In today’s world, competition is a fact of life. Competition can bring out the best in us and it can bring out the worst in us. Whatever the reason, competition will remain a driving factor for improving and enhancing oneself. Competition can enhance our wisdom and knowledge and teach us important lessons and tips. For example, in business, if you’re trying to expand and make your business bigger, you can learn a thing or two from top businesses.
Many small and medium enterprises (SMEs) no doubt envy many big names in the industry and big businesses that have command on the market. Companies such as these seem to be in a league of their own from the average SMEs, but there is a valuable business lesson that smaller businesses can learn from these large corporations. Small and medium enterprises have been widely accepted as one of the largest economy movers.
What are Small and Medium Enterprises?
Small and medium enterprise is a business segment term that is used differently in different counties and sometimes used differently in different industries in the same country. In the United States, any firm from a small office or home office to a large corporation can be called a small to medium enterprise. In the European Union, a firm with 50-250 employees with an annual turnover of 7-40 million Euros; with a total assets of less than 27 Million Euros and not more than 25% ownership by a large corporation may be called a small and medium enterprise. The ICC or the International Chamber Of Commerce defines SMEs as having 100-2000 employees. Small and medium enterprises outnumber large enterprises and also employ more people. Small and medium enterprises are also believed to be responsible for pushing innovation and market competition around the world.
Why are Small and Medium Enterprises Important?
Small and medium enterprises and businesses account for 99% of private sector companies. But out of the big business limelight, these businesses are most often overlooked by many policy makers and the complexity of the SME leaders are pretty much underestimated. SME leaders face many challenges: they need to attract and retain the right talent and they need to adapt their talent strategy for different stages of business growth. They need to be able to scale up and expand globally, working around the many macro-economic challenges and fluctuations in the market. Many industry experts say that SME leaders are excellent general managers. Why? Because these leaders deal with products, cash flow, strategy, execution and operations on a daily basis. At every stage of business, SMEs essentially reinvent themselves.
SMEs also account for a big share of new jobs specifically in countries with a strong employment record. There is also some evidence that putting importance on age rather than size in creating jobs. Upstart and young firms generate more than their share of employment, but less than ½ of the startups survive for more than 5 years and only a fraction develop into a high-growth firm that truly contributes to job creation. High job turnovers pose problems for employment security and small establishments are often exempted from giving notice to their employees. These small firms also usually spend less in training and rely relatively more on recruiting externally for raising competence.
Just recently, the role of SMEs in developing economies and providing employment has occupied most of the talks among different policy makers, governments, researchers, academics and economists in many countries. Many experts believe that small and medium enterprises have the same characteristics, face the same issues, but differ in their understanding of how small businesses help with economic growth. SMEs have the ability to fuel economic growth because they help to expand the tax base, creating jobs and encouraging innovation. SMEs also enhance competition and entrepreneurship thus they have external benefits of economy wide efficiency, aggregated productivity and again, innovation. In recent years, SMEs have consistently registered higher growth rates versus the global industrial sector which is not doing so well in comparison. SMEs provide around 90 million jobs worldwide and contribute to entrepreneurship.
Differences Between SMEs and Big Businesses
The small and medium enterprise sector has remained very adaptable and innovative in order to survive the recent recession an downturns. There is a high correlation between the degree of poverty, hunger, economic well-being, unemployment and the country’s degree of vibrancy. Anyone who has worked for large corporations and SMEs can talk endlessly about the differences in the cultures and the mindset of the two. As much as many people differentiate the two, SMEs and big companies have mutual coexistence. SMEs need big companies as much as big companies need SMEs but they are like men and women, completely different but can depend on each other. Big companies still have a lot to learn about how to work with SMEs without killing the very things that make SMEs tick (flexibility, creativity etc.). At the end of the spectrum, SMEs also needs to realistic of what they have and what they still need if they want to make their ideals and goals into realities, which can be found in the hands of many the corporate types.
Most often, there’s more than enough value at the crossroads for both large companies and SMEs to be happy with the gains in a relationship as long as they don’t stomp one another in developing their specific businesses. Smaller firms tend to be younger and more entrepreneurial. Their “can do” spirit of innovation is often alive and well. It’s also a key part of their DNA. Think of Silicon Valley startups as compared to Fortune 500s. As the business grows, the creative energy, input and output get slowly squeezed out as the focus of the business turns to stability operations, quarterly performance and productivity improvements.
