A question has been floating around our department for a while—are small and medium-sized businesses (SMBs) so different from their larger counterparts? OK, I lied. There was another question—are the pressures and issues that much different if you have 500 employees instead of 5,000 employees? So I went looking for answers, and in a recent report published by Aberdeen—SCM for SMBs: The Framework Leaders Have in Place— I may have found part of the answer.
According to this recent report, medium-sized companies do face the same pressures as their larger counterparts. They focus on costs, try to grow smart, are focused on the competition, struggle with collaboration issues, and are continually working to keep up with constantly changing customer needs. The one way that midsize companies might differ is in how they weigh and prioritize those issues.
1. Reduce costs (35 percent of survey respondents) Sales and revenue are great, but as companies grow that brag-worthy high margin achieved as a start-up begins to shrink. I have heard it said that margin is the reward given for running a successful company. It is the money left after COGs, operating expenses, and taxes are paid. It is the money that is available to invest back into the business. When you cannot invest in your business, costs skyrocket thanks to obsolete technology, a revolving door of talent, and process inefficiencies. To keep margins healthy and avoid cash flow issues, midsize companies must continually look for ways to reduce costs at all levels of the business.
2. Manage growth expectations (34 percent of survey respondents) Growth is generally thought of as a positive sign. A growing company must be a profitable and healthy company, right? Nope. As mentioned above, there is a difference between growth and profitability. So it is essential to make sure that the systems and resources to manage and support profitable growth are in place. Taking on new risk prematurely, outdated technology practices, hiring in haste, or failing to diversify/partner up (for example) may ruin growth opportunity.
3. Stay ahead of ever-increasing competition (25 percent of survey respondents) Due to their size, small and medium-sized businesses are not usually the market leader. This may not be true for smaller companies that are disrupting markets with a new technology or product. However, in that case, managing growth expectations becomes even more critical. In any competitive situation, there could be a contentious issue that arises, which may require an aggressive response. However, SMBs should act carefully so they do not extend themselves too far in the name of “beating the competition” that could trap them on a growth plateau.
4. Look for better ways to collaborate (internally and externally) (25 percent of survey respondents). The ability to understand and interpret data leads to visibility which leads to better decision-making which leads to profitable growth. However, effectively sharing information can prove difficult when growing midsize companies follow procedures that evolved from manual, paper-based, and spreadsheet-dependent processes. A lack of collaboration indicates siloed functions, and siloes, while great for grain, are not conducive to agility, speed, and state of today’s business environment. For example, very few companies start with a complete ERP solution suite; most add capabilities as needs arise. For many SMBs, growth evolves naturally, which makes it difficult to determine precisely where communication failures begin, or if there may be a need for a formal solution.
5. Focus on meeting changing customer expectations (18 percent of survey respondents) Changing customer needs is also a disruptive force. Customers continuously seek ways to improve their own competitive position; this puts further pressure on you (as part of their supply base) to adjust accordingly.