3 Foundation Essentials to a Commercially Successful SME
3 Foundation Essentials to a Commercially Successful SME
A family-owned dairy distributor, founded in 1985 had held market dominance since it began, until 2017 when everything changed. The the local milk production company closed the factory and stop producing the local brand. The distributor’s whole world crumbed overnight.
Having had the advantage of a superior local product, this small business did not have the business systems, the people capability or the knowledge to compete in a hyper-competitive market. Unfortunately, this is an all-too-common story in the SME world, in different industries everywhere.
Many businesses are characterised by a period of high-growth where things seem effortless, customers are plentiful, but without forethought, these businesses hit a ceiling, and are unable to scale in any sustainable way. That’s why the key to SME success relies on having 3 firm foundations in place.
1. Get Financially Literate
Financial reporting, modelling and budgeting are activities that many small business owners struggle with – or even avoid. Many see these processes as a waste of time because they are based on assumptions. While for others, interpreting the numbers in a business context can be challenging.
The reality is that numbers are the language of successful businesses. You must know what your numbers are telling you.
By undertaking a robust budgeting process, you will better understand the opportunity cost of deliberately allocating resources to one area of the business at the expense of another. It is a discipline that forces you to decide how you will or will not compete, choose what competitive advantages you will invest in and consider how the market may react.
Considering direct costs, variable costs, overheads and capital expenditure in light of anticipated revenue enables you to explore what-if scenarios. In doing so, you can better understand the potential impacts of decision making.
2. Capture all Knowledge
Record and transfer all knowledge currently in your head. Traditionally, this would have been mapped out into an operation manual, training program, or anything that takes what you know and puts it in a form others can follow. In the modern era, there is an endless stream of software applications and videos that make this possible.
Over time you will create a templated process for capturing the information you know and disseminating it to the team. If you find there is still a significant gap between what you know and the capability of the company to execute it without you, this may indicate a skill gap you need to either recruit or train for.
Once you have your information-recording system humming, it’s time to get your team involved and have them capture the information that is in their heads. Over time, this process of systemising a business creates performance consistency. Not only that, if you’re looking to sell, scale or replicate your business in the future, you will have created real value in your business model.
3. Define what’s Important
For many business owners, taking the time to stop and reflect rather than motor on at a hundred miles per hour is uncomfortable because it requires self-reflection to dive into what is truly important. Who has time to waste doing this when there are so many more important tasks to do in the day to day?
Yet you need to know what is truly important to you, what your values are so that you can prioritise business actions accordingly.
In Traction by Gino Wickman, he suggests that to define our values in a business context, we should think of three people who, if we cloned them, would lead to market domination. What are their characteristics? What do you most admire about them? What is it about them that would lead to market domination?
Identify your take your top five scoring words and draft a sentence that explains what that word means to your organisation and why it is important. Sometimes it’s valuable to do this exercise with your team to get buy-in and encourage behaviours that align with the values.
Celebrating behaviours that align with the organisational values and managing behaviours that do not, allows you, as the owner, to set the standards. Standards that will facilitate accountability as the business transitions to a more disciplined and accountable structure.
Like the concrete slab of a house on which all else is built upon, these 3 foundations are the bedrock on which your business can be built and will weather any storm or market disruption.
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