The differences that can cause issues when SMEs and big companies come together for open innovation can be stark. Here’s a few that impact the way the two types of organisations approach open innovation:
1. Decision-making Speed
Large businesses, whether big silos and bureaucratic levels usually need adequate time to make decisions. For smaller companies, decision-making can be very fast, thus when these two types of organisation come together in an open innovation, the SMEs may find the speed of progress very frustrating. At the same time, the people from the large enterprise may be troubled by the constant pleas of the smaller partner to move faster. Both sides may feel that they don’t understand each other.
2. Risk-taking Attitude
The risk-taking attitude of SMEs and large businesses can vary considerably. SMEs and startups who are still in a fast growth rate embrace risks because at this point, the whole organisation is at risk. Now for a large company that has been operating for years or even decades, people may be far more focused in keeping things as they are than trying something new and potentially risky. This is another difference that can lead to frustration on both sides because one is brave enough to face the risks and the other will not make any risks. This will come in between if the two organisations engage in an open innovation partnership. The biggest difference between the two is the balance on the defensive and the offensive behaviour. The bigger and more mature companies will have “more to lose” and as losses loom than potential gains, the mature and bigger company will be more defensive. Thus the relative focus on potential breakthroughs will be slim. It will also be obvious that if a large company and a smaller company will differ on the type of innovation, they are seeking (breakthroughs v’s incremental) will cause the partnership to fail. It is important that the purpose should be clear from the start.
3. Allocation Of Resources
For a small company, all money counts. Resources which can be scarce at times will be allocated based on whether they will boost the bottom business line. As compared to large corporations, bottom lines is not that important. Because of the abundant resources at least in comparison to SMEs, people in large corporations may spend more but is not always the case. However, a smaller company may expect the larger company partner shoulder the expenses and may not understand that even large enterprises have financial limits.
4. Business Management And Who Understand The Business Model
If you want to drive innovation, you should understand the business model of the company. In SMEs, it’s more likely that everyone in the company understands how the company works and how the individual elements will combine in the business model in creating and delivering value to the client or customer. Large companies tend to be more fractured, thus the personnel are less likely to understand the whole business model. Any innovation that affects the whole organisation can be a hard and long-term task. Innovations are likely to happen at the product or business line level and then at whole company level.
The second factor is who will manage the business model. In large corporations, people only feel responsible for their portion or their sphere of control. There are only few people who control the whole organisation and they are the senior executives. If control is more distributed over the key areas of decisions and budgets, the more difficult it is to innovate. Small companies may sense it as a lack of passion amongst corporate employees who don’t understand the business model and the layering of control in large corporations will surely lead to slow decision-making.
5. Defined Processes (Or Lack Of)
Many SMEs don’t have any defined processes in place in driving innovation forward. This is one clear area where SMEs can benefit them if they form a partnership with a larger company. Although this isn’t always the advantage that it may seem initially because in theory, this will go to larger companies because they take the time and effort to embed many systematic processes.
Large businesses occupy themselves on how to beat their competitors, the competitive market and the rules. SMEs on the other hand, are more inclined to create new rules. Yes rules should be followed, but there are times that these rules need to be bent or broken if needed to make real and true progress. Large corporations that are still innovators are the exceptions that have continued to promote a good culture of innovation while firmly embedding strong process that help in nurturing breakthroughs and ideas in the confines of big, corporate structures. As you work with external partners, you will be exposed to other ways of getting things done. There will be diverse thinking and this will make you think if your current practices are good enough or whether you need to adjust or if you need to develop new practices for your organisation.
These are some hurdles that SMEs and large companies can encounter in terms of innovation, but it doesn’t mean that a partnership between the two will not work out.
What SMEs Can Learn From Big Companies
Simple logic will dictate that larger companies will do things on a larger scale as compared to smaller companies, but if you think of it, there are many things that SMEs can learn from the big boys of business. SMEs are at the forefront of many country’s economic recovery. Larger companies will obviously tend with larger financial figures and will have more money at their disposal for specialist projects. Although SMEs cannot invest at the same level as large companies, they can still recognise how specialists in specific departments of larger companies can attract more sales or profit. In most cases, the key is to focus on niche market as they promote the higher chance of creating a product that the consumer desires or need. Below are some things that small business tends to do and not make things bigger for them.
