Self-funded start-ups, family-owned companies, sole proprietorships, and digital-native entrepreneurships often share one trait – they are under-estimated and easily dismissed. This observation is not related to their financial solvency or net worth. It's about how they are perceived by their markets, consumers, suppliers, and vendors.
Small to mid-sized businesses (SMBs) are often mistakenly viewed as "insignificant" contenders, barely worth a second glace. This is a near-sighted mistake that can have severe repercussions for competitors - and huge advantages for SMBs.
Whether your company is on the offensive or defensive side of this face-off, US National Small Business Week, May 5-11, provides a good opportunity to look more closely at the unique advantages SMBs have in today's digital economy.
Defining the scale and scope
SMBs are defined by their number of employees and annual revenue. SMBs aren't always the 10-person mom-and-pop shop on the corner. Common definitions classify companies with as many as 999 employees and up to $1 billion in annual revenue as SMBs.
- In the US, 30.2 million companies qualify as SMBs, 99% of the total US businesses. They employ 58.9 million employees, 47.5% of US employees.
- The European Union uses the term Small-to-Mid-Sized Enterprises. There are 23.5 million SMEs in the EU, representing 99% of all European businesses. Nine out of 10 SMEs are actually micro enterprises with less than 10 employees.
- In Asia, SMBs are also important, but make up smaller proportions. They tend to account for slightly more than 50% of an ASEAN country's GDP, and up to 30% of its exports.
No matter the region, the allure of owning a business is often idealized, evoking images of being financially independent, enjoying flexible hours, and making a meaningful impact. Of course, it's not always that simple, but SMBs certainly play an important role in modern global commerce, often leading innovation and driving best practices.
What are the beneficial characteristics of SMBs?
SMBs have some important strengths that make them ideally suited for the digital era. Let's take a closer look at seven of those attributes, some cautions, and advice on how to optimize strengths.
The modest size of an SMB is one of its great strengths. Anyone who has been kept awake all night by a buzzing mosquito knows that an opponent doesn't have to be big to wreak havoc. The same is true in the business landscape. SMBs can be highly agile, nimble, and able to 'fly under the radar' as they challenge market leaders, attacking their vulnerable spots with one targeted product launch or campaign after another.
SMBs can release new products and offerings with rapid-fire speed. Without long approval processes and multiple layers of decision-makers, SMBs can easily pivot into new product directions or leap into new markets with speed and confidence, responding to consumer opinions and emerging trends. On the flip side, SMBs need to be vigilant to avoid knee-jerk reactions that skip due-diligence research. Jumping between many changing priorities can also be distracting and dilute the strategic focus of the company.
Advice – A balance between speed and smart decision-making is important. Investing in analytics software will help the idea people become data-grounded, leveraging predictive science, not whims.
SMBs tend to be creative problem-solvers with innovative ideas. Game-changing concepts are often the core of their businesses. Driven to transform an industry, product, or process, SMBs are often bold change-agents, unafraid to take on risks and test-pilot new endeavors. Recklessness, though, never has a place. SMB executives, loving the fast-track adrenaline rush, can sometimes over-indulge their exuberance for change. Change, without substance, can be unnecessarily disruptive.
Advice – SMBs may need to put some safeguards in place, like requiring two signatures on purchases over a certain level, to encourage thinking before leaping. Software solutions, like Product Lifecycle Management (PLM) solutions, also can help manage that creative energy and channel it into product development. These solutions step the R&D team through a controlled, practical process that includes compliance with any relevant regulations.
Customers tend to receive attentive care from SMBs. The customer-facing account managers or sales people may also be the chief executive officers, able to make top-level decisions to support a customer's needs. SMBs tend to intimately know their customers' pain points and decision-making influences.
This close relationship often leads to a symbiotic, partnership-like bond that is collaborative and long-term. This can give the SMB some stability, steady cashflow, and credibility with other potential customers. However, it's also possible to become too dependent on one customer, especially if the customer begins to make unrealistic demands that threaten profitability.
