SME Consulting

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Common SME Business Problems
Three Key Principles

Look through the list of typical problems that occur in SME businesses. How many of these do you recognise about your own business?

Common SME business problems

a) Strategy

• Most small business owners work too hard in the day-to-day detail of their business.
• They work many long hours for not enough reward.
• They do not have a clear vision of what their business will look like when it is “complete”.
• They do not understand that to build capital value they must create a business that works without them.
• Many get frustrated with the long hours and give up a perfectly good idea and go back to being an employee.
• They do not have a plan to produce year-on-year consistent growth.
• They do not fully consider their personal objectives such as retirement dates, time with the family and hobbies.

b) Marketing

• Most small businesses take on customers that they later regret dealing with.
• They have too high a level of bad debt.
• Few know how to position themselves in the right market.
• Marketing is done on an “ad hoc” basis.
• They concentrate on the technical aspects of their product and service.
• They don’t focus on the reasons behind the customer “buy” decision.
• They don’t measure customer satisfaction in any great detail.
• They don’t really know who their most likely and profitable customers are.
• They have no system for monitoring marketing costs against customers won.

c) Finance

• Most small businesses rely on short term overdraft funding to support long-term growth.
• The result is over reliance on the bank when ‘overtrading’ occurs.
• They do not have a system for predicting forward their projected income and costs against actuals.
• They do not measure their business results in any useful way and focus only on debtors, creditors, the bank and their order book.
• They fail to adequately measure the key financial indicators in their business against any strategic plan with the result of not having structured growth.
• Internal management information systems are weak.

d) Management

• Many small businesses cannot produce consistent delivery of their product or service.
• Often small businesses focus not on systems but on ‘people’ which can cause problems when employees leave.
• People often keep the process of “how to do something” in their heads and not written down so that anyone following the system can do the task.
• Often people in small businesses become a “jack of all trades and master of none”.
• They do not understand that the most profitable businesses rely on systems with written down processes and scripts which average employees can easily follow.
• When something goes wrong people blame each other without realising that to eliminate inconsistent performance, a system is needed and not personal emotions or blame.

The bad news for SMEs is that it is a long list.

The good news is that Alpha Business Services and its Associates can help by providing solutions to these problems and many more.

Three Key Principles

There are three Key Principles adopted by successful businesses. These were first desribed in Michael Gerber’s book “The E-Myth Revisited” (Published by HarperCollins 1995 – ISBN 0-88730-728-0)

The principles of:

• Strategy
• Working on the business and not in it
• Systemisation

The Principle of Strategy

This is the owner’s dream for the future, what the business will be like when it is “complete”. This is often called the Strategic Objective. This is the owner’s business philosophy. It’s necessary to keep in mind the long-term dream for the business, the strategic objective, while at the same time managing the company on a day-to-day basis.

The Principle of Working On The Business and Not In It

Most businesses are started by people who are technically good at their work and therefore they think they understand how to run a business, but often they don’t. And that’s the reason most small businesses don’t last past their first year. The technical work of a business and running a business are two totally different things.

The business as a whole is the product, not the things or the services the business produces. If an owner concentrates on doing the technical work of the business, they don’t really have a business, they have a job.

The idea is to work on the business, not in it, and the basic approach is the franchise prototype. Successful business owners take the view that they are going to franchise the business and create the model for many more just like it. If a business owner thinks like they are going to franchise it, they will create a business that runs all on its own, without the business owner. Two things could happen. The business owner will be focused on creating a business, not just turning out a product or service, and they will have the freedom to work in the business or to be partly free from it.

The Principle of Systemisation

A business isn’t just a group of employees doing work. It is, or it should be, a business system that is operated by those employees. The systems do the work, and employees operate the systems. The business should be systems dependent, not employee dependent.

With no systems in place, the business depends on the owners and on a few employees who run things for them. If the owner or employees disappear, even for a short time, the business could be thrown into chaos. But if they are the right systems in place, the systems run the business and nearly all employees can run the systems.

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