Ten reasons why certain small business never grow!!

 

Back

Founders, chief consultant and senior consultants of Sagesse Abundance have worked with different enterprises in India in public sector, private sector, multinationals both in India and other countries in North America and Europe, last six years we have started practicing as a Strategy, technology and management consulting.

Though, we have worked in small enterprise during our employment days, over six one years, we got more opportunity to work closely with small and medium enterprises.

We analyzed the reason as to why certain global enterprises like IBM, GE outlive generations, but most of the smaller one never grow. Even if some of them grow, they do not sustain or live beyond a generation. Here are some of our findings:

1. No Constancy of Purpose of enterprise – Enterprises outliving generations truly have a purpose. The core purpose of these great grand enterprises is to contribute to mankind and incidentally make money in the process. These great grand enterprises have had its own share of challenging times, but they survived reinventing or redefining purpose according to modern time, but core purpose remains. The smaller ones are invariably have ‘Profit’ and money as only purpose. They do all that takes to make money, eventually drift, diminish and vanish.
2. Having wrong People – In his book ‘Good to Great’ Jim Collins says Level 5 leaders have the skill of selecting right people for right job. It is first ‘Who’ and then ‘What’. Great grand enterprises hire right people. In order to judge whether they are suitable or not, these enterprises have their well-defined basic competencies and leadership traits and these great grand enterprises select right people. Most of the smaller enterprises, do not have well defined competencies and traits that their employees need to possess. Mostly the founder will hire the people they know. In one of the company we had a chance to spend some time on an assignment, HR director was working with one of the founder, she was HR Specialist doing clerical work, but she was hired as HR Director, she does not even know what is employee engagement and knows that the founder will be happy, if she negotiates benefit plan from health insurance companies and does. She always thinks and does what was liked by the founder. No need to talk about high level of employee turnover in that company.
3. Non-contributing Policing leaders – In case of great grand corporations, the systems and processes are well designed in such a way the compliance delinquencies are automatically thrown out and delinquents are directed to fall in line by rigorous system. Leaders of great grand enterprises are great transformers and take people along. In smaller company, generally systems are on paper and mostly manual compliance testing. In one of the company in which we did an assignment, we observed that the VP Business operations used to conduct weekly review of bench resources and compile reports to founder and co-founder and his recommendations were if someone is on bench for more than 4 weeks, those people should be let go. With complete lack of understanding about business dynamics and with no predictability system in place, founder and co-founder used to take myopic decisions. Incidentally, the VP Business Operations still do the clerical work of weekly bench resource monitoring with no business understanding and often some of the management reports compiled by him were arbitrary and with his own assumption about business. Founder and co-founder of the enterprise love him, because others are busy in the market doing business and only this person available to prepare reports based on irrational formulae and assumption. Needless to say this enterprise is stagnated with no revenue growth over past three years and last year onward the revenue started declining.
4. Match stick leadership – This phrase of ‘Match stick leadership’ was invented by our Chief Consultant. What does it mean? Match sticks have head but no brain and as one rub the match stick it catches fire. So as the ‘Match Stick Leaders’ are those who do not think or ask for data or information or facts before taking decisions. Most of the great grand enterprises have a system of well informed decision making process. Small and medium enterprise leaders do not invest in system and process to collect data, information and facts. They rely on certain preferred individuals. These preferred individuals too do not have the habit of well informed decision backed by data, information and facts. They just look for data to substantiate their judgment.
5. Aggregate level management – The great grand enterprises have system and processes for threadbare analysis to find the business drivers that spin or drain money. Smaller business leaders work at aggregate level. They do not perform threadbare analysis of cause and effect of what drives growth and profit and what drives losses. In one of the company, where we happened to observe, the VP of Delivery Operations confessed that they never made profit since inception. In first two years they strongly believed that as the top line grow automatically profit will flow in. They missed the point in service business, they have to look at their human resource cost and including overheads what is their total cost. Adding margin, they need to quote their price for the services. As the business grew, they added more people. There was no profitability analysis for each engagement. Unknowingly they were trapped in to huge receivable, they resorted to unsecured borrowings to manage the payable. They reached a stage, they have to part with their stakes to save the company to an investor. The VP of Delivery Operations concluded that we did not realize by growing the non-profitable operations, we were adding more losses.
