How SME business can stand out and succeed - Business Works
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How SME business can stand out and succeed

by Dave Smithson, UK Head of SMEs, Mazars Our just-released study provides analysis, insights, lessons learnt and guidance to SMEs across the globe. It also highlights the similarities and differences of SME performance in Germany, Sweden, Netherlands, Portugal, Spain, France, Ireland and the UK, says Dave Smithson, UK head of SMEs at Mazars.

The SME sector has, over the last few years, experienced the most severe economic crisis in living memory. Some SMEs have emerged from this downturn more resilient and stronger than ever before. Others, however, were forced to downsize or close down as a result of the downturn.

There is no doubt that SMEs are, and will always be, the backbone of every economy in Europe, as they consistently generate substantial income, employment, outputs, innovation and new technologies. However, since a European SME is one of almost 21 million, it can be hard to be seen and to really stand out. Today's SMEs will therefore need to review the six success factors we have identified very carefully, identify the key priorities for their business and then put a strategic action plan in place to ensure that they are able to stand out from the crowd.

SMEs are defined as micro, small and medium enterprises with up to 250 employees. The main factors determining whether a company is an SME and whether it is a micro, small or medium SME are number of employees and either turnover or balance sheet total.

SME type     % total     Employees AND ( Turnover OR  Balance sheet total )
Micro 92.1% < 10 < € 2 m < € 2 m
Small 6.6% < 50 < € 10 m < € 10 m
Medium 1.1% < 250 < € 50 m < € 43 m
Large 0.2% > 250 > € 50 m > € 43 m

According to Eurostat, in 2013, the SME segment represents 99.8% of the total population of enterprises in Europe. This segment employs 87 million workers and generates €3.4 trillion in value added to the economy. Thus the SME segment employs two thirds of the total workforce and generates approximately 58% of total gross value added1 within the non-financial business economy.

3-speed Europe for SMEs

The strength of national economies and the quality of domestic demand has obviously been a key determinant of SME performance. Some countries had strong and sustainable national economies and solid buffers on entering the crisis, while others were in relative terms very exposed. The strength of the national economy and the ability of national governments to take countermeasures were of particular importance for SMEs, who in general are more heavily reliant on national domestic demand. This has resulted in a 'three-speed Europe'

The study has identified six success factors to help SMEs reach the bar of superior performance and stand out from the crowd:

  • Maintain a sharp focus on the market
    Where and how you position your company in the wider market should never be regarded as fixed, it is always changing. It requires constant market information and the time and attention of management to identify the important underlying messages or signals from all the noise of the market and act accordingly at the right speed.

  • Bring more to the party
    The traditional model of the shop, wholesaler, service, trade or profession with very little value added in terms of brand difference, technology and know-how is simply not sufficient. For companies to compete and succeed they must bring more to the party and add better value to their customers with technology becoming a key enabler in this process.

  • Build resilience and operate with financial discipline7
    The creation of safety buffers through higher profitability and retained earnings for the tough times, together with a prudent attitude to borrowing, are key features of stand out SMEs.

  • Right size your organisation
    While biggest is not always best, our analysis suggests that size does matter and having the right critical mass for the specific competitive and performance challenges of each business is absolutely crucial. In some companies it will not be possible to maintain market position without being significantly bigger. SMEs should be open to mergers, alliances and joint ventures.

  • Increase your international outlook and extend your geographic footprint
    While it will not be possible for all SMEs to export, the burden of growth and recovery within most national economies currently falls on too few SMEs. Those that do not extend their businesses beyond local or regional markets must be aware of, and accept the higher risk threshold, of focusing solely on the local market and being at the mercy of domestic demand.

  • Manage for today and lead for tomorrow
    In our experience, the quality of the management team is the most important determinant of the success or failure of business in the SME segment. Irrespective of country, sector or size the management team in each business needs to remain focused for both the short and longer-term on the four fundamental drivers of stand-out performance. They are:
    • Market position, customer offering and selling
    • Operations and customer service
    • Finance, business performance and risk management
    • Leading and managing people and teams

a difficult, but crucial balancing act

In the mid to long-term sustainable performance can only be achieved when the management team devotes sufficient attention and resources of the company to all of the fundamental challenges of today as well as the thinking, planning, investments and changes required to lead the business to a better future. This is a very difficult, but crucial balancing act.

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