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Growing pains: the growth challenge

The first in a series of articles on SME growth by Professor Christoph Loch, Hanadi Jabado and Professor Stelios (Stylianos) Kavadias, looks at the challenges SME CEOs and founders face when growing their business.

growing pains

“I have not been to University, and when I was told you are to be the CEO, I had to look up what CEO meant,” proudly said Will Smith, the founder and CEO of Fringe, an SME he had started from scratch and built into a £24m company. A brilliant carpenter, he developed a practical and easy to use wood polishing tool for home-improvement users; he had it manufactured and sold it throughout the UK and then even exported to China. “The Chinese love buying it because it is made in the UK,” Will told a packed lecture theatre with business school students, aspiring entrepreneurs and established business men. A self-made man from a trade that everyone knew and felt comfortable with, made everyone in the audience identify with him.

What Will did not talk about was what kept him awake at night. Flush with his success, he had recently gone to his bank to request growth capital assistance. Will was nervous. Was this the right solution? He felt that his company had reached a plateau and that he was struggling to grow it further and his instinct was that he needed more funds to grow the company. But deep inside, he sensed an uncomfortable truth: more resources were not the answer on their own. If he expanded, would the market accept a higher volume? If he added people, would he be able to keep them productive? Would he break down because of the added workload?

Will’s doubts are not unique but typical agonies of SME CEOs and founders. Often, the lack of funding or access to funding is cited as a root cause for the lack of growth amongst SME companies. We believe the opposite is true. Lack of funding is a symptom, not the cause. There is sufficient capital available for companies that can demonstrate that they are “good” or “worthy”. The problem is an inability to bridge the information gap (the “opacity”) between available capital seeking companies to invest in, and companies that are prepared to exploit such capital infusions. The way for SMEs to get more funding is to reduce this opacity and showcase that they have a winning strategy backed up by managerial competence.

Specifically, going to a new funder, a bank, or leveraging your existing funding partners for more money achieves nothing (even if you get the money) before you clarify what value you can offer, want to offer and what your customers need you to offer. What is it that customers really value, and what are you really good at? You can’t grow without knowing the answers to these questions, and if you do anyway, you’ll crumble under the weight of the added complexity (many founders and SME CEOs have found this out the hard way).

Proud founders and CEOs like Will, have to cope with a personal challenge: in order to grow they need to let go: They need to implement effective processes and systems, robust ways of doing things that allow handling more volume without them calling all the shots. They need to build leadership teams and invest in capable and motivated employees who will do things that they themselves cannot do. And finally, identifying key partners and nurturing those relationships will be key to enable more growth because no SME has the breadth of capabilities to do all the things that need to be done.

As he is standing at the front of the lecture theatre, Will realises that securing the funding was not the most difficult part of the journey. The hard work starts now, and it dawns on him that the biggest challenge is the needed shift in his mind-set. It won’t be easy, but he has to accept it to go through the growing pains. Growth doesn’t just happen. It requires the full commitment of the leader in charge.

This article was co-authored by Professor Christoph Loch, Dean of Cambridge Judge Business School (CJBS); Hanadi Jabado, Executive Director of the CJBS Entrepreneurship Centre; and Professor Stelios (Stylianos) Kavadias, Academic Director of the CJBS Entrepreneurship Centre, as part of a series on SME for growth.