Advice – To help manage the relationship and overall account health, SMBs can turn to Customer Relationship Management (CRM) solutions. CRM software helps managers focus on building the relationship, while keeping an eye on profitability, next likely purchases, and long-term growth trajectories.
SMBs are often digitally native and comfortable with transformative technologies, like the Internet of Things (IoT), automation, and Artificial Intelligence (AI). SMBs often embrace ecommerce and use online tools to communicate with customers, collaborate, share data-driven facts, tell their sustainability stories, and support social causes relevant to their customer bases. Customers demand the same level of attention, convenience and value from their neighborhood businesses as they expect from the big-box retailers or online powerhouses. Perhaps even more.
Advice – To meet customer expectations, SMBs need to be digital masters. That means ecommerce that can suggest next likely purchases, highly personalized products, supply chain management solutions that can track and manage the network, warehouse management tools to stock the right products at the right place, and dynamic pricing science to stay relevant in today's fast-shifting economy.
SMBs tend to be growth-driven, eager to expand into new target markets and geographies. This entrepreneurial spirit naturally propels key stakeholders, whether family members or investment partners, into expansion mode, envisioning new opportunities in emerging markets and exploring options for mergers and acquisitions. Taking on too much, too soon, though, can be hazardous, creating cashflow complications and tangled regulation and compliance mandates to decipher. Expansion across borders can bring a multitude of international issues, from currency exchange rates and reporting mandates, to taxes and tariffs.
Advice – SMBs today can opt for software solutions that are highly scalable and can expand as their companies grow, adding employees, creating new divisions, or expanding into emerging markets. It's no longer necessary to 'rip-and-replace' ERP solutions when the company makes an acquisition or merges with another company. Highly flexible operating systems can help two different software solutions integrate, sharing data and creating a common version of the truth.
Stakeholders in SMBs work hard, often putting in long hours. But, as their companies grow, more personnel must be added. For SMBs, stretching the productivity of each employee is essential. Today's shortage of skilled workers adds to the stress, often forcing companies to 'make do' with labor resources that are less than optimal. Perhaps the company must hire workers with minimal skills and provide its own training. Or, the SMB may be unable to find qualified applicants and must consider outsourcing, automation, or turning to technology to ease the burden on existing employees.
Advice – SMBs should empower their workforces to make well-informed decisions that are proactive and aligned to their companies' strategic plans. Each employee should be able to work smarter, not harder, taking advantage of easy-to-use reporting tools, role-based workbenches and dashboards, knowledge bases, and prescribed workflows that push data to users, guiding them through best practices and smart, well-informed decision-making. Talent science-driven Human Capital Management (HCM) solutions can also help optimize the existing workforce, tracking certifications, current skills, career goals, and identifying well-suited opportunities for advancement.
One of the great strengths of SMBs is their frugal nature, conservative approach to investments, and conscientious use of resources. Fresh memories of the start-up phase when finances were lean may be one reason. SMBs also may be trying to lure investors or prepare for an Initial Public Offering (IPO). No matter the reason, SMBs often need to monitor cashflow closely, carefully timing investments. This can make purchasing a new ERP software solution challenging.
Advice – Fortunately for SMBs, cloud solutions, with a monthly subscription model, provide smart digital tools and end-to-end efficiency – without a large capital investment up front. This makes it easier for growing companies to step up their operational and financial processes, without over-stressing cash flow.
SMBs are ideally suited to thrive into today's fast-paced economy. Unlike large enterprises, with layers of decision-makers and rigid approval structures, SMBs can identify an opportunity and take swift steps to respond. Agility is just the beginning. SMBs exhibit many strengths, from being innovative to remaining frugal. These strengths, though, all can be stretched beyond limitations.
Fortunately, modern software technology will support the SMBs' natural strengths, enhancing their opportunities for growth. Software technology gives SMBs the data-driven insights they need to feel confident about their future, short-term and long-term.