the obstacles that hinder mid sized businesses growth into big companies
Post on 03-Jun-2018
214 Views
Preview:
TRANSCRIPT
-
8/12/2019 The Obstacles That Hinder Mid Sized Businesses Growth Into Big Companies
1/11
1
Prison reak7 Top Constraints that Hinder SMEs
Growth to Big Companies
By
Sam Kariuki
Growth Partners
Hazina Towers 9th
FloorP.O Box 51672-00100 Nairobi Tel: 020 8012627 Cell: 0720 790 173
Email:info@growthpartners.co.keWebsite:www.growthpartners.co.ke
mailto:info@growthpartners.co.kemailto:info@growthpartners.co.kemailto:info@growthpartners.co.kehttp://www.growthpartners.co.ke/http://www.growthpartners.co.ke/http://www.growthpartners.co.ke/http://www.growthpartners.co.ke/mailto:info@growthpartners.co.ke -
8/12/2019 The Obstacles That Hinder Mid Sized Businesses Growth Into Big Companies
2/11
2
Prison Break: 7 Top Constraints that Stop SMEsfrom Becoming Big Companies
Introduction
It has been proven that very few SME startups remain in business in the first 5 years. A lot of studies have carried out onwhy so many of these businesses close doors and what needs to be done to reduce this high rate of failure. For those
that survive the assumption made is that they have succeeded. That is not the case. Majority of these firms remai
small till they close doors.
That would be acceptable if it was the owners objective. Every day the owners work hard to see the businesses grow
both in revenues and profits. This seems like it will never happen. They assume more money will help them grow but no
necessarily. What causes this problem?
That is the question this report seeks to answer. I have highlighted the 7 top constraints that make it so hard for SMEs to
break into the club of large companies. The report has been built on information resulting from studies on SMEs
consultations engagements, training courses I have ran for SME entrepreneurs, coaching and mentorship sessions with
business owners and day to day interactions with SME owners, consultants and their employees over a period of 5 years
While this report is not to be considered as strategic advice for a particular business or industry in the form provided,
the issues it raises can greatly inform development of growth strategy for any SME business. By highlighting the
constraints SME owners and organizations that partner and work with them can then develop interventions that can
greatly improve the growth potential and capacity for these businesses.
It is my sincere hope that issues raised here will spur further research, debate and studies on the subject and the result
will be thriving large organizations that started out as SMEs. The author is currently working on a book on the same
subject and he would be happy to engage with anyone who is interested in the subject.
We hope that you will be draw value from reading the report. We look forward to your feedback.
Thank You.
Sam Kariuki
Growth Partners
sam@growthpartnerske.com
mailto:sam@growthpartnerske.commailto:sam@growthpartnerske.commailto:sam@growthpartnerske.com -
8/12/2019 The Obstacles That Hinder Mid Sized Businesses Growth Into Big Companies
3/11
3
Prison Break: 7 Top Constraints that Stop SMEsfrom Becoming Big Companies
Constraint1: Limiting Business Models
No business can outperform its business model. This business model describes the integrated means and processes
through which an enterprise seeks to create and deliver value to the customer and how to make money from this value
The model is made up of various building blocks namely:
Target Market; Value Design; Value Communication; Value Delivery; Revenue Streams; Customer Relationships;
Key Resources; Management Systems; Critical Activities; Key Success Networks; Cost Structures.
Any of constraint on these factors will limit the capacity of the business to grow. The constraints on the model could
take many formsunscalability, inefficiency, deficiency, ineffectiveness or wrong format on any or a combination of the
building blocks.
Lets take an example of an existing food processing firm, called SamsDelite, model and what constraints the firm is
likely to encounter as it seeks to grow. We focus only on a few elements of its business model to demonstrate the point
Business Model
Element
The Current Model The Constraint
Target Market The health conscious segment of the
market.
This is a small niche market and growing it may
require expensive educational marketing
Customer
Relationships;
Customer Relations are based on giving
lowest prices possible.
A competitor with capacity to sell to the
customer at a lower price will win the
customer.
Revenue Streams; The key revenue stream is sales of
packaged food products.
At some point sales of these products will not
grow and therefore the business will plateau.
Key Success
Networks
The firm doesnt collaborate with other
players in the industry as they may steal its
business secrets.
To grow, the firm may require utilizing excess
capacity of its competitors to package,
warehouse and distribute its products.
Cost Structures The firm employs all its employees on
fulltime basis, owns all its working tools etc
The wage bill of the company is growing and
with shrinking demand for its products the
costs remain high.
