Why do most SMEs remain SMEs through their entire lifecycle?
Date: Tuesday , November 01, 2011
India has been the talk of the world markets for quite a few years now from an economic growth perspective. It is a no brainer that the SMEs play an extremely important role in driving this growth for any economy and India is no different. The Indian landscape boasts of having more than 30 million SMEs and more than 60 million people being employed by them. Currently, the SMEs contribute to more than 20 percent to the GDP. These basic numbers are just to understand how important the segment is especially for India.
Obviously, a growth spurt in the SME segment will provide a booster doze to the growth of our overall economy. However, most SMEs have remained SMEs through their entire lifecycle, which is a pressing issue, if India has to sustain the economic growth in the coming two decades.
The two logical sides are the policy makers and the entrepreneurs themselves.
Policy makers are working hard to create reforms that may be suitable, however, the real thrust hasn’t been given as yet to the SME segment. They are still busy tweaking the law to benefit only a few. However, we can not completely blame them since they have done a commendable job in significantly opening up the economy in the last two decades.
After having interacted with more than 2000 Indian entrepreneurs in the last 4-5 years, there have been some key observations that I would like to share. There are two parts to these key observations, the entrepreneurs’ mindset and the entrepreneurs’ wherewithal; the mindset being a much bigger issue.
The Mindset: First of all, let us understand that entrepreneurship is for doers and not just thinkers or dreamers. A dream is a dream without action and does not lead anywhere. So the first lesson is to come out of the building and act. This is especially true for aspiring entrepreneurs and the first generation start-ups.
A lot of new start-ups / ideas remain on the shelf or in the jazzy business plans. Nothing is done about those ideas in the hope that someone will fund them. But a logical question, “Why should someone fund you, when you are not willing to act on your own ideas?” This is precisely the reason why only 1 in about 800-1000 start-ups gets funded. Investors also like people who act, simply because they are the ones who create results and returns, both. This is a ‘mindset’ or a ‘will’ issue. If you have the will, you will create the necessary wherewithal anyways. The only advice is, “Get out of the building and start building your business before even thinking about Investors. If you build a good business, money will anyways find you.”
On the SME front, the entrepreneurs have already acted on the opportunity and have created a platform for the new generation to take off. Here is where the mindset issues are prevalent. Most SMEs show rigidity in the mindsets and their ways of doing business.
One thing that most SMEs ignore in today’s times is their business model. There is a huge block in learning somewhere. This is often proven by their “know it all” attitude. The truth is – it’s not the fittest or the strongest or the most intellectual who win the game; but it is the ones most responsive to change win the game. With the advent of technology, the dynamics of doing business are changing by the minute today, If SMEs do not adapt their business models to these changing demands they will often remain where they are. The key lies in change and the fluidity in the business models. Change in the way one thinks, one learns, one adapts and one acts.
Most of these businesses often have traditional or old economy thought-process driven business heads that often are not in a position to visualize the new and global markets that are available today and their ever changing dynamics. Ultimately, you are what you think you are.
The most important question now is how can SMEs then begin the process of scaling up? The simple answer is to revalidate the thought leadership and the current business model. These are the two most critical aspects that need engineering. What one can do is to create a pictographic representation of their business, which would give a clear bird eye view. This essentially will help one understand where exactly the engineering would be required in order to scale upwards.
With the availability of technology that simplifies global communication, the markets are far bigger and closer now than they ever were. SMEs know this fact; however, they feel that the exercise of reaching that far for a customer is resource hungry, which is not true. There are just about a million tools available today which make this process cost efficient and within reach. What needs to be understood is the fact that it is people who ultimately drive business everywhere and it take effective networking to reach out to newer markets.
The other extremely critical thing would be to hire a mentor, who one can trust, who has the necessary expertise and who would give genuinely real and practical advice. This would most often reduce the agony of late unhappy realizations.
Essentially you need a mentor to answer a few very critical questions like these and more:
• How do I introduce a product/service with no budget?
• How do I entice new markets and customers without a big marketing budget?
• How do I determine whether there’s really a market demand for my product/services?
?• What kind of people should I hire: young, old, unproven, proven, cheap, expensive, etc.?
• How do I get them to leave their current jobs without throwing a lot of money at them?
• How do I tell my partner/friend that he can not be CxO just because he is a co-founder?
Finally, have the humility to share a fraction of your success with others. Very few people say, “We are what we are, because of our mentors, employees and every other stakeholder.”
The author is Group MD & CEO – DeGroup and CMD & CIO – IndiaSocial Fund.