Why do small businesses struggle to grow?

Why do small businesses struggle to grow?

Here’s a question that every small business owner wants the answer to. Why is growth so difficult?

The funny thing is that even when you have sufficient demand for your products and services, it can seem impossible to get past a certain level. In some cases, even, runaway demand for what a small company provides can perversely cause the wheels to fall off.

Now, here’s the thing. There isn’t any simple answer to the headline question. But one of the underlying issues is almost certainly that the growing SME (small to medium enterprise) does things differently from an established bigger business. In a word, you’re not equipped to scale.

To understand this issue clearly, it’s necessary to have some understanding of how big companies work. For a lot of entrepreneurs, the reason you set out on your own is precisely because of the perceived ‘red tape’ and excessive overheads involved in getting done what seems to be simple things.

But, like everything in life, there is a reason for that ‘red tape’. It doesn’t merely exist to give you the willies.

Let’s take the function of Accounts Payable (AP) in a big organisation and analyse it a little; this is a good one, because most SMEs, yours probably included, will have at least one or two big companies as clients.

And those clients, valuable as they may be, probably annoy you in the length of time taken to settle your invoices. You probably find it frustrating, as the little guy, that the Big Company With All The Cash, lets you starve while you wait for what is surely a pittance for them in the greater scheme of things.

But delve a bit deeper. That company might be publicly-owned. It might have several hundred people who have the power to order goods and services required to keep business ticking over. It therefore needs processes to be sure that all purchases are legit and fall within accepted governance standards.

And that is why there are AP processes, which often kick off with you first sending a quote, getting a Purchase Order (which can itself seem a hassle), then invoicing, then settling down for a 30 or 60 day wait.

This process is, you will appreciate, very different from the one your SME has for paying the suppliers, all of whom you probably know personally.

In fact, you probably use an Excel spreadsheet to keep track of payments; you might use multiple other spreadsheets or Word documents as essential tools to keep the business running.

When an invoice comes in, to provide a comparison with the ‘big business AP’ story, you either pay right away, or make a calendar note to do so when it falls due. A very different way of doing things; more ‘organic’. More ‘feel good’. But not scalable.

Of course, AP is just one process, and even in your business, there are likely hundreds of processes (in big companies, there’ll be many more besides).

When your processes are tied to low-level tools like spreadsheets or Word documents, you have a real problem. You cannot scale. You just don’t have enough hair to pull out or turn grey.

That’s why, should you do a great job of marketing and delivery and demand shoots up, your business could find itself in real trouble. The very growth you seek could strangle the company: delivery starts to slip, the patience of loyal customers is tested, quality might take a knock, your management team spends too much time at the office putting out what looks like forest fires yet they’re equipped with a screwdriver instead of an extinguisher.

As I’ve noted in the introduction, the inability to scale is not the only reason that SMEs struggle to grow. Far from it. However, when we’re taking a SME from an accounting package to an Enterprise Resource Planning solution, we almost always encounter a mess of spreadsheets and other workarounds.

In fact, it is this very mess which typically prompted that company to test the market and come knocking at our door. The owners of these companies realise that they don’t have the systems and processes to scale; they’ve reached the limits of their growth and need something which can keep track of an expanded enterprise.

It might be slightly depressing for some to acknowledge (especially for those entrepreneurs who bailed out on corporations because of the perceived ‘red tape’). But scale requires rigour. It depends on system integrity more than individual integrity. And it depends on software which spans the business, accelerates the processes and lets you focus on the important stuff.

MYOB has recently released its MYOB Enterprise Insights Report, which notes that the mid-market segment comprises 6 percent of the New Zealand companies. These some-31,000 businesses employ more than one-third of the country’s workforce and contribute about 40% of GDP. The report makes for good reading, providing further insights into what it takes to grow.

Download your copy of the MYOB Enterprise Insights Report

Juanita Potgieter

Juanita Potgieter

With over 10 years’ experience in various marketing fields, Juanita is an action-oriented Marketing Manager with a proven track record of creating marketing initiatives and managing new product development to drive growth. Prior to joining Verde, Juanita worked within strategic business development and marketing management roles at several international companies.

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