Challenges Facing Small and Medium Sized Businesses

Top 10 challenges facing small and medium sized businesses

Challenges Facing Small and Medium Sized Businesses

Having worked with over 400 businesses over the last 19 years, I believe I’ve gained a good perspective on the key challenges facing small and medium sized businesses (SMEs) today.

Some are perennial and others are particularly relevant to UK-based businesses because of the recent political turbulence. This has created specific challenges that have severely disrupted some businesses and will continue to do so for some time.

This article has been updated to take into account the financial impact that COVID-19 is having and will have for years to come on the economy.

The top challenges facing small and medium sized businesses are:

  1. Leadership
  2. Culture
  3. Strategy
  4. Building an “A” team
  5. Strategy Execution
  6. Making the business stand out
  7. Putting your employees first
  8. Systems and Processes
  9. Productivity
  10. Measuring performance

We will now take each of these in turn to explore them in more detail.


1. Leadership

There is no academic qualification to be a leader of an SME and I suspect if one were offered most entrepreneurs eager to get started wouldn’t do it anyway. Nevertheless, given the many challenges of running a business and leading people, a lot of owners falter because they don’t have the right skills.

Some people believe you have to be born a leader. From my experience, this is a fallacy. There are now plenty of great books on leadership to show that the right skills can be learnt. You don’t have to be like Richard Branson to be a great leader in your business; just be equipped with the right skills and habits to make a difference for your team.

During economic turbulence created by COVID-19 and the subsequent recession, having the right leadership style becomes even more important as this is when leadership skills will be tested the most.


2. Culture

I have noticed over the last few years that getting the right culture is becoming more important to business owners. The purpose of the business needs to be crystal clear and from this purpose, the values of the organisation can flow. Four values seem to be the maximum anybody can remember and successfully embed into a business.

For me, for a well run and nice business to work for and do business with the key values are:

  • Professional/Integrity/Honesty
  • Customer Service/Going beyond/Falling Over Backwards
  • Initiative/Self Starting/Innovation
  • Respect

Spend time to establish the values and then make sure that everybody is aware of them. Next, start to look for them in the actions of the team and through regular staff appraisals & team meetings reinforce the values so that they become part of how the business is done. Putting slogans and posters on the wall won’t make them stick, changing the behaviours of the team over time by reinforcing them with praise and rewards will.

This then leads to a defined culture that the members try to protect and develop. There is a phrase, “Culture beats strategy every time” and I think in our complex, ambiguous, and fast-changing world this is certainly the case.

In turbulent times when overheads have to be cut it is important to ensure you still live by your values and work towards developing a resilient culture.


3. Strategy

A consequence of a lack of leadership development is a lack of business planning in most SMEs. There are now well documented, single page, business planning tools available that can really help your business focus on what matters. Take a look at: Strategyzer Business Model Canvas & Traction by Gino Wickman

It doesn’t take long to capture the ideas and it’s time well spent thinking about what the business needs to achieve its goals in three years’ time and how those ideas can be realised. It’s also great for team development if the key players in the business are involved in the “how” of implementing the strategy. I say this because as a business owner myself it can be both scary and liberating to know that the team are also working on the business. However, my own experience that once you have the purpose right strategic development accelerates when the team “get it”.


4. Strategy Execution

Something that really helps businesses to succeed is to be great at executing strategy, plans and ideas; being able to take a three-year plan and break it down into 12 months objectives, and then be really focused and translate those into 90-day objectives.

By meeting their objectives every three months, business owners can start to benefit from the marginal gains that are achieved by meeting each objective. The theory of the aggregation of marginal gains was successfully introduced by British cycling coach Dave Brailsford, who lead the British cycling team to 10 gold medals at the 2008 Beijing Olympic. This is something every business owner can implement because it only means making small regular improvements to the business rather than thinking up a big initiative, then trying to sell it to the team and failing because it didn’t get the buy in.

For a simple one page plan, again take a look at: Traction by Gino Wickman. I have now used this process in a number of companies to great success. This has led to real sustainable change in those businesses and at a cost of the system of £10 for the book from Amazon, it is unbelievable value.


5. Building an “A” Team

The next challenge to trip up a lot of SMEs is finding the right people to grow the business, the team members who make sure all functional aspects are delivered such as sales, marketing, production, operations and accounts.

To run and grow a business effectively, an owner or managing director should be removed from the distractions of running the day-to-day operations. Having a great “A” team in place really helps this. Initially, this may be one person who is a star player but eventually, as the business grows, each function needs somebody who has complete ownership.


6. Making the Business Stand-Out

Finding a competitive edge in the crowded market places of today can be a real challenge. It’s important to every business but requires time, money and resources to make sure the company has done everything it can to stand out.

