The bad habits of SMEs – what to avoid

At my son’s new school there’s a sign on the wall: “making mistakes is great, because we learn from them.”

What applies to a four-year-old in reception class works just as well for business – you can’t innovate or grow without making some mistakes along the way. But when those mistakes become ingrained habits, they become hard to change. Whether you are in practice or industry, much can be learnt from considering the errors that some SMEs often make. And if you think you might be guilty of some of these, what can you do about them?

Malcolm McDonald is Emeritus Professor at Cranfield University School of Management. He has consulted at senior level on five continents and has written over 40 books on strategic marketing planning and accountability. I spoke to him about the key mistakes SMEs make and here are his top bugbears.

Focusing on short-term tactics

The role of the accountant is changing from scorekeeper to business advisor. Whilst accountants have always had an eye on the long-term prosperity of the business, it can be easy to slip into short-termism, particularly if it makes cash flow look robust. “Doing the wrong thing efficiently is the height of foolishness and inevitably leads to disaster,” says McDonald.

“Get your strategy right – i.e. what you will sell, to whom and why they should choose you rather than a similar competitor. Set a long-term goal and be clear what resources you need to put in place to reach this goal.”

Everyone knows that a long-term strategy is more important that short-term tactics; but a sense-check every now and then is invaluable.

Trying to delight all of your customers all of the time

“All this leads to is average service for everyone. Carefully select the customers and segments who offer you the best chance for you to grow your sales and profits, then delight these customers.”

All clients are different. It’s a myth to think that all customers are of equal value – as the business grows, be confident in focusing your energies on higher-value customers and do not feel (unless you particularly want to) that you have to keep all your clients if the relationship is not working out for both of you.

Not keeping an eye on the competition

Why should customers come to you, and not someone else – particularly in a less-differentiated industry like accountancy? The service aspects of your business are what make the difference between you and your rivals.

Emphasise these but always watch what’s happening around you – “particularly as a result of advances in technology,” McDonald adds. Management guru Peter Drucker said, “if you are doing today what you did yesterday, you will not be in business tomorrow,” and this advice is still sound today.

Failing to quantify financially the value propositions for key segments and customers

“Customers are not interested in you. They are only interested in what you can do to help them grow their profits.” This means creating advantage for them, not merely helping them avoid disadvantage. The components of a value proposition are:

  • Added value
  • Cost avoidance
  • Cost reduction.

“These are all quantifiable financially,” McDonald says.

Creating a digital strategy that’s separate to the overall plan

Think about how you integrate your digital presence with the rest of the business. “Only when you have a deep understanding of how your market works, who the decision makers are, what their needs are and how they actually behave can you consider the role that digital channels should play in communicating with them,” McDonald argues. In other words, “do not develop a digital strategy without a robust market strategy.”

Misunderstanding how profits are made

Accountants recognise that their time is money, in ways that many product-oriented organisations do not. “Most companies measure only product profitability, whereas it is usually the cost of serving customers after the product has left the ‘factory’ that defines profitability,” McDonald says. “So measure both product profitability and customer profitability.” Applying this to professional services means recognising that some customers are more valuable than others.

Not taking the wider view

Finally, consider the business in the round – not just from the point of view of the accounts department. If you’re in industry, get away from the desk and talk to other departments to see the broader strategic goals of the business. If you’re in practice, talk to clients about their needs, wants and goals – it may present a very different picture to what you’re expecting.

Mark Blayney Stuart is Business Journalist of the Year, Wales Media Awards 2017 and Former Head of Research at the Chartered Institute of Marketing.

Comments

Related articles