SME Managerial Incompetence and the Pitfalls to Avoid

Have you ever asked yourself why most businesses fail? In the UK on average two thirds of all businesses fail within 3 years. This is a horrifying statistic. Most business failures tend to blame everyone else but themselves for their misfortune, as Robert Craven, a personal favourite and marketing expert, and a leading authority on business advice to the UK SME sector says. Independent UK research in recent years points to two key factors: poor marketing and a failure in financial management. Criticism of managerial incompetence suggests to me a weakness in the SME management decision-making process, and follow through – the action-taking on any decisions made. What action can you take as a business owner when sales plummet, or profits crumble, and the pressure is on? A common consensus amongst management consultants, business mentors and business coaches is that the temptation to bury the head in the sand is so strong in many SMEs cannot make that shift. So what can we do to avoid these management pitfalls?

Proposals made by leading experts have suggested that SMEs need an ‘early warning system’. Is this like a fire drill, a ‘what to do in the case of fire’? This seems logical, and the balanced scorecard (Kaplan) is an excellent system for SMEs to monitor their business performance. The concept was developed and expanded in the US, in the late 1980’s and early 1990’s, and provides a single management report which offers management an up-to-date position of business performance at any one time, based on key performance indicators (KPIs). Lots of UK Corporate companies implemented this system with good effect, most notably the Halifax in its meteoric rise in the 1990’s, leading to its merger with the Bank of Scotland (HBOS). The scorecard can be sued to track any aspect of the business from money generating activities (daily revenue, transaction value per customer, volume of new customers, value of refunds and returns, customer complaints) to other critical success factors like productivity (lead times, unit costs, waste, unit volumes) internal business processes, human resources (staff attendance, even staff morale), finance (creditors, debtors, fuel costs) etc.

The most important thing is that the scorecard is designed by management themselves and reports on the key performance indicators they have chosen. Microsoft has now attempted to incorporate the scorecard style into its own financial package for SMEs. Even a one or two man operation would certainly benefit from a financial specialist helping set up the system at the beginning or at review time. Where is a good place to source top quality but reasonably priced financial expertise? Your local Regional Development Agency (RDA) has a register and new services like Business Service Finder. Marketing, I have heard it said is the least understood but most important skill in business. Since it is impossible to have all management skills and expertise ‘in-house’ in an SME it pays dividends to outsource the work. In facts most business owners fail to delegate to their cost (more managerial incompetence). Business planning and implementation of strategy are such key activities that expertise is extremely useful, and the payback is many times the initial investment.

I have personally held discussions with business leaders who seem to think marketing refers merely to the colour of categories in their brochure, yet they manage a sizeable business. One of the best definitions of marketing comes again from Robert Craven, who wisely commented: “Marketing is the battle for the mind of the consumer, not a battle of the product”. He doesn’t mention the colour of a brochure or the colour of a product small item, and let’s never forget the principal reasons for business failure.

A good marketing specialist would aim to empower management to follow through on the direction they set off in, and to introduce efficient systems to stay on track. To ignore the internet today is commercial suicide (please refer to my EzineArticle “3 key aspects of a business website… “). ECommerce and the capability to generate revenue from the internet is a critical success factor (CRS). In this recent global downturn there is no knowing how long it will last and what effect it will have on your industry sector and your business. Acquiring new customers is a continuous process, going hand-in-hand with performance improvement. The internet is sustaining most businesses surviving at the moment. The time is now to review how well your eCommerce and eMarketing strategy is performing, and it is best to consult an external specialist consultant to help you take an objective viewpoint, and to consider the best options and solutions.