SMB growth | The common pitfalls when managing a SMB or start-up and how to overcome them

Prodware recently attended the Northern Business Exhibition to hear from both established business owners and local start-up companies in a series of seminars. A key running theme throughout the event was the struggles of successfully managing a start-up business and driving SMB growth. For small to medium size businesses (SMB), the likelihood of success can often seem daunting, with over 50% of small businesses deteriorating within their first five years. Common struggles highlighted included a lack of management experience, poor cash flow, limited revenue growth and staffing requirements. Let’s look at some of these issues and how to avoid common pitfalls in more detail.

Lack of management experience – the dangers of failing to delegate

Effective management and leadership skills are vital to business success. A lack of either can lead to misunderstanding and conflict, poor employee morale and stifled productivity. SMB owners can sometimes be their own worst enemies by failing to delegate. If you have recruited in order to fill a skill gap it is counterproductive to believe you must do everything yourself, not only does this take you away from strategically leading the business, it slows down business growth. Empower your employees with the right tools to make decisions and empower productivity, and make it a priority to acquire the skills needed to strengthen areas where you know you are weak.

Cash flow – avoid mismanaging suppliers and customers

Poor cash flow remains one of the main hurdles to SMB growth. Cash flow issues are typically caused by late payment of invoices and this is certainly something that is avoidable. Measures include being stringent and upfront about payment terms for customers and suppliers and using ERP tools such as Microsoft Dynamics 365 which can provide insight into overdue invoices and what action to take to reduce risk of non-payment.

UK SMBs that frequently credit check their customers are approximately 30% less likely to experience business failure in their first 12 months than businesses which don’t credit check. As a new business it is more important than ever to profile your customers to determine which customers are most profitable, who is likely to be open to cross-sell and up-sell opportunities and which relationships you want to nurture, applications such as Microsoft Dynamics 365 for Sales are able to do the leg-work for you.

Limited revenue growth can hamper SMB growth

After an initial focus on generating new business there will undoubtedly become a time in most start-ups where the revenue growth begins to level off. This can be for several reasons, including new competitors entering the market, an outdated business plan and marketing strategy, and as we mentioned previously, failing to delegate. Whilst there are several steps you can take to increase revenue growth in a survey conducted by Deloitte, 79% of “relatively mature” companies surveyed believe that cloud technology enables access to new markets and revenue streams. Reasons highlighted for adopting cloud technology including remote working / mobile capabilities, reducing operating costs, and increasing collaboration. The survey also found that SMBs using cloud technology to overcome their growth challenges grow 26% faster and deliver 21% higher gross profits.

Underestimating the value of competitor profiling

A final reason worth highlighting for why companies go out of business is underestimating the competition. Even if you have a great business model, sufficient funds to operate and the necessary management skills to be successful, you will still face many competitors within your market. To increase your chance of success, conduct a competitive analysis as part of your overall market analysis. Assess your competitor’s strengths and weaknesses and implement strategies to improve your competitive advantage.

According to the State of Small Business Report 55% of small businesses do not track assets or use a manual process, and 43% of small businesses do not track their inventory or use a manual process -adding to the likelihood of business failure. This is shocking given that there are considerable benefits for SMBs who invest in technology such as identifying your most profitable customers, managing and qualifying leads and opportunities, reducing follow-up times and lead scoring. For more information regarding how your SMBs or start-up can benefit from technology such as Microsoft Dynamics 365, contact Prodware.