There’s nothing more satisfying for an entrepreneur to build a business from start-up to small-medium enterprise (SME) and successfully take the company into new markets.
But growth is both challenging and painful, requiring difficult decisions for a company that can easily fail if its foundation is weak. Having worked for 20 years with SMEs that want to grow their businesses, I’ve learned that the best foundation is based on three pillars:
- The right strategy to build and manage your business model. It must be refined and tested until it creates value for all stakeholders, including shareholders, employees and customers. It must also include a vision; the “what” component as opposed to the “how.”
- The capability and resources to support growth.
- The commitment and will to sustain growth. It’s a painful process and management must be willing to pay the price for reaching that next level. Growing a company requires sacrifices.
SME owners also need to understand how these foundational pillars differ from the approach they may have taken when they started the company, and those that apply to large, established firms.
In a start-up, the business model tends to be immature and develops largely through trial and error; capability is low and needs to be developed from scratch, and commitment by owners and employees is high.
In larger organizations, the business model is tried and tested, capability is mature and sometimes even bureaucratic. Commitment can be low to medium, often due to a very large number of employees having just one small task within a big machine.
So, what can SMEs learn from both start-ups and large companies as they embark on growth?
4 things SMEs can learn from start-ups and large organizations as they grow
Build a strong management team
Growth-focused companies can’t be one-person shows where the owner or CEO makes all the decisions, is considered indispensable, and does or oversees everything to ensure it is done properly.
One of the greatest CEOs I’ve met told me he wakes up every day thinking of ways to make himself irrelevant in the company. He’s still working 60 to 70 hours a week, but not on operational matters and issues that can be taken care of by a competent management team. Instead, he spends his time envisioning where the company will in three to five years, which is what the CEO should be doing 80 per cent of the time.
Building the right management team also means transitioning from a loyalty culture, in which owners can be too tolerant of loyal but dysfunctional leaders, to a culture of performance, in which a team of interdependent executives are accountable for delivering results.
Establish robust management systems
Rigour and discipline – essential elements for growth – are often lacking in SMEs but need to become part of their DNA if they want their expansion to succeed. This means building scalable infrastructure capable of supporting growth, and avoiding operational meltdowns that may compromise customer satisfaction. They must also document key business processes and consistently monitor key performance indicators (KPIs).
Avoid liquidity crashes and be prepared for the worst
An economic downturn, the loss of a key customer or other unexpected events can catch even the most experienced CEO unprepared, which is why it’s important to build a strong balance sheet (raise capital when you don’t need it) and stay on top of cash flow management.
Weigh the pros and cons of bringing in outside investors as either minority or majority shareholders who will provide additional liquidity, but at the expense of control.
Be selective with international expansion
Patience and thorough research is important when considering an export strategy. Success in one market may not translate to success in another. Getting the right advice from people who have experience of export markets and understand different entry strategies is crucial.
Getting the right advice from people who have experience in export markets and understand different entry strategies is crucial.
I’ve seen companies with plenty of room to grow in the domestic market, but instead they decided to rush into exporting without the organizational capability and resources to succeed. Of course, there are exceptions. Some companies are “'born-global” and export from their first day, but, as I say, they are exceptions.
This is where Adrenalys comes in, a program founded in 2015. Adrenalys is led by a group of Quebec’s top-tier business advisors, including EDC, with a mission to help propel SMEs with high growth potential to the next level in their development and growth. The selected SMEs for the 2018-20 cohort will benefit from a council of peers where issues and trends are discussed, pro-bono or reduced fees for services from senior experts, and dedicated funds to finance growth initiatives.
The search is on now for qualified SMEs that can benefit from the guidance and support offered by the Adrenalys partners. Quebec companies that have been in business for at least five years and have revenues over $10 million are welcome to apply for this exceptional support. But hurry – the deadline for applications is May 11th, 2018.