1. SMEs Are Too Busy To Think About Strategic Planning
You ask why? Because SMEs are more likely to be highly focused on their work, coping with different crises and reacting to their competitors. This can be rectified by doing some structured thinking. There are several planning models designed for SMEs that can help them fulfil this. Some planning models can provide information and lessons about gap analysis, which is the difference between management expectation of the needs of customers and customer’s expectation. It will also show the perception and delivery gaps and by using planning models in identifying gaps, it can make all the difference to the customer and business owner satisfaction.
2. Missed Opportunities
One great risk of not having a marketing plan is that you risk of missing good business opportunities or your spending too much or too less money or you’re spending too much time in the wrong areas. Good and effective marketing should allow you to save budget and time while increasing your sales and profits. Another advantage of having a marketing plan is that it allows the business to make better decisions every year.
3. Buying Versus Growing
When large companies need new employees with an unusual skill set, it has time and resources to finding and getting this employee. Special bonuses or salary packages can be used in attracting and retaining these skilled people. For SMEs, it’s different. They don’t have the pulling power in enticing these skilled candidates into their fold. In circumstances like these, it’s best to take a long-term approach in building a relationship with a potential employee, look and select the best candidate with a wide skill set who has growth and learning potential and has the ability to further learn new things.
4. Plan, Everyone Needs It
Big enterprises will have well-documented recruitment process that clearly shows hands-off recruitment between the hiring managers and the recruitment staff. It also shows the mapping of all touch points with the candidates throughout the recruitment process. For SMEs, the recruiter and the hiring manager will often be the same person. Now, if this person leaves the company or will not be present when the next hire is made, then the recruitment process will not be consistent. This will be an issue or a risk in the future. Small and medium enterprises should make sure that they have a well-documented hiring process that’s easy to follow and understand for any potential employees who may step in the recruitment role for a short period.
5. Sales And Communications Training
For some SMEs, they are quite confident in spending thousands of dollars just to get a new salesperson, but they are not prepared to spend thousands on training to ensure that person performs at their peak. Many large companies can spend even more on skills training and development to ensure their success. Many large enterprises did not get big by just employing many people, but by developing the very people they started with so they could manage more people, make bigger decisions and make the company grow. One common argument of many SMEs is “what if they train their staff and they decided to leave?” many big companies will usually answer “ what if you decided not to train your people and they decided to stay?”. The message here is that any training is a step in the right direction and will allow SMEs to reap in the benefits like large corporations do.
6. Bulk Recruiting
Many large corporations save money by consolidating the recruitment process in a recruitment drive. A recruitment drive is a one time recruitment of people. This type of recruiting generates a number of consistencies and efficiencies and helps in building a pool of candidates. Unfortunately, many SMEs can’t leverage the same efficiencies or cost saving from this type of recruitment. But this is still a good and effective option to consider during a cycle hiring where a group of employees can be hired at the same time as compared to recruiting them individually. This can save time, energy and money, especially if these employees require training.
7. Think Of Outsourcing
Many large businesses hire consultants in solving some of their problems. SMEs can also do this as well. In most cases, SMEs often equates external advice as an added cost and not a benefit and then in the end, they will realise that they have missed an opportunity somewhere. Understanding the advantages of cost-effective outsourcing is essential to small and medium enterprises if they want to remain competitive or ahead of their competition.
8. Marketing That Goes Beyond Advertising
The big boys have all sorts of marketing help, and support structures. Most often, SMEs has thought that marketing is too expensive in bringing business. Now, you have to think that your business should be out there and people should know that your business exists thus any form of marketing will help. Modern marketing is no longer confined to traditional ways; social media can provide cost-effective ways to improve reach to potential customers. Having a website or blog is easy as pie, making social media accounts on Facebook, Pinterest, Instagram or Twitter can further help you push your business across many demographics. Making a low-cost video and uploading it on YouTube can also help enhance your brand image. Provide some call to action in your advertisements or provide a direct link where your potential customers can send in their feedback or inquiries.
What Large Companies Can Learn From SMEs
Big companies start from the ground just like smaller companies. Once a company grows and expands into a multi-million dollar enterprise, there are things that they tend to stop doing so that they can focus on other things that large companies do. There are many benefits and advantages of having a big company and one of them is money at their disposal and a wider reaching brand awareness. Many large companies have been around for decades and have been accustomed to the traditional ways of doing business.