Making a smaller business stand out in today’s market place can be hard but here are some of the ways that people compete:

  • Quality
  • Customer Service
  • Convenience (Local/Delivery/Stock availability)
  • Difficult to buy it elsewhere
  • Your expertise
  • Price

If you want to understand the value you bring to your customers then take a look at the Value Proposition Canvas by Strategyzer. The Canvas is free to download and the book is not expensive if you want a more step by step guide on how to do it.


7. Putting Your Employees First

Richard Branson is often quoted as saying:

“If you look after your staff, they’ll look after your customers. It’s that simple.”

If you put your staff first, make sure they are trained, understand what needs to be achieved and have the autonomy to get on with their jobs, they will deliver the results needed to keep your customers happy.


8. Systems and Processes

A lot of smaller businesses seem to think having systems and processes makes them less competitive. The reverse is actually the case. Good, well considered, tried and tested systems and processes means what is delivered to the customer, whether a product or service, is what they expect and is delivered right first time, every time. This means that they will come back for more and will tell friends and contacts.


9. Productivity

Productivity is very much aligned to good quality systems and processes. However, it is more than that. It’s about whole company awareness. Lean thinking needs to be embedded throughout the business so that everybody acts smarter at whatever level they are employed.

When a problem is identified, the team go to the problem rather than sit in meetings theorising about it. Sometimes just talking to the problem owner directly can provide a quick and easy solution. It massively reduces complications arising out of miscommunication.


10. Measuring Performance

As Peter Drucker is often quoted: “What gets measured, gets done”. This is an enduring truism. One of the challenges facing small and medium sized businesses is the ability to identify the key metrics by which they should drive their businesses.

Most will measure sales revenue and gross/net profit on a monthly basis but often that’s far as they go. Finding the right measures (or key performance indicators) can be a real challenge and one that takes trial and error to discover what really works for your business. These are the metrics that drive the right activity and are often sanity metrics.


11. (Bonus item) Political Changes

One of the main challenges facing small and medium sized businesses face due to political pressures are the costs associated with the living wage, auto-enrolment and now all the challenges of COVID-19.

In addition, Brexit and the subsequent rapid fall in the value of sterling have caused a number of serious challenges for businesses who import and resell to others. For some, the drop in gross profit (the difference between what has been bought and sold but ignoring overheads) has put into their whole viability into question because of the tight margins they operate on.

For a lot of companies it’s very difficult to increase prices which puts a constant pressure on controlling costs. The challenges facing small and medium sized businesses owners is they have no control over politically driven cost increases such the living wage and pension contributions and are unable to pass them on to the customer.

One of the things that has come out of COVID-19 is a lot of businesses are reimagining their businesses and using technology to enable working from home, electronically delivery of services and the use of technology to drive down overheads.


Consequences of Not Getting the Above Right

A number of issues such as cash flow, succession planning, staff turnover and eroding margins often come down to the business owner or managing director spending too much time IN the business rather than working ON it.

So a lot of challenges facing small and medium sized businesses are consequences of not finding the time. These include:

  • Growing revenues
  • Cash flow
  • Overly dependent on a few clients
  • Staff turnover
  • Always competing on price
  • Diminishing profitability and returns
  • Raising capital (poor business plans and underperforming management teams struggle to raise finance)


Staying Energised

As the leader of the business, the business owner or managing director has to stay energised. Their vigour is infectious and permeates throughout the business. Maintaining your energy levels can be a real challenge as business becomes more competitive and technology-based with more pressures than ever before,  Regular exercise, a good diet and time to rest are key. For more information on this you only have to read Stephen Covey’s, “The 7 Habits of Highly Effective People” and the last habit is, “Sharpen the saw”. So what are you doing to sharpen your saw?


Getting The Right Support

If you would like help in addresses these challenges, go to Business Coach for more information.


Digital Marketing Support

Moving away from the strategic issues. One of the tactical challenges facing small and medium sized businesses is keeping up to date with what works and doesn’t in digital marketing can be really hard and that’s important as you can waste a lot of money on things that used to work but now don’t.

Given that most of the businesses we work with need growth and generally that means more sales, we have chosen to change our emphasis on becoming a hybrid digital agency. What is a hybrid digital agency you ask? Well, we will not only do your digital marketing for you, we can also help you manage it or it maybe its just that you just require developing some specialist skills like generating leads through LinkedIn.

Take a look at the range of services we can help you with so that you can get digital marketing working for your business: Digital Marketing.


Looking for more support on how you can help small and medium sized businesses?

If you’re not sure where to start, you can book a free 30-minute Digital Marketing Review or drop in for one of our Academy Workshops for the price of a coffee and cake. Alternatively, we offer 1-hour Online Zoom Consultations to help you overcome your business challenges for just £95 +VAT with expert Peter Dickinson.

Contact us today to book in for your session or alternatively on 050 9053.