Knowledge is power for SMEs

Ten tips to help small companies retain their successful entrepreneurial spirit – while at the same time taking on the bigger beasts of business

Some businesses are content to stay small. Many are so-called lifestyle enterprises, where the proprietors have made a conscious decision to stay small in the interests of work/life balance, but most – aware that in the current business climate it is impossible to stand still – are intent on becoming bigger. The obstacle they face is to retain that entrepreneurial spirit while becoming large enough to take on the bigger beasts. Here are a few tips to help them succeed.

1. Stay entrepreneurial but get some discipline

Identify the entrepreneurs – typically they account for only a tenth of any management group – and help them to do what they do best. Andrew Newland, chief executive of ANGLE, a company that sets up technology businesses by commercialising intellectual property discovered by researchers in universities and elsewhere, uses ANGLE to provide a central system that organises human resources, payroll and other administrative roles, and allows the teams in the businesses to concentrate on “the key development actions for the business”. That way the entrepreneurial spirit is protected from bureaucracy, he says.

2. Promote communication

It’s all very well an entrepreneur being creative and flexible, but if he or she cannot communicate this to the staff, the business will suffer. When businesses start to get bigger it is harder for the managers to communicate with colleagues. Entrepreneurs talk of the critical point when they no longer know the names of everybody in the business or when the managers no longer all fit in the same room. The result is that it can be difficult to maintain the focus that was responsible for the company’s initial success. In an effort to encourage this sort of communication, many creative businesses have in-house coffee bars and lounging areas, in the hope that people will chat and trade ideas.

3. Make proper use of technology

The internet has made it much easier for start-up businesses to reach their market. On the internet, everybody is the same size. This is not strictly true because it is often still possible to get some idea of a company’s size from its website, but it is correct in the sense that the internet enables small businesses to obtain the sort of national and global reach that would have been impossible just a few years ago.

4. Make sure that technology grows with the business

The sort of computing power that was once only affordable to the largest companies is now available to smaller businesses. Until recently, smaller companies were largely served in this area by other small businesses that took the technology offered by the largest providers and scaled it down. Now, the largest providers are targeting the growing business market. Generally small businesses are wary of spending too much on information technology. This can lead to them adopting limited solutions that can actually impede the growth of the business. For example, a business may install a payroll system because it wants to deal with the complications of tax. But if it later wants to introduce a system for handling employee benefits it may find that it has trouble linking the two. Taking a modular approach, so that it adds different aspects of the same system as it needs them, could be a better approach.

5. Manage customers – and systems

One of the clearest examples of needing to take a more holistic approach to technology is customer relationship management (CRM). Recently, many businesses have invested in CRM systems without getting any real benefit. This is because the systems might be effective at giving sales teams information about customers, but they do not always link that data to the rest of the business. Consequently, the marketing department might have one set of data and the production another set, with the result that there is no real connection between supply and demand. The trick is to be able to obtain all the data through one system or different systems that are linked by technology known as “middleware”, so that managers have a timely and accurate picture of what is happening in the business.

6. Get proper protection

Businesses need to realise that, in an increasingly sophisticated world, just having firewalls and anti-virus software is not enough. When investing in technology they need to look just as closely at the security aspects as the benefits. They need to think of threats from within as much as those from outside the business.

7. Be smart about money

Another factor that has levelled the playing field between small businesses and larger ones is access to capital. Competition from new entrants has led high street banks to re-examine their attitudes to small businesses, while the establishment of specialist funds and the arrivals of a breed of investor prepared to take a chance on start-ups has meant that finance is more available than it used to be. The issue now is for those running small and growing businesses to decide which sort of approach they want to take to funding their business dreams. On a basic level, they can decide between debt, whereby they typically borrow from the bank, and equity, whereby they give away a stake in the business in return for an investment in the business.

8. Focus on strengths and outsource the rest

One of the great benefits of being a small business is that the proprietor can concentrate on a small niche in the market and seek to gain an advantage over larger rivals by offering superior customer service or a very specialist product or service. The problems start to come as the business starts to get bigger and the proprietor becomes distracted by the more bureaucratic aspects of being in business. Many entrepreneurs deal with this by appointing a management team to run the business leaving them free to deal with key customers and win new business – in other words to focus on what got the business going in the first place. This is effectively outsourcing the running of the business to an internal team. Thanks to the internet, small businesses can outsource to somebody who is likely to be much better at it than they are. Though they should be aware of outsourcing something that is central to what they do, this can be both cost-effective and successful in keeping management focused.

9. Keep up to date on regulation

Small businesses habitually complain about the amount of regulation with which they have to deal, particularly in relation to health and safety, and employment. Again, thanks to the internet, much of the worry can be eliminated by handing over responsibility to specialist providers.

10. Have a “tolerance for ambiguity”

In the end, entrepreneurs thrive by living on their wits. “A tolerance for ambiguity” is a phrase that Doug Richard, the serial entrepreneur behind the investment research company Library House, uses to describe a readiness to live in a chaotic world. It involves having a general plan about where the business wants to go but being prepared to seize opportunities as they arise. This attitude, allied with an ability to act quickly and a readiness to work harder than the competition, is probably what distinguishes the successful entrepreneur from the person with a good idea.