Balancing entrepreneurial spirit with scalable infrastructure will helps SMEs build resilience and opportunity against a backdrop of economic unpredictability and rising costs
Despite the prospect of ‘stagflation’ – a combination of weak growth and high inflation – rising energy costs, an unbaked Brexit, the Russian invasion of Ukraine causing global supply problems and a widespread skills shortage, it’s not all that bad, for SMEs at least. According to the British Business Bank (BBB), there is some positive news. Equity investment in UK SMEs increased by 88% in 2021 to £18.1bn, compared to the previous year. The IoD has also been in a bullish mood, claiming “the future is bright” for SMEs, with 60% optimistically expecting continued revenue growth this year.
The reality, of course, is that nothing can be taken for granted. These are increasingly challenging times. Those SMEs that have emerged almost triumphantly from the depths of the Covid pandemic, bucking the trend of the 81 percent of UK SMEs that said they were detrimentally affected, need to be wary. What worked last year probably won’t work again this year, such is the pace of change and broadening challenges.
The problem is that these fast-growth SMEs benefitted from the rapid adoption of online ordering and a cultural shift in lifestyles and working practices, driven by office closures and lockdowns. Sales rocketed, well beyond expectations but we have already seen businesses over-stretch themselves. And what happens next? All that talk of a ‘new normal’ was a little misguided. Normal is the world you live in now, the one that is relevant to your business and your customers. For SMEs, that means unpredictability.
As a Facebook, OECD and World Bank Global State of Small Business Report claims, “despite their agility, because of their smaller scale and more limited access to resources, SMBs face a number of challenges. Even in a healthy economy, they may face unique financial, supply chain, network, and resource constraints.”
That’s the issue. Without scale and an ability to plan and forecast like larger organisations, SMEs by their very nature, will always be more vulnerable to fast growth and rapidly changing market conditions. One key problem is planning. SMEs rarely plan. They tend to be more reactive. When a business is small and agile, it can afford to move quickly but as sales grow and expectations grow so there are more challenges.
Managing supply chains and inventory, especially during a time of widespread logistics problems can be difficult without the ability to prioritise and forecast. Cash flow becomes a problem, as finances are spread thin. A changing business culture, as more people join the company can lead to low morale, while customer expectations remain high and increasingly difficult to fulfil.
Prioritising can be difficult without a complete understanding of how certain decisions will impact each department and process. In short, a fast-growing SME with no planning is flying blind without any idea what is lying around the corner. In today’s volatile economy, that’s a huge risk to take.
What SMEs need to do is try and strike a balance between implementing core processes that will increase visibility and inform decision making, while retaining the culture and methods that made the business a success in the first place.
That’s a leadership challenge. So, how can SME leaders empower their organisation, to take greater control and make better decisions on the future direction of the business? Ultimately, they need to plan, efficiently and effectively to realise their vision.
Integrated planning: Key to supply chain and business resiliency
One of the biggest challenges facing all businesses is agility and resiliency. The pandemic exacerbated problems that already existed with SMEs, especially in terms of cashflow but it has also been a catalyst for new issues to emerge. Supply chains have come under pressure, with modern models for managing inventory and customer service being questioned, as product shortages have disrupted businesses.
Global events continue to undermine supply chains, not least the war in Ukraine but this is something that all SMEs have to deal with if they are going to enjoy sustained growth. That means having introspection and understanding the core processes of the business, where they are working well and where they are leading to potential problems.
One key area is data. As Gartner points out in its paper Gartner predicts the future of supply chain technology “most supply chain organisations are functionally siloed and therefore measured within their respective domains and roles.” That means there is limited scope for planning and forecasting, as any data relating to suppliers, inventory, future product availability and so on, is not being utilised fully.
Also, too many SMEs still use paper-based processes, so it’s not surprising so many SMEs have a limited ability to forecast a longer-term future. Addressing these sorts of out-of-date processes is essential. For SMEs to improve their agility, reduce risk, empower the business and have accountability, there needs to be a more structured direction. Improving data flow, analytics, planning and forecasting is fundamental to that structure.
Each department has a role to play too and each department will have its own demands in terms of skills and financing but with data and planning, decision-makers can have better knowledge of where to invest to enable growth. Which markets are going to be more lucrative? Which customers are going to grow and continue buying? Which suppliers are more sustainable and robust?
This doesn’t mean that the entrepreneurial spirit needs to be tempered either. Far from it. If anything, a more structured and resilient SME, with a clear vision based on accurate forecasting will only enhance creativity, agility and drive. As competition increases during an economic squeeze, that can only be a good thing.