesome accountants, financial advisors, and chief financial officers.
Early on, I learnt that as an owner of any company, it is essential that you know your financial numbers like the back of your hand. This includes everything from cash flow, receivables, cost of goods, liabilities, building a cash reserve, and keeping a close eye on growing shareholder equity, which represents the net worth of a company.
I would certainly not go into an accounting spiel here, but I would like to focus on one important element of the financial mix -cash flow- that is a key indicator of growth or early failure of any company. Almost 50% of companies fail, because they don’t manage their cash flow properly. If a company is spending more cash than it is bringing in, that is a huge warning sign, and that is managed by keeping costs and spending to a minimum.
Please don’t compare your budgets with MNC spending. Budgets in large organizations is a line item in their various functional budget sheets, which if not spent in the allocated period, it will be lost to the bigger bottom line, and line managers in MNCs are measured by how accurate their budget-spending is. If their budget in year X is $100,000, and they spend $70,000 in that year, guess what they will get as a budget the following year? I leave you to ponder on that.
5. Build your brand, and memorize your elevator pitch Finally, for any SME to be successful, you need to know what your brand stands for, what your unique selling proposition (USP) is, and what problem are you solving. Having a great product or service and building a brand are two emphatically different things, and it is certainly not a matter of one or the other.
“Put it on the shelf and it will sell” is what I used to hear in the old days, especially if you had a powerful mother brand to support the product and be able to push it down a retailer’s throat. Well, that no longer works in today’s digitally-driven, influencer-infested business landscape.
Therefore, having a great product or service is a great start, but you need to make sure you promote it to your target audience using a clear positioning strategy, and a consistent and compelling elevator pitch, which can be used in all channels of communications to build your brand.
Just so I am not accused of using jargon without any explanation, an elevator pitch is a short description of your product, service, or company that explains what you do, why do it, and what problem you are solving, in a way that any listener can understand it in a short period of time.
Jeff Bezos was quoted as saying that “your brand is what other people say about you when you’re not in the room.” So give “those people” something good to talk about.