Table1: The Current Model for SamsDelite
-
8/12/2019 The Obstacles That Hinder Mid Sized Businesses Growth Into Big Companies
4/11
4
As long as SamsDelitemaintain this model, it does not matter how hard everyone in the company works, how much
financial capital is injected in it will struggle to grow beyond the constraints of its model. SamsDelite will need to
change this model to improve its potential and capacity to grow in revenues and profits.
This is one suggestion (among many alternatives) on how the ownership of SamsDelitecould change various aspects of
its business model.
BusinessModel
Element
The Current Model The Constraint New Model
Target Market Specializing on food products for
health conscious segment of the
market.
This is a small niche market and
growing it may require expensive
educational marketing
The firm decides to become a whol
family food products firm targeting th
trendy young families.
Customer
Relationships;
Customer Relations are based on
giving lowest prices possible.
A competitor with capacity to sell
to the customer at a lower price
will win the customer.
The firm seeks to build a strong bran
loyalty trough innovative marketin
and continuous product development.
RevenueStreams;
The key revenue stream is sales ofpackaged food products.
At some point sales of theseproducts will not grow and
therefore the business will
plateau.
Rather than process all it products engages other processors whom
packages their products under it
brand name.
It also handles and manages produc
lines of non competing manufacturer
both local and international.
Key Success
Networks
The firm doesnt collaborate with
other players in the industry as they
may steal its business secrets.
To grow, the firm may require to
utilize the excess capacity of other
food processors to package,
warehouse and distribute itsproducts.
The firm has built partnerships wit
key suppliers in the industr
particularly those providing raw
materials, financial institutions that aralways willing to provide finance t
grow the business and has grea
relationships with competitors who ar
always willing to allow the firm to us
their excess capacity.
Cost
Structures.
The firm employs all its employees
on fulltime basis, owns all its
working tools etc
The wage bill of the company is
growing and with shrinking
demand for its products the costs
remain high.
The firm seeks to maintain as much o
its costs in variable form rather fixe
terms.
Table 2: Changing the Business Model for SamsDelite
By adjusting its business model you see how this firm can improve its potential to grow and even its capabilities to do so
The changes may appear obvious to everyone but it is unlikely to be so to the owners ofSamDelite.
Are these guys daft? They are not. The reason is that many SME business owners dont understand their business
models and when they do they dont question or challenge them and the consequences are business imprisoned in
smallness.
-
8/12/2019 The Obstacles That Hinder Mid Sized Businesses Growth Into Big Companies
5/11
5
Constraint 2: Lack of StrategyWhat is your business strategy? Ask any SME Business Owner this question and you are likely to get some blank stares.
Why would someone be blank yet this is one of the most common words in business language? The reason is that the
word has become a clich.
A strategy is your plan to accomplish a major objective. Forget the loaded strategic plans documents created for
government. It is a simple clear plan of how you intend to grow your business, increase revenues, profitability or marketshare.
From my consultancy engagements with SMEs I rarely come across a clear strategy. I dontsee business decisions made
for strategic reasons. Every decision or action taken is likely for a tactical shorter reason- to resolve a crisis, to appease a
client who is throwing tantrums, to get sell more to meet our cash flow deficits, to make a quick buck to maximize on a
short term opportunity and the list is endless. None of these is wicked or wrong but businesses that are run this way wil
never grow. They miss out on bigger picture, long term growth opportunities, resolve a short term hiccup and sow seeds
of long term crises etcetera.
It is a fact that not all SME business owners have been to a business school but, that is never a good reason not to have astrategywhatever name you will call it.
Why many Strategies Dont Work1. They are generic in nature and inapplicable in particular business;2. They dont address crystal clear objectives;3. They are vague in articulation;4. They are not implemented or poorly implemented;5. They dont have supporting structures to drive them;6. They are not sustained over the long haul;7. They are not monitored andmeasured;
-
8/12/2019 The Obstacles That Hinder Mid Sized Businesses Growth Into Big Companies
6/11
6
Constraint 3: Over-dependence on new customers for growth
All start up entrepreneurs has great stories of their first customers. The excitement of getting someone to believe in
your product or firm is essential to keep you going in the early days of the start up. Unfortunately for most SME
entrepreneurs this excitement becomes an obsession and the only purpose of all its marketing efforts. It has bee
widely believed that the most successful business is the one that has the highest number of first time customers. This i
a partial truth.
