The report on the annual SME survey conducted by DP Information Group was released on 11th November. The results are not cheery – 53% of the businesses surveyed reported hitting a plateau in growth or even experiencing negative growth. Out of a total of almost 2800 companies surveyed, more than half are not growing as they should. This is worrying because it is the highest percentage of no growth in recent history.
What are the main reasons?
High costs, slow economy, and competition. Experts weigh in on whether the situation is as dire as it seems, and they expressed hope because the SMEs seem to be rethinking their strategies to grow. On one hand, this is good, because they are taking action. They mentioned strategies like changing business models, innovation, technology, going international, improving services, etc. On the other hand, it seems that all these 'strategies' were to keep up with the changes. In other words, is it enough to merely respond?
What about changing the game? What troubles me is that in the entire report, no one mentioned the word 'differentiation'. As Michael Porter said, "Strategy is about being different."
So what are they using innovation, technology, improved services, etc., for? Are they merely keeping up with the changes in demand in the economy, or are they differentiating themselves to beat the competition, making competitors obsolete?
What separates strategy from tactics in business is really the concept of differentiation. We need to be clear which we are applying. Increasing productivity through technology is not a strategy because it can be copied very quickly by our competitors. It is in fact to keep up with the changes in the market such as rising cost, but it in no way makes us different from the rest of the pack because just as you are implementing these changes, others are also doing it.
But using technology in a different way that creates barriers of entry for your competitors or to give you UNPRECENDENTED access to a market is strategy. Think Grabtaxi, Uber, Airbnb, and Amazon. These are examples of strategic use of technology where they render their traditional competitors obsolete by becoming DIFFERENT. Using technology to increase productivity is not a strategy because it does not help you scale your business – it merely prolongs your life in a difficult environment.
I am not saying we don't adopt technology or those other 'strategies' mentioned. What I am saying is our SMEs need to redefine what strategy is and see it clearly linked to differentiation. How do we move from Keeping Up to Scaling Up? In doing so, I suggest they consider four things:
Does their strategy help them to make trade-offs that allow greater focus on differentiation – we all have limited resources. We need to channel our resources into those things that make us different and stand out, not merely to keep up. As Harvard Professor and business guru Frances Frei says, we need to be bad in order to be good. What she means is because we have limited resources, we need to focus on the things that make us really great and forego some other areas that do not matter to the customer as much.
Is their strategy based on their core competency – core competencies are the unique skills or strengths that make your company different. These are also the strengths that make you 'uncopyable'. Every company has core competencies that are special but frequently not utilised because businesses do not know how to turn them into 'secret weapons'. Focus on these so that they do not end up becoming a 'Me-too' business.
Is their strategy focused on core customer's needs and fears – how well do they really know the customer? Can they see a real human being with needs and fears that need to be met or is the customer just a statistic, a demographic, or a faceless organisation? One of the big mistakes in business is to confuse data with insights. Statistics and demographics are data, but breaking your core customer's needs down into a sentence that all can understand and focus on is insight.
In my coaching sessions, I always find it interesting how businesses confuse data with insights as they like to see themselves as either B2B or B2C, but forget that all business is ultimately H2H – Human to Human.
Lastly, as Verne Harnish, business scale up guru and author of the bestselling business book on Amazon Scaling Up always says, does your strategy address something your customer loves but your industry or competitors hate to do or cannot do? In other words, is there a gridlock between the needs of the customer and the meeting of that need that needs to be broken? If you can identify that, you can scale your business and leave the competition behind in the dust.
If our SMEs can redefine their strategy taking into consideration these four points, we will move from being Keep-Ups to Scale-Ups.