some thoughts on SMEs

Small, medium – or enterprising?

Support for SMEs has been high on the political agenda in most developed countries over the last 20 years. This interest has been based on three prime assumptions:

  1. SMEs are engines of growth in the economy, contributing dynamism and innovation, job creation (or loss), and a basis for rapid growth and potential globalisation in niche markets.
  2. An active SME culture marks the end of the central planning era, and secures the social basis for a competitive market economy by extending ownership rights and entrepreneurial values to a larger proportion of the population.
  3. Small companies grow into bigger companies in some sort of linear pattern (even though almost all recent research suggests this is not the case).

But what is an SME?

SMEs tend to be treated as if they were all the same, with the same aspirations. Most definitions depend on simple measures of size – but these vary significantly across different agencies!

Many development agencies define enterprises by numbers of employees (e.g., small = less than 50, medium = 50-500, etc.). In the UK, government statistics on manufacturing also use employee numbers, but different ones (small = less than 100, medium = 100-1500). The EU uses a mix of employee numbers, financial scale, and independence to distinguish between SMEs, small firms, and micro firms.

Does size matter?

If you want to get significant market share in global markets, there is no doubt that size is important. But if you are aiming at niche markets, all my experience with smaller companies tells me that size is not the major factor.

All SMEs are not the same – and it is not just a question of picking winners or losers. They develop in different ways, and successful companies come in all sorts of shapes and sizes. There is no “right stuff” – no single formula for success. Trouble is, there is too much money to be made by peddling simple miracle cures.

Conventional approaches by support agencies are almost always modelled on best practice in big, complex organisations, but these are not always appropriate in small businesses, particularly at critical stages of their growth.

Indeed, in some circumstances, persuading companies to pay undue attention to their internal processes may divert managers’ attention from the key external issues facing their firm.

Change the change agents

When it comes to SMEs, too many change agents fall into the if only… category (“If only small firms would produce a proper business plan…” – “If only they would appoint a marketing manager…” – “If only they would commit to Investors in People…” – “If only they would go on training courses…” – “If only they would approach IT as an investment…” – “If only they had an e-commerce strategy…”

If only… change agents should carry a government health warning! They can seriously damage your economic health. You probably don’t need some big company’s latest quick fix or fad of the month. The real issue is to be clear about where you are, and where exactly you want to go. How you get from A to B will depend on your own unique blend of organisational characteristics.