In a series of three weekly blogs, David Smith of DVL Smith and Excellence Tools looks at the challenging issue of helping UK SMEs succeed in an increasingly competitive market place. In the first blog, we look at the challenges many SMEs face in getting underway and surviving that critical first year. In the second blog, we look at the needs of varying categories of SME and stress the importance of tailoring the support provided to particular types of SME. In the third blog, we look at DVL Smith/Excellence Tools’ overall approach to helping SMEs operate in a high-performance way.
Helping SMEs get started
In this opening blog, we look at the importance of the SME sector to the UK economy, review the wide ranging variations in the needs of SMEs and examine the journey that SMEs need to negotiate if they are to be successful.
SMEs are the engine room of the UK economy
There is no doubt that SMEs are the engine room for the British Economy. There are around 5 million SMEs in the UK. SMEs are defined as businesses as employing up to 250 employees. Amazingly, there are only 12,000 in the UK who employ more than 250 employees. So, SMEs make up the lion’s share of all businesses. However, few SMEs – only around 10% - have a turnover of £1+ million and only around 4% employ more than 10 employees.
So, many SMEs are small, and the alarming news is that only around 40% make it to the end of year four. However, not withstanding the fragility and challenges of setting up an SME, it remains an avenue that many individuals wish to pursue. It was predicted that, in 2018, there would be 600,000 new business start-ups in the UK – a record high. In addition, with the arrival of the GIG economy and contract working, we can expect more individuals to be operating effectively as an business.
Casting forward, we will be seeing more people than ever either running their own business or having to manage their own brand as an individual freelancer, offering their work on a short-term contract or on a project-by-project basis. So, it becomes vital that we, as a country, are providing support to this critically important SME (and GIG economy) sector.
Tailoring support to the varying needs of SMEs
In this series of blogs, we look at ways that we can help ensure that as many SMEs as possible succeed rather than fail. A start point for this is ensuring that the support that is provided for SMEs is tailored to their needs rather than being rather generic. Over the years, one limitation of the way government has provided support to SMEs is the way it tends to think of SMEs as as homogenous job-lot, rather than understanding the massively different needs of, for example, a local hairdresser, as opposed to an agri-science start up or a design agency, and so on. And there is a big difference between a novice start-up business and a strategic serial entrepreneur, who is experienced in setting up and selling one business, then moving on to the next. Similarly, there is a big difference between a start-up that has been created by experienced ex-corporate employees using venture capital money, as opposed to a family business who are trying to fund the business out of personal funds and cash flow. Similarly, there are also massive variations between those whose business gravitates around technical skills, as opposed to those who who are less focused on the product per se, and more on the marketing and techniques to win more customers.
To be fair, government has begun to recognise the quite distinct differences in the SME sector by seeing need to cater to business start-ups, micro-businesses, small businesses and medium-sized businesses. In addition, government is recognising the difference between gazelles – fast-growing SMEs with specular year-on-year growth – and other businesses.
However, on balance, it is still fair to say that the support provided for SMEs tends to be generic and is largely provided at a hygiene level. Thus, support tends to focus on issues such as how to set up a particular business structure, how to obtain finance, or how to organise cyber security for the computer systems, and so on. Clearly, all of these issues are important. But the experience of DVL Smith/Excellence Tools - having worked extensively with small businesses – tells us that what SMEs most need to succeed is support to help them through the emotional journey of setting up and running a successful SME. This is why at DVL Smith/Excellence Tools, we have drawn on our understanding the emotional needs of SMEs in creating our online programme to help SMEs succeed.
Recognising that running an SME is an emotional journey
We do wonder how many civil servants working in government departments and bank managers and alike really understand those critical emotional trigger points in the SME journey. Can they really get their heads around that initial scary decision to give up a job and go it alone? Do they fully grasp that, during the early stages of the SME journey, there is not a differentiation between personal money and company money? It is all about cashflow and using whatever funds are available. And do advisors operating from the security of the public sector and/or a well-resourced corporate really understand that momentous first decision to employ someone, pay out a salary and setup the supporting pensions structure? And there is that big decision on whether to take on a long-term business lease. Then as the journey continues, it is about making that critical decision to appoint someone, who is not necessarily a family member, to look after the company finances. And, as the business expands, there is the issue of whether to give away equity to employees in order to retain their loyalty and involvement in the business.
In sum, our view is that in providing support for SMEs, it is vital to be able to empathise with the SME business owner – be able to appreciate the emotional roller-coaster they are on in setting up and growing a small business. At DVL Smith/Excellence Tools we have been on this journey. We know what it is to progress through the different stages we have outlined. In providing support for SMEs, DVL Smith/Excellence Tools does understand the emotions and tensions associated with setting up a business.
In the next blog we share what we have learnt about building a successful business. Specifically, we look at how business owners need to think about their business – the business focus, business mindset, and business capabilities they need in order to make their small business a success.
If you would like more information about our Excellence Tools Programme - A Success Blueprint - Seven Excellence Tools for Small Businesses - visit our Programme page. Visit dvlsmith.com for more about DVL Smith.
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