Errors with SMEs in Manufacturing

Growing business is beyond the 10% year-on-year revenue growth and involves myriad of items. Most businesses start to monetize upon a livelihood opportunity but end up providing for many. Although family businesses run through generations, most do not make it much further. Since many such SMEs are struggling for growth and survival in today’s swiftly changing markets, let us understand the underlying situation leading to this condition.

The Past

Most SMEs go through volume based growth and add people as and when required for realising revenues. In absence of proper management practices, this results in disorderly growth.  Usually SMEs consist of few key managers close to the owners, who have intimate knowledge about operations and strategy. Whereas, the extended team is usually lower level but multi-functional staff who would assist them various day-to-day activities.

This absence of middle managers and workflow management leads to overlaps and redundancy, resulting in inefficiency and lack of visibility. Given the haphazard arrangement and multi-functional staff with non-standard job descriptions, it also becomes difficult to fill vacancies later. It may be fine for consulting firms as they are supposed to have parallel channels but is definitely bad for others.

Moreover, SMEs operate on tax avoidance and profit maximisation model rather than a growth oriented one. The companies have always been treated as cash cows to extract money, with little thought of retaining earnings for future investment. Although primarily this is done to avoid taxes and increase net worth of owners, win-win situation can be achieved through other methods as well.

The Present

Despite being built upon the values of elders, one has to understand that what brought you here will not take you there. Strategies that worked two decades ago, will not work today due to change in context. Hence, apart from the overall bureaucracy; the one within management should be resolved first by granting certain autonomy to the next generation that has better understanding of context.

In family run businesses the next generation is groomed over decades. But putting them in command of the ship before a role in the engine room is a questionable decision. Usually the first thing that the second generation picks-up is business development as they feel that getting new business is the only way to drive growth. Although it is a key aspect, it is not the only aspect, growth requires deep rooted changes across various verticals. One needs to understand management, technicalities and context to recognise the aspects that need to be addressed to drive growth.

Businesses are built by people and not by assets. Usually owners are the smartest people in the room as most SMEs work with tier 2 or lower talent pool. Neither they have formal training procedures to groom talent nor the resources to hire tier 1 talent. Also talent retention is a problem as they are unable to offer pay and facilities equivalent to MNCs. But this is only a chicken and egg dilemma as in any business, you pay people to make more money than what you paid.

Click here to read more about cultivating the culture of meritocracy in your organisation.

The Future

Let us first understand the difference between daydreaming and vision; the former talks about lofty unrealistic goals while the latter is realistic, quantifiable and has a plan. There are at least dozen food and clothing stores in any town that boast ‘since 19XX’ but only few expand to chains. Read our article on Entrepreneurship and Glass Ceilings to understand what stalls growth.

To plan for future growth, one has to understand the current situation and recognise factors that need addressal; such as depreciated assets, operational streamlining, talent acquisition, product definition, market exploration, financial planning, process improvement and others. Since companies do not usually retain earnings or increase capital over time, acquiring capital to finance growth drivers becomes a chicken-egg dilemma and entraps many in the perennial pursuit of mediocrity.

As an entrepreneur, one does not need to be a technical or business expert, but has to simply have a vision and be able to recognise key aspects that drive growth, develop strategies to address those aspects and manage the intellectual and financial resources required to implement the strategies.

Click here to understand how one can plan to grow their business. If you still have any concerns, feel free to book a consultation with our experts.

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