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IRODS for SMEs – The Real Heroes of the Economy

IRODS for SMEs – The Real Heroes of the Economy

Investment, risk, opportunity, diversification and sustainability are the key tenants of any SME business strategy, according to Sailesh Nathan, regional director SME Chamber of India.

Catalysts of growth yet silent contributors, creators of competition but originators of employment, often called innovators and architects in improving efficiency. Welcome to the world of Small and Medium Enterprises (SMEs), the backbone of the economy in most emerging countries. Over the decades, SMEs have metamorphosed into a lucrative business model, with an attitude of flexibility and adaptability, alluring aspiring entrepreneurs to mark their presence in the business world with innovation, and converting their business models into substantial financial return making models. As exciting as it may sound, practically, SMEs share their own set of hurdles along their way to success. Let’s discuss the five important stepping stones to keep in mind before venturing into SMEs. I call them the IRODS of the SME journey.

Investment – The need indeed
“Good ideas need money to build a business.” Suresh Madan, president of TiE Toronto

Without Investment an idea will remain an idea. Investment is the catalyst that brings ideas to light and most often ideas need capital investment to unleash their true potential. To begin with, SMEs should develop a strong vision followed by strategic business plans to make maximum utilisation of investment. Smart use of knowledge and investment into technology to increase operational efficiency is imperative for SMEs’ success. However, despite being a major contributor to the economy, SMEs are unfortunately bound by certain constraints in acquiring investment, like the inability to procure timely and affordable credit, higher cost of credit and lack of access to equity capital. Unlike large enterprises, financial institutions are usually cautious to fund SMEs and inadequate funds result in lack of access to technology and skilled talents. This is where SME chambers come into action, where the weaknesses of SMEs are understood and proper financial injection can be prepared.

Risk – A part and parcel of business
“The biggest risk is not taking any risk.” Mark Zuckerberg (co-founder of Facebook)

In any business venture, probability of profit and possibility of loss are the two sides of the same coin. SMEs, in particular, are more vulnerable with limited resources and lack of structural approach. Risk can arise either from external factors (social, political, or economical) or internal factors (human resources, infrastructure, or technology.) As an enterprise, the focus must be to secure the assets of the company. To avoid the risk from competition, SMEs must engage themselves in understanding the sector dynamics and targeting potential customers since they predominantly deal with catering to the domestic market. A bigger risk is also retention of trained staff, as most work forces treat SMEs as a stepping stone to garner training and head on to greener pastures or bigger names.

Opportunity – Creating platforms
“Opportunities are all around us. Some seize it. Others stand and let it pass. ” Dhirubhai Ambani (Founder of Reliance Industries)

SMEs, as a sector create opportunity platforms, not having bureaucracy to deal with, SMEs can seize opportunities faster with speedier decision making. For instance, SMEs have an ideal platform to manufacture the products locally and must understand the specific demands and define their target end user, which gives them an edge over large enterprises. With the rise in SMEs and demand from other countries, many SMEs have witnessed exponential growth through exports, as they are faster to travel to different regions and make connections. Opportunities are all around us, all that is needed is the will to succeed, and SMEs come into business with their killer instincts intact as they know that there are no parachutes of regular salaries or bonuses holding them up, so they know they either DO or DIE, they know that thrown in the ocean they have to swim. That gives them the opportunity to put in their very best effort to come out as winners.

Diversification – Remove the Horse Blinders
“Change is the only thing that will never change.” Azim Premji (chairman of Wipro)

“Change is inevitable and growth is optional,” and the quote holds true for SMEs. It would be advantageous to diversify in complementary industries that create demand and opportunities for each unit. SMEs also have the advantage of being flexible by diversifying into a different sector if a particular sector plunges in a downturn. Although they cannot function like a mutual fund as a lot of research is required to venture out into different lines of business. Resources being limited, diversification can result in adverse effects, like increased cost and requirement of talent, but most importantly diversification can take away the focus from your best product. At such junctions an organisation like the SME Chamber of India comes into great utility providing research and success models already existing to reduce the damages of the trail and error method.

Sustainability – The strong foundation
“You can’t do today’s job with yesterday’s methods and be in business tomorrow.” George W Bush (43rd president of the US)

It’s hard to reach the top but it’s hardest to sustain the spot and hence sustainability must be the highest priority for SMEs. How do you guarantee sustainability when most SMEs start off as a whim or fancy or the drive to fulfil a dream? You need to involve like-minded people from different spheres of skill sets to make sure that each and every management link keeps the company’s drive cemented in reality. SMEs usually recruit entrepreneurial minded individuals to drive the business forward. Skill set is secondary, passion comes first, as skill can be acquired but passion cannot. Once that is in place, sustainability comes by fuelling that passion to reach greater heights where the focus is not money, but accomplishment. Of course, proper financial monitoring is imperative in keeping our plans in check and making sure cash flow is managed professionally and with utmost caution.

Though there are many other reasons for SMEs to succeed or fail, having a strategic business plan including these factors should put your business on the right track. The future looks bright for SMEs as it provides more opportunities, creates more employment, encourages innovation and creates a healthy competition, and this has been proved as SMEs make their presence felt as the driver of emerging market economies.

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