Planning for growth: How Prepared you are?
Successful growth strategy requires one to analyse the opportunities and challenges critically and prepare a strategic plan methodically. It is commonly observed that majority of SMEs in India do not give due attention to nuances of growth as much as start-up stage.
I would like to narrate a case of one entrepreneur in Pharmaceuticals business who suffered losses in the late 2000s. He was very successful in his first venture. He grew business from scratch and it became a successful. He felt the need for second unit. At the same time large reputed brands in pharma space started outsourcing manufacturing to small scale industrial units. This opened new opportunities for him. He set up new unit about 20 kms from the first one. The production started. However the work pressure multiplied as he was alone handling end-to-end of the business in two locations. There was lot of attrition at all levels. The productivity declined so is profitability. The cash flow was not enough. Bank loan started becoming stressed. The business started sliding. Interest burden and repayment of installments became burdensome. The firm eventually failed and bank started recovery proceedings.
What were the shortcomings if we see in the hindsight?
- No proper comprehensive planning covering all the aspects of business.
- Insufficient own cash investment rather dependent on bank loan more than desired level (Mortgages raised against personal properties to meet the margin requirement).
- No organisation structure with delegated authorities. Accumulated power with himself.
- No attention to attract and groom talent -vital policy of those growing successfully.
He started fighting with an unseen enemy i.e., above pain points. Eventually he slipped to distress blaming everyone else.
This is not uncommon among SMEs. Many start-ups in India fail in growth stage due to poor strategy.
How growth stage is more risky for SMEs than start-up stage?
Let us try to understand the scope of preparedness from the perspective of entrepreneur himself. Many of the entrepreneurs at the time of setting up their dream project, they do lot of research and discus their plan with friends and well wishers. They look for few anchor clients. They meet industry people and discus the risks in order to cut the learning curve or reinventing the wheel. They are open and receptive to ideas. Once they start the project, they keep the purse string tight everywhere including in their personal life as well.
Once they achieve the success, hunger for growth will sprout. But it is commonly observed that they ignore many of their own learning from the start-up stage. They prefer to confine to existing business and lean on people, who are not necessarily having any commitments, to set up and run new business. We have seen many entrepreneurs are desirous of growth but unwilling to come out of comfort zone. They yield to bullying by people who have no stake in the business and ignore their own inner voice while taking important decisions pertaining to money. In the end, they deliberately allow themselves to be slipped to misery. There are instances of these entrepreneurs are ditched by unscrupulous consultants. The enterprise which has been created with devotion and passionate pursuit of dream becomes a burden for self and family.
How to prepare for Growth?
Every businessman will not always focus on growth. The reasons for growing/not growing the business are purely personal choice fr every entrepreneur. Suppose you carry burning desire to grow bigger and looking for larger than life image; then the strategy needs to be different. This may require an entrepreneur to revisit his start-up stage to identify the actions and approaches that lead to success. The preparedness for launching the new project needs to be thorough. The new project requires one to focus on details as much as start-up.
Preparedness – Strategic and Project:
Improve your awareness about stage of growth of your own business. Please refer to Five Stages of Small Business Growth. The link explains various stages of development of any firm. Identification of stage of business helps in improving the awareness about current stage and stage planning to enter. This makes your job on managing transition easier.
You need to take hard look at your capabilities, strength and weakness of your businesses, how opportunities and risk are balanced, What are the support services you need to sustain the business like human resource, technological edge, what cultural outlook you wish to promote firmwide.
Once you understand the fundamental components that your business need so as to move to the next stage, develop a strategic plan to get there. The plan must discus about vision, mission, values, HR policy, technology, competition, customers, risk management, sourcing of inputs, contingency planning and projected financials. One should make realistic assumptions about costing and profitability. Update the plan on periodic basis.
Please participate in the exercise of preparation of the strategic plan. You should never get excited at the freebies and incentives to start a new project rather economic viability & technical feasibility should guide you. Never start the project without tying up the full funding and if there is delay in this front, review the project again and modify if required.
|How Important Detailed Project Report(DPR) for a Project- An example:Recently