Abstract
There are approximately 4.5 million businesses employing less than 250 people in the UK, providing a total of 13.7 million jobs, equating to half the private sector workforce in 2011. However, while such Small and Medium Enterprises (SMEs) are of importance, it is their durability that can be considered of greater significance. The precarious nature of SME existence has been well documented. Only about 65% of small businesses are still trading after the first three years of initial start-up. After five years, fewer than 45% of businesses will have survived. Put simply, small firms are more likely to die than larger firms. Indeed, other than size per se, the higher likelihood of death is what distinguishes small from large firms. However, multiple failures can be experienced as the springboard for later success (provided learning takes place). Much of the research into small firms has focused on their failure. The danger of this approach is that it identifies what has gone wrong, but may fail to discover what they need to get right. The approach of the current study, then, is to focus on the triggers that lead to SME success, as a way of highlighting more effective strategy decisions for firms themselves, and to inform better policy decisions for government. A return of over 1,000 survey questionnaires completed by SME owners/directors or senior managers, 20 in depth interviews and 13 focus groups, makes this one of the largest surveys ever into the strategic management of SMEs in the UK. Key findings Finance Successful SMEs are likely to use more than one source of finance to both start and sustain their business However, most SMEs only use one source of finance to start the business, the main source being personal/family savings with a smaller proportion using a bank loan SMEs with a relatively large number of employees now are significantly more likely to have funded the starting of their business using: Bank loan Remortgaging personal property Business Angels/Venture Capital finance/Grant Leasing Factoring and Invoice Discounting SMEs with a relatively small number of employees now are significantly more likely to have funded the starting of their business using: Credit card Personal/family savings Success in challenging times: Key lessons for UK SMEs 7 The main sources of finance used by SMEs to fund their businesses now are: Reinvesting profit (68%) Personal/family savings (39%) Bank loan (29%) SMEs seek routes to financing that avoid banks and traditional financial institutions The attitude of SMEs towards banks ranges from disappointment to contempt. Cash flow and liquidity Successful SMEs proactively monitor their cash flow and liquidity Alongside cash flow, SMEs with larger numbers of employees recognise the importance of the broad range of success factors (e.g. planning, sales, marketing, managing people, having a website, using social media) SMEs with larger numbers of employees consider that they are significantly more effective across the range of almost all success factors than smaller SMEs. Social capital, social media and the web Successful SMEs consider direct referrals and search engine optimisation as central to their success SMEs with smaller numbers of employees place greater importance on direct referrals SMEs with smaller numbers of employees put greater importance on the use of social media 94% of SMEs consider direct referrals important to their continuing success; 67% consider search engine optimisation important. Innovation Successful SMEs are willing to find new ways of doing things and encourage their employees to think and behave innovatively SMEs are significantly more likely to be innovative than competitively aggressive, proactive in the market or risk taking SMEs are significantly less likely to take risks than be proactive in the market, competitively aggressive or innovative SMEs with larger numbers of employees are significantly more likely to be proactive in the market. Success in challenging times: Key lessons for UK SMEs 8 Learning Orientation Successful SMEs believe that learning gives them competitive advantage Newer SMEs are more committed to learning SMEs with less than 5 employees are significantly more likely to have a shared vision SMEs with less than 5 or more than 50 employees are significantly more likely to be openminded SMEs with larger numbers of employees are more likely to learn from crises. Advice and support Successful SMEs are more willing to seek external advice Most SMEs seek external advice regarding their website (including search engine optimisation) SMEs with larger numbers of employees are more likely to purchase external advice on managing people and developing management skills. Outsourcing and exporting Successful SMEs have the flexibility to adapt to changing market conditions Half of SMEs outsource some of their activities, including: accountancy (payroll and bookkeeping), IT and web development, HR and marketing Outsourcing provides SMEs with the flexibility to respond to market conditions SMEs with larger numbers of employees view exporting as important to their continuing success.