Ways to upscale your SME during a pandemic.
To rephrase Michael Douglas’s iconic line from Wall Street, “Growth is good.” Certainly, good for trees, absolutely good for children, very good for personal wealth, and especially good for SMEs.
Right off the bat, we need to define the differences between growing and upscaling a small to medium-sized business. Aren’t they the same? Well, not exactly. Generally, businesspeople look at growth linearly, such as when your company adds new technology, infrastructure, staff, or capital, resulting in increased revenues. Scaling should grow your revenues without much in the way of a significant resource increase.
The challenge of growing your SME is the substantial amount of costly resources needed to create and maintain constant growth. For example, if your small accounting firm brings in more clients, you’re going to need more number crunchers – and maybe more space – to serve those new clients effectively. Gaining new clients is only good when you can balance the increased revenues with the higher costs of achieving those revenues. The potential for losses should not be ignored.
On the other hand, scaling your business should increase your revenues without adding a major uptick in costs. Scaleupnation says, “A scale-up is an entrepreneurial venture that has achieved first revenues and now faces either the ‘second valley of death or exponential growth.”
COVID-19’S Deep Impact on SMEs
In 2021, small businesses comprised 98.1% of all employer businesses in Canada. They employed 9.7 million people or about two-thirds of the total labour force. Medium-size businesses employed 3.2 million individuals, more than one-fifth of the labour force, and large businesses employed only 14.8% of the labour force or 2.3 million individuals. SMEs are a powerful force in this country and they’re suffering.
A Statistics Canada survey reported that, for the fourth quarter of 2021, “Small businesses were more likely to expect a decrease in profitability and sales, and were less likely to expect demand for their goods and services to increase over the next three months, compared with larger businesses.”
Small businesses were less optimistic than most companies when looking at the subsequent twelve months, and they were more uncertain about their futures. In fact, more small businesses said they expect decreases in sales and profitability, along with some obstacles and financial hardships in the short term. In addition, they predicted they were more likely than their larger counterparts to face financial constraints.
COVID-19 restrictions forced many businesses to seek external financing just to survive. Fortunately, government programs provided SMEs with lifelines as the pandemic hindered their operations. Once those support programs end, businesses will need to re-evaluate how to move forward.
Those businesses not able or willing to take on more debt commonly reported a lack of confidence in future sales and cash flow.
Rebounding During and After the Pandemic
With the Covid-19 situation affecting small, medium-size, and large businesses around the world to varying degrees, growing or upscaling an SME may seem overly optimistic. Small businesses that managed to stay open are still facing difficult times dealing with restrictions, evolving customer needs, and dramatically transformed markets. Others have been forced out of business altogether.
When you consider rising inflation, a labour shortage, broken supply chains, and more, the Covid-19 situation seems quaint. In fact, the pandemic is only part of the problem. Sixty-five percent of SMEs have taken on more debt, while the Canadian Federation of Independent Business (CFIB) says that just 40% of SMEs have returned to their usual revenues. Meanwhile, only 27% are reporting a full recovery.
Dan Kelly, CFIB President and CEO, says, “Most of our members are telling us they have not had a normal month of sales in over two years... When you look at the sectors that were most deeply affected, retail, hospitality, the service sector, arts and entertainment, these businesses, which of course are a huge chunk of the small business community, are still super far from normal.”
What's the Plan?
Well, we could tell you to think positive, but we understand that may be difficult given today’s challenges, which may worsen with a presumed recession on the horizon.
However, there are some positive ideas to consider for your SME:
DIGITIZATION: Paper has been out for a long time, but some SMEs hold on. It’s not an efficient, nor effective way to work. Also, embracing the cloud and remote work, where and when possible, can be hugely beneficial to lower costs and increase productivity.
SYSTEMS: Powering your business with systems is the smart way to handle multi-layered expansion. A good CRM or reliable eCommerce software will let you focus on growth. Outsourcing or automating means you can focus on growing your SME.
MARKETING: After the pandemic, recovery will be slow without investing in marketing. Fewer SMEs are investing, so putting your money where your mouth, email, social networks, and websites are, can mean you face less competition from them.
NETWORKING: Strength in numbers. It’s time for SMEs to work together and turn a bleak situation into opportunities. Nearly every SME is dealing with the same challenges as yours. Get creative by working with complementary businesses and reap mutual benefits.
SKILLS: Make sure your employees are delivering the productivity you need. Give them improved skills, efficient equipment, and leading technologies to help them do their work.
UPSCALE: Don’t be tempted to choose fast or cheap solutions just for growth. Remember, upscaling should not require a major investment as a growth strategy. Diving into a maze of inefficient systems only seems economical until you see the real costs.
FLEXIBILITY: This is an unusual, unprecedented, and unforeseen time for SMEs. Be guided by customer demands and expectations and change your approach.
Now's the Time for Audacity
Of course, Michael Douglas’s Wall Street character, Gordon Gecko, was a ruthless crook who embraced greed instead of growth. His success was short-lived precisely because of that.
During the pandemic and in a post-pandemic world, the onus for SMEs across Canada will be to move forward bravely, cautiously, and intelligently by redefining and maybe even reinventing what their business is now and what it will be in the future.
There’s no instant, one-size-fits-all solution. The more you do with technology, investment, strategy, marketing, employees, and more, the better it will be for your business. Growing or upscaling your SME in 2023 will be a work in progress. Outmaneuvering your competitors and outlasting the challenges beyond your control require a sharp focus and an even sharper vision. Be bold. Be smart. Be successful.