How do you achieve sustainable growth with minimal risk? You avoid these 6 common SME mistakes. Discover how to drive expansion in a competitive market.
Keeping a small business afloat is challenging in today’s ever-competitive market. Expanding a business is a whole other challenge – especially for SMEs financing growth without the working capital larger companies enjoy.
So how do you make the most of your valuable resources? By avoiding these 6 common SME growth pitfalls.
1. Not listening to customers
According to Fortune Magazine, 42% of start-ups fail because there’s no market for their product. How do you avoid making that mistake? You listen to customers and understand your competitive landscape.
Before you incur debt and spend resource on expansion, do your homework. Make sure demand exists to meet the revenue targets you’re setting. And if you’re uncertain, grow more slowly, so you can take stock without getting in over your head.
Now, this isn’t to say you shouldn’t be ambitious, or that you shouldn’t look to change consumer habits (remember – Henry Ford famously said, “If I had asked people what they wanted, they would have said faster horses”). But you also need to be realistic. Understand your ideal customer and then ensure your product or service is evolving to address pinchpoints.
2. Hiring your first employee too soon
Scalability is a key SME challenge. And this isn’t just a financial challenge – it affects every aspect of day-to-day operations.
Many small businesses take on their first employee too early. Growth tends to be broadly linear at the beginning, and when you reach a stage where there is just a little too much to handle alone, an employee will likely have a light workload plus require time and resource to train. This means you’ve added overheads without maximising the value you receive.
So before you hire, consider flexible alternatives like contractors and freelancers. This approach will give you the resource you need to scale without putting undue financial burden on the business. It will also help you build the job description for the employee you eventually do hire, because you’ll have a clearer understanding of the skills you need based on experience of working with others.
3. Spending too much time running the business
There is an old story that sums up this problem very well. A hiker is walking through the woods and comes across a woodcutter frantically chopping down a tree with what looks like a blunt axe. The conversation goes something like this:
Hiker: “Good afternoon. You know you could chop down that tree more efficiently if you sharpened your axe?”
Woodcutter: “I can’t sharpen my axe.”
Hiker: “Why not?”
Woodcutter: “I’m too busy chopping down this tree.”
This is a common SME pitfall – you’re too busy running the business to spend time improving it. And it’s a recipe for disaster. You need to make time to look at business processes so you can leverage technology and resource to boost effectiveness and productivity.
4. Not having a marketing plan
Many small businesses get off the ground without any marketing effort. Sales come from referrals, or you only serve a small market where there’s little immediate competition.
SMEs financing their expansion need to set aside a healthy marketing budget and have a marketing plan. Consider that many large businesses dedicate about 40% of their revenue to marketing. You may not need to spend that much, but you do need to invest to achieve sustainable growth.
And spend that budget strategically with professionals. Don’t make the mistake of considering marketing as another admin task alongside accounting or operations. You need dedicated resource that understands your business and your customers, and can help you make the most of the available marketing channels.
5. Tying up your working capital
Your business has done well, and you need new software or equipment. Do you tie up your working capital or do you leave your business some flexibility?
Consider all finance options before taking substantial amounts of cash out of the business. Do you need to buy the item outright? Can you lease or hire purchase, so you pay in instalments?
You don’t know what hurdles or opportunities lie around the corner, and you don’t want to find yourself unable to respond because you’re under-capitalised.
6. Fuel growth while mitigating risk
As you know, running a small business is a juggling act – there are endless trade-offs when it comes to time and resource. Taking steps to avoid these 6 mistakes will give you a solid foundation for expansion with the tools and flexibility to mitigate risk along the way.
Decide upon an achievable rate of growth based on a clear understanding of your ideal customer and competitive landscape
Have a defined marketing budget allocated to a considered marketing strategy
Think carefully before taking on staff and increasing your overheads
Don’t tie up too much working capital in assets, or you risk not having the flexibility to capitalise on opportunities or respond to challenges