Given the right tools, know-how and market reach, Many SMEs can become serious competition to some large companies. If you’re a large company, surely you have heard that SMEs learn many things from their larger counterparts, from more efficient use of big data, to adoption of new technology, to new marketing trends. And many business experts believe that there’s a wealth of information that large companies can take from small and medium enterprises specifically when it comes to training. This is specific because there is a sense where SMEs get an easier way of training staff because teams are smaller and the managers typically have first-hand knowledge of the team’s performance, strengths and skills. However, SMEs will still face some constraints and have to work really hard if they want to keep the workforce at peak performance. There are things that large companies can learn from SMEs to gain a more personal touch in managing their employees and marketing their business.
1. Decrease Or Banish Meetings
Corporate meetings can last hours, usually you have to sit through 2 hours of tedium just to contribute for just a few minutes. It will go on badly if you say that you just be called for the bit that you were needed for. Your boss will be pissed and they will see you as a douche. Large companies tend to turn their people into nothing but meetings monkeys. Although some of it is really strategy meetings, some people end up liking to many meetings because they can deflect them and they can easily hide in it, but meetings seldom create any real value to the business. Instead of meetings, why not talk to the people directly. It’s faster, more agile and people will only seek out people that they really need. Many companies get too obsessed with processes they tend to forget in valuing attitude than experience. People have to talk to each other and meetings doesn’t make better teams as many business experts say. Holding meetings is just like forcing people to get along with each other at a party without any drinks or party food. Go on staff drinks instead and let the conversion and ideas flow.
2. Do Not Train People Unnecessarily
In small business with 10-15 people working together, training is done only when it is truly needed. People who are already competent aren’t given training just for the sake of it. It is only done when there is a clear business need. Big companies on the other hand, usually adopt a “sheep dip” approach where they train entire teams on a specific subject often without any need of it. They just waste money and time in the process. Why do big companies do this? It’s mostly based on a false concept of economising. They think it’s cheaper to pull out 2,500 employees and train them indiscriminately as compared to identifying 250 employees who really need the assistance and providing specific training for them.
Large corporations tend to mass market their brand and hoping that someone will truly catch their attention and engage. They will surely spend large amounts of money on elaborate marketing of different types without monitoring the cost of sale. SMEs on the other hand, tend to target a specific market, being flexible in their approach and are very systematic in their testing processes. They focus on who is likely to need their products and services. Because they are SMEs, they will strictly limit their budget and closely watch the return on investment.
4. Building Customer Relationships
Large enterprises usually go for surface managing their customers. Any organisation with direct company customers will take advantage of account managers who act as the middle or interface between the company and the customer – but these account managers will usually just spend their time up-selling. Many of them don’t take time to really understand their customers. Retailers on the other hand only offer customer assistance at the point of sale. Small and medium enterprises really work to get close and engage with their customers. Building a solid 1-1 relationship and creating a detailed understanding of the customer’s expectations, needs, issues and priorities. SMEs tend to build their products or services around their customers.
5. Know And Understand What Skills Are Important
This one is a big deal. An effective line manager in small company knows what they need for the employees and can also identify what skills are important. In a big company, HR heads are usually detached from the employees and don’t usually have intuitive knowledge about the employees. For this reason, it is very important for anyone in charge of training to make up for this by gathering as much data on skills and how it affects the employees and the business performance.
Once a company gets to a certain size, they seem to stop looking at what matters to everyone in the company: transparency. Clear and regular communication is a vital element to the success of any company. You have to make sure that your people know how the company is doing. Some SMEs schedule shutdowns twice a year to go through their strategy. Just think of this, people spend a lot of time at work and it is essential that they enjoy working and they know where they are going and how the company is doing. These things will motivate your employees. You can have events or go out socially with your employees. Make them feel important and they will surely reciprocate and value their work and the company. There may be sceptics will surely question taking the whole employees out for a time together but it can be done. For larger companies, shutting down the whole operation is really impractical. You can have fun activities instead within the company premises which can give motivation to employees.
SMEs and big companies may be different in size, but both need each other to survive. It’s a mutual relationship that can never be broken.