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SME Stalemate - What to do when growth stops?

Oct 11, 2024

4 min read

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After a few years of operation, most small to medium enterprises (SMEs) face the challenge of growth stalemate. At the outset, business owners typically possess a deep understanding of the industry and markets they will enter as well as what will be required to grow. In those first critical years, a well-planned business usually experiences expected growth as new products and services are introduced to their marketplace. Identifying growth stagnation early on is crucial, especially as a company reaches its "mid-life crisis" phase at approximately 5 to 7 years.


The U.S. Department of Labor statistics tells us that about 20% of new SMEs fail within the first year, half survive the first five years, and about 33% make it to year ten. In my experience, there are usually three growth phases for all businesses regardless of size or geography. I have been fortunate to work for global companies that have successfully managed these phases and equally fortunate to work for one or two that have not.


  1. Expected Growth Phase - Through hard work, networking, advertising, and planning, the business is achieving the revenue goals it was built for. This usually occurs in the first few years of a well-planned, new business. In short, the business and its products or services are delivering good results and reliable revenue, just as planned. Overhead and expenses are still light, and the capital that nearly all SME business owners have invested in the business is returning well. "The business is doing well. We've finally begun turning a good profit. We can breathe a little easier."


  2. Demand-Centered Growth Phase - Although the business is still small, demand for your products or services has been increasing over the first three to five years. More customers want what you have and meeting that demand typically involves making additional minor adjustments to the original plan to accommodate this new demand.


    An updated process here, a new system there, an additional salesperson, additional inventory on the shelves. These adjustments usually offer the company a positive bump in results and appear to be sustainable. Owners in this phase of growth often state "We're in growth mode. A great problem to have. We've made a few investments in people and systems and those changes are paying off."

    The tweaking of the business plan in this phase typically delivers the desired bump in revenue once or twice over a two to three year period. This is a dangerous trend for most companies regardless of size.


  3. The third and (hopefully) final phase of growth usually occurs at or around year five. This phase of growth is what I have tagged as the Sustainable Growth Phase. I stated that this is hopefully the final phase for the SME as it is at this time that an SME is most vulnerable.


    In this critical phase, where SME Stalemate typically occurs, good SME owners rightfully apply the time-tested and true best practices that delivered in the past (Phases 1 and 2). The memory of past, growing revenue numbers or market share gains reinforces this logic. When still greater results are not achieved, past efforts at change are often repeated with similar diminishing results. Consistently and with the best of intentions owners in this phase of growth often drive their cost line up, straining systems, people, and processes while unknowingly deepening the stalemate. It is usually in this phase that customers and partners begin to complain about erosion in customer service or product quality. After a year or two in this phase, sustained growth remains elusive. SME owners often find themselves living in the false certainty that something has gone terribly wrong.


    This is a perplexing, frustrating, and detrimental period for any small business. 67% of small and medium enterprise owners who have been in business for five or more years decide to give up the fight, divesting their ownership in the company or selling it completely. This is the phase that separates the companies with a long lifespan from those that are destined to have a shorter run.



Unwinding known past best practices and strategies, adjusting to unforeseen market shifts or competition, or installing new processes can prove nearly impossible for a small business owner that splits their time between being the top salesperson and the CEO. The difficult truth for SME owners is that finding the precise reason(s) for the stalemate is often a very difficult endeavor. If found, a small organization may lack the resource or expertise to develop and drive an effective and lasting strategy. False "solutions" are to be expected.


Factually speaking, most SMEs do not plan for a world in which they will outgrow their initial investments, established best practices, systems, and skillsets. In the early days of business formation, most small company owners are rightfully consumed with the necessity of making enough money to survive, let alone considering the impact of exponential growth within 5 years. This "great problem to have at a later date" is often the problem that kills most SMEs over time.


As it outgrows its small business stature and evolves into a medium business, an owner is often faced with the task of navigating the revenue, operating, and profitability crisis rather than taking an active part in the daily business. This is usually not a role that he or she prefers over being in front of customers. A consulting firm with extensive, real-life experience of various business sizes and markets is highly recommended for all SMEs, irrespective of their growth stage. Employing a tenured consultants that has worked in industry brings the understanding that beginning with the end in mind is critical to early and mid-term planning for sustained success. Strategies exist for companies that find themselves either facing or fully-stuck in the stalemate. It is avoidable.


At O.S.Hill Consultants, we offer thorough and effective growth strategies tailored for the success of small and medium-sized enterprises at every stage of development. Delivering a blend of established methods, innovative concepts, and a forward-thinking mindset, we work closely with you and your team to align and grow your capabilities for the lifespan of your business. Our commitment lies in maintaining the entrepreneurial spirit of your business while crafting enduring and sustainable market strategies.


We provide exceptional outcomes at an appropriate investment level, delivering world-class results with exceptional value. Please visit our booking section to schedule your complimentary 60-minute consultation with one of our seasoned consultants.


Oct 11, 2024

4 min read

1

33

0

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