One key measure of how well you are doing in business the number of repeat customers who come back to you as often
as they can and spend as much as possible every time they buy from you.
As a growth strategist, marketing consultant and business owner, I know how costly and difficult it is to get a customer
make the first purchase. This is incomparable to the easiness of keeping a customer and getting him to make a repea
purchase.
Many SMEs owners will agree with this logic in conversations but in practice the opposite happens. You hear and see the
inscription, Lose them once they make the first purchase! In their customer dealings. You see it in the custome
service, the quality of its products and weak after sale follow-up.
After a customer buys dont ask, How do I get the next one. But shout to yourself, How will I get him to come back!
After a customer buys dont ask, How do I get thenext one. But shout to yourself, How will I get him
to come back!
-
8/12/2019 The Obstacles That Hinder Mid Sized Businesses Growth Into Big Companies
7/11
7
Constraint 4: Flawed Marketing
There is no business known to have grown without marketing. Whenever, I say this many entrepreneurs assume that
am approving their failure to market their businesses. They have this assumption because to them marketing costs a lot
of money, which they dont have.
It is a fact that some aspects of marketing will require finances. But a lot of money never makes good marketing. To
majority of SMEs marketing involves advertising on Primetime TV and national newspapers. This is costly and any SME
business owner who has tried it has a story of how they burnt their money. The experience is usually so bad that many
of them give up on advertising ever againunless they are using other peoples money, like many marketing heads o
large organizations.
You have to grow your business using intelligent, results based marketing if as a small business you are going to enjoy
growth that comes from marketing.
Let me a military analogy. Consider yourself a general and your limited money make up your soldiers. Whenever you
spend any marketing cash you are sending out your soldiers for war. You want them to bring back prisoners of war and
great loot. As you send them out there is a risk that they will all be killed or taken as POW. What do you do to avoid this
scenario?
You need to be more creative, more strategic and a great planner so that every campaign you carry out is a success
Unfortunately for many SMEs they have tactical, uncreative and weak planners no wonder every soldier they send out is
killed. After some point they have no more soldiers to send out and their business suffers greatly. They try to act like a
general with an unlimited army yet they dont have the resources.
It is often said that doing business without advertising is like winking to a girl in the darkness. But winking without a
target and purpose is useless even in broad daylight. You need to have clear objectives for your marketing activities and
they should be monitored and tweaked over time till you can get the highest possible result from every coin you spend.
Qualities of Good Marketing
It is a profit centre not a cost centre
It has a strategic objective;
It is measurable in impact and results;
It gets customers to spend money on your business repeatedly
It gets the highest possible returns.
-
8/12/2019 The Obstacles That Hinder Mid Sized Businesses Growth Into Big Companies
8/11
8
Constraint 5: Low Return on Human Capital
Financial Capital may hinder growth for some businesses. But for majority of those that have refused to grow money is
not the problem. Actually they dont have money because they dont have capacity to make it.
Human Capital is the most unleveraged resource in any business. This is more articulated in SMEs than in large
organizations. I have consulted and trained for large organizations and SMEs and the most visible difference between
the two is the number of quality of people they have in their team.
While large organizations have a large number of talented, skilled and passionate people, SMEs particularly the ones
whose growth has stagnated have only one such personthe owner. That is why minus the physical and mental health
of the owner many SMES end up closing doors.
When you hear of a guy who single handedly started and grew a small business into a large multinational just know that
is a lie. Businesses are grown by utilizing the wealth of skilled, talented, loyal and passionate employees. Many
entrepreneurs running SMEs complain that getting and retaining great people expensive and almost an impossibility. I
is difficult but not impossible. Early last year I advised a client to go for the right attitude and develop skills with time
And for sure they are starting to experience great results from this.
To get the highest returns from your people you need to hire right, manage effectively, appraise the people regularly
reward on performance and retain good and great performers and getting rid of dead wood as soon as you pick it.
Human Capital Challenges in SMES
1. Lack of clear strategy in hiring;2. Unskilled workforce;3. Lack of regular and objective appraisal system;4. Unmotivated employees;5. Undefined Roles;6. Failure to retain top performers.
-
8/12/2019 The Obstacles That Hinder Mid Sized Businesses Growth Into Big Companies
9/11
9
Constraint 6: Lack of Innovation
Closely related to lack of human capital is lack of innovation. The two are directly proportional. One true measure of
business growth is its innovativeness. Majority of the highly admired for their growth from small start ups to succes
companies have are not doing what they started out doing and if at all they are they are not doing it the same way they
did it in the beginning. The yester-year giants that have stagnated are doing exactly what they started out doing. I dont
want to mention names.
