Most everyone agrees that small and medium enterprises (SMEs) are an important force in job creation, innovation, and economic growth worldwide. Yet it can be struggle for smaller companies to simultaneously cover costs, pay bills, and grow.
A newly released report from the Economist Intelligence Unit reveals how some high-growth SMEs are pursuing expansion plans without sacrificing resilience. The findings are based on interviews with 16 small and mid-size companies worldwide that have annual revenues below U.S.$750 million. Here is a summary of the key findings. Read the complete report here.
Scaling infrastructure to meet new demand
An operational strategy that spells out how the business will deliver more goods and services is crucial to make sure the company has the required resources, be it technology, headcount, or capital. “The key to scaling is to have adequate resources available to you for when you’re ready to expand,” says John Evarts, CFO and COO at Mediafly, a U.S.-based SME that provides media technology services to businesses. “From an operational strategy point of view, part of my role at Mediafly is to move the business to a place where the infrastructure can best support our products and our sales team.”
Scaling often involves shifting away from an informal structure around the CEO to a more formal organizational framework. “A typical problem is that the business doesn’t have the kind of systems and structures in place to provide confidence to an investor that the business has really got the capacity to grow,” says Oliver Bayne, an official at the U.K. government’s Department for Business, Innovation and Skills. It’s important to establish simple departments, management structures, reporting lines, and communications channels.
Scaling also requires drawing up policies and disciplines, and establishing standard, repeatable processes around administration, finance, and human resources. “Our systems allow us to multiply the productivity of each individual by standardizing and automating many of the everyday procedures, such as purchasing and invoicing,” says Ricardo Pansa, CEO at Brazil-based crop science firm Nutriplant.
Information technology is needed to scale operational platforms. The good news is that SMEs can often adopt innovative technologies faster than large companies for distinct competitive advantage.
“It’s much easier to get your hands on good IT at an affordable cost,” Brian Protiva, co-founder and CEO at ADVA Optical Networking, a Germany-based provider of network equipment. “You need to have a very inexpensive, flexible, dynamic and scalable IT platform.”
Cloud fuels flexible growth
Mediafly is among the growing number of SMEs that are using cloud computing to build a flexible platform for growth. Without access to the cloud, Evarts says that Mediafly would have needed to invest in systems to host data, IT teams to manage the systems, plus capacity for redundancy and disaster recovery – a huge commitment in capital investment and ongoing cost. Instead, Mediafly uses a cloud-based provider that has all those capabilities on an as-needed basis. “Having limited fixed costs associated with our business model is a huge benefit as it keeps us flexible,” says Evarts.
Cloud computing also gives SMEs easy access to critical data. For example, Mediafly uses online accounting software that automates invoicing, billing, reporting and other financial processes, Evarts says. “Having a cloud base means that we can solve these issues from anywhere, figure out what the task load needs to look like, and deploy resources in real time. The cloud makes information so much more accessible.”
Next page: Can your people grow with the business?
A critical question to raise, according to Thomas Eisenmann, professor of business administration at the Entrepreneurial Management Unit of Harvard Business School in the U.S., is: “Have you got managers in place who know how to run a bigger operation?” In many cases, the answer is no.
Some SMEs invest in training to scale headcount. “Our strategy has been mainly looking at building our talent in-house,” Pansa says. “In that we have been more successful than in trying to hire professionals from the market that have had experience in different companies, mainly because the people that we hire early on become more loyal and committed to the business. And I believe that this also true for many other small businesses.”
In addition, SMEs can outgrow existing employees. Larry Gould, founder and CEO of U.K.-based translation and interpreting firm thebigword, says that employees who work well in a small firm may not work well in a larger firm. “It is a very painful thing,” Gould says, “but you have to ask ‘have we the right people to take us to a bigger and more secure place?’”
The secrets of successful SMEs
According to these SMEs, the bottom line is clear. With careful planning and judicious execution, SMEs can not only have the resources needed for growth, but also the ability to move fast in response to unexpected market changes.