SMEs – whither or wither?

SMEs – whither or wither?

SMEs – whither or wither?

A man with a beehive on top of a building is an SME. So was Google when it started out. From the inception of a new concept to its growth, IPO and value realisation, Small / Medium Enterprise is a stage all businesses go through. Some die, some stay small, some grow. Most economies are dependent on small, medium enterprises. They face challenges in today’s world. The heavy tools of trade – AI, digitisation, robotics, massive computer power – are vital for a business of reasonable size. An SME can neither afford them nor learn how to use them.

Governments encourage SMEs with beneficial tax treatments, subsidised training and other forms of financial and skills support. Much of that support is ineffective or wasted. An SME that doesn’t want to grow cannot be forced to. An entrepreneur who is in it only for fun, won’t get bigger than what makes him comfortable. Poor management limits the opportunities of some. It is not easy to sort the sheep from the goats in this melee of wish and want.

Actually, it is easier than many think. We do it all the time when we interview people for jobs. Building a company is just another job. Some are better at it than others. Spotting them is not too difficult for anyone skilled in identifying combinations of skills rather than single aptitudes. In fact, much of the generally poor interviewing of potential employees is due to the lineal nature of interviews and assessments which blot out potential builders by narrowing the focus.

Two aspects of SMEs need urgent attention.

First, the entrepreneurs who will drive the growth of a business by their natural ambitions. They are the people who know what they want to achieve – not personal wealth but success for the good of all. They are identified by balancing the passion they have for their work with a clear head for figures and a clinical but adventurous attitude to risk. Their intellect is measurable. Their balance is a matter of judgment. Experienced interviewers often get it right.

Second, the propensity and ability of SMEs to merge and work together. Much SME growth is achieved by merger and acquisition. Partnerships are never easy; in business, where survival is at stake, they are especially tricky. Most merged businesses fail, if not wholly at least partly and at great expense to the shareholders. The reason is that preparation and monitoring are almost totally ignored. In 65 years in business I have seen only a few M&As that went reasonably smoothly. Most were bloodbaths.

What did I learn about partnerships in business as I built companies?

First all those taking part must know the personal objectives, wishes, requirements and timetable of the people owning the business. Sounds easy but it isn’t. People seldom know what they want. Those who do often regret their wishes when they are granted. The perverseness of people is legendary, but it can be useful. As a driver of ambition I know of none better. Things change – time, opportunity, needs, demands – and with them aspirations. If only the British Prime Minister realised that – but let’s not go there again.

What I want in January will likely change by December when I see other possibilities and discover different personal ambitions. A business must know about these changes to accommodate them. If there are five owners / drivers of a business the multiple of possible changes is considerable. They won’t be dealt with properly unless they are stated and recognised. That is why monitoring the progress of an M&A is so vital. Time spent in reconnaissance is critical.

What is normally forgotten or ignored is the original partnership agreement. I am not speaking of the legal document, although all partnership agreements have an element of legality about them. What matters is the real agreement that states each partner’s objectives, says who has primary responsibility for what, makes it clear how the partners will work together, specifies when updates to the business (not formal board meetings) will be held, and determines how often the personal objectives of those participating will be reviewed and amended.

SMEs that fulfil these requirements won’t always succeed. Those that don’t will often fail. They sound reasonable, indeed, obvious, don’t they?

Why are they so often ignored?