So, how does an SME capitalise on its strengths and challenge its larger, and often more established, competitors?
First a business needs to be absolutely clear about its competitive advantage. What does it do really well compared to its peers; and can that offering be expanded into new markets?
Hampshire based Formaplex, a tooling manufacturer for Formula 1 teams, is a great example of a business that has recognised its strengths and used them to target new markets. Dunedin backed the company’s ability to service Formula 1 teams, but it soon became apparent that its core capabilities – quick turnaround, product innovation, high spec machine tool expertise – were also attractive to low volume, high value car brands, such as Aston Martin, Bentley and McLaren. Formaplex’s journey highlights how an SME can have a tangible advantage over the big guys, namely the speed at which they can innovate, recognise customer need and adapt to those demands.
Innovation often has a price tag, but it need not be prohibitive for smaller businesses. Innovation can be as simple as applying expertise and strengths to a similar but new marketplace or geography and it may not require huge upfront investment in equipment or people.
SMEs are often closer to their customers. They can develop a stronger relationship with customers compared to their large, monolithic competitors, which may have become detached over time. SMEs can take advantage of this intimate customer knowledge to improve their existing products or services, as well as develop new ones.
Growth – especially the kind of high growth that private equity facilitates – is not without its challenges. Management teams can quickly become stretched, pulled in many different directions by the increasing demands of the expanding business. If you want rapid growth, recruit a team that is overqualified for today’s immediate need so that you can fully exploit the opportunities that await tomorrow.
A fast growing SME needs to plan ahead. Invest in training and staff development. Sure, not all members of the team will want to make the journey that you’re on if you are really trying to scale and grow. But it is important to retain and motivate the people that are core to the business.
There will be bumps on the road but a good chief executive will win the confidence of the team through good communication.
The right mind-set is crucial and is typically driven by the leader of the business, who ideally exudes confidence, ambition, energy and drive; and, importantly is able to delegate and trust his or her team. But it’s not just about the chief executive. The wider team is also critical to ensuring that other important functions such as sales, marketing and finance can evolve in support of a larger business.
Fast growth requires investment, not just at the outset of the journey but at key junctures along the way as a business plan is executed. Debt finance is inappropriate for many high-growth business. Yes, you can borrow £20m to build a new factory or make an acquisition and, if you can afford to pay the fixed repayments over a defined period, your bank will leave you alone. But many businesses in growth mode are not in a position to meet an inflexible repayment schedule.
If you would like to talk about how any of these issues relate to your business then please get in touch – firstname.lastname@example.org