6. Quality systems? We believe in “Just do it” approach– Great grand enterprises have quality system embedded as part of their operations. Quality systems such as ISO, CMMI, TQM, and Lean Six Sigma are their way of life. Smaller ones, never invest in quality initiatives. In one of the small enterprise, we were associated, every project was in crisis. Some leader who just manage to complete the project and get sign off from customer is a hero and they do not have the mechanism to verify whether the project posted profit or loss. Worse is the leaders of small companies do not even realize the value of these quality systems! Often I have heard the founders of small enterprise saying, “We do not have unnecessary bureaucracy such as stringent quality control system. We believe people should be liberated from these kind of quality frisking.” Sadly, the truth is liberated people do not deliver quality product or service without systems.
7. They get sold to their own marketing gimmicks – One of the small enterprise in software services used to get award from one of the ISP OEM (Independent Software Vendor – Original Equipment Manufacturer). The ISP OEM used to award them to motivate them to do better business like several hundred similar business partners they award. The leadership team of this small enterprise get sold to those awards and became complacent. Besides, local business associations used to award the company and the leader. The entire leadership team developed a thought that the business will automatically come. Great grand enterprises are more an award giver than award recipients.
8. Lack of understanding of market realities or Greed? – Another software services company got an opportunity from one of the leading market leader in Hi Tech industry from Silicon Valley. The software services company quoted a price for the solution they built to automate the client sales operations to enable client customers to configure their product of their choice and get instant quote – popularly known as CPQ. The client agreed for the project price and project was concluded, of course successfully. When it came to maintenance and support of the application custom developed, the software services company quoted the price almost equal to cost of the original solution as annual maintenance cost. The client was pissed off and though the client initially signed for maintenance support with the software services company in the initial months, eventually the client hired all critical staff of software services company and ensured another Indian software pure player who is providing services in another space hire rest of the resources with required skills, of software services company and client black listed the software services company and client refused to stand as customer reference. I thought, the founder was unable to differentiate between design build project and a managed services project and corresponding price based value to client and market dynamics. But the VP of India operations of the same company said, “it is greed of the founders" and mentioned "this trend he was experiencing ever since inception of the company several years ago.” Either way, great grand enterprises play the business game based on market dynamics. If the game plan does not yield target returns, they do not play the game. They simply decide - ‘No bid’ and sometime exit the business.
9. Not allowing time for strategy and people to work – Great grand corporations have processes, tools, methods, systems, procedures and frame work to enable new comer to sail through the work and get results. Similarly, they have system to monitor the strategic initiative working. They allow sufficient time for people and strategy to deliver results. They also help people to succeed. Smaller enterprises believe in individual rather than processes, systems. One of the small enterprise I was associated for a brief period, Sales Account Executives were hired and the founder and co-founder allowed six months’ time for them to deliver results. First Six months are needed, at the minimum to understand the company, product, market and customer. The founder and co-founder did not give more time and fired all of them branding all these sales executive as non-performers. Similarly, another company ventured to expand in Asia pacific and within six months they abandoned the AP expansion and got into another strategy initiative. Needless to say, they never able to make their mark in any of their strategy.
10. Founders are transient visitor and no commitment - Great grand corporations have terrific employee loyalty, outgoing leaders develop leadership pipeline and develop leadership competency across the organization. This is one of the main reason, why they survive Second World War or great depression or dot com crash or worldwide financial crisis of 2008. One of the baffling blunt fact about newly founded enterprises are the founders themselves are transient visitor looking for selling the enterprise for a premium and move out. Truly valuable innovative technology enterprise find their buyers but majority of the small enterprise evaporate. 

Is your enterprise a small or medium enterprise? How are you performing? Do you need help in growth? Reach out to the author over e-mail sagesseabundance@gmail.com

Back