The world we live in is continuously changing. That which was a genius idea yesterday will not be appealing tomorrow
That which your customers fought to have last year will be highly inferior compared to what your competitors wil
introduce next year. How do you grow in this environment? INNOVATE!
Innovation is what fuels of business growth. You have to develop new products, create more selling channels, give you
customers more flavors, more service options, different ways of communicating to your customers.
Innovation will be possible only if you become more outward looking. Then align everything in your business to the
external happenings and prepare for the future.
Innovation thrives in a business culture that allows, even encourages, mistakes. Unfortunately this culture is a majo
deficiency among many SMEs and the only person who can get away with a mistake is the owner. As a consequence no
new ideas come up in the business for fear of failure and the result is being a prisoner of smallness. You will not grow
the business if there is a monopoly of idea generation in the business.
Skills for Innovation
Observe
what is happening in the world
Question
Dontaccept things as they are without questioning;
Associate
unrelated ideas;
Network
even with all manner of people seeking different viewpoints
Experiment
with new things and ideas
(Innovators DNA by Jeff Dyer)
-
8/12/2019 The Obstacles That Hinder Mid Sized Businesses Growth Into Big Companies
10/11
10
Constraint 7: Lack of systems that support growth
Systems are the skeleton upon which growth is built upon. Too much growth with without strong systems will resul
into chaos and ultimately the business will tend to shrink to the level that the system can support. Talk of Business Body
Mass Index.
To move from biology to architecture systems are the pillars upon which the business is built on. They can only hold as
much weight as they can support.
I have been involved in assisting SMEs put in place business systems and in most cases the only system that exists in
some form is the accounting system all else is
dependent on whims, know-how and
temperament of the people.
People move, people forget, people get sick
people get bored, and all this become you
business. While systems may not completely
eliminate the effects of these occurrences they
drastically minimize them. You then have a
predictable business that can always delive
what it is supposed to deliver regardless of the
mood of the moment.
In SMEs mistakes happen all the time. Some
are never discovered and corrected, some
become habits. While dressing downs
reprimands and firings are the methods used
to deal with these problems they are hardly
the most effective ways on their own to
ensure mistakes are not repeated. Systems go
along way to help.
If you want to break away from the prison of
smallness you need to work on removing al
these constraints.
How to Create Effective Systems for SMEs
1. Break down your business into various processes andsub processes;
2. Align the processes to the business objectives andstrategy;
3. Document the processes;4. Train the people on the systems;5. Quantify results expected from every process;6. Monitor and Measure the Results;7. Improve the processes better, faster, easier, more
profitable.
-
8/12/2019 The Obstacles That Hinder Mid Sized Businesses Growth Into Big Companies
11/11
11
About the Sam Kariuki
Sam Kariuki is an SME Business Growth Strategist, Consultant, Sales Trainer, Entrepreneuria
Coach and Entrepreneur. Although Sam has trained and consulted for various large
organizations his greatest passion is in helping SMEs businesses achieve success by growing
their revenues, profits and cash flows.
After being called upon to help many SME Businesses he has found out that many principle
being promoted by business schools and consultants dont work for SMEs given the unique
situation that SMEs are in. Based on this knowledge his strategy, training and consultancy
services are unique in that they seek to address the SME needs in a non-conventiona
approach.
Sam believes that entrepreneurship is not just about financial capital, hard work, belief and grit. Although these factors
are essential there are certain structures and principles that differentiate successful SMEs from the struggling ones. It i
these structure that Sam helps entrepreneurs discover and put them in place.
Many organizations do not maximize on all the opportunities they have and also do not get optimal results from their
investments and have many hidden assets that are rarely utilized. Sam helps the businesses do exactly this.
Unlike many consultants Sam guarantees his services in various forms.
To talk to Sam:
Email: sam@growthpartners.co.ke
Website:www.growthpartners.co.ke
LinkedIn: http://ke.linkedin.com/in/samkariuki
Call: +254721303864
mailto:sam@growthpartners.co.kemailto:sam@growthpartners.co.kehttp://www.growthpartners.co.ke/http://www.growthpartners.co.ke/http://www.growthpartners.co.ke/http://ke.linkedin.com/in/samkariukihttp://ke.linkedin.com/in/samkariukihttp://www.growthpartners.co.ke/mailto:sam@growthpartners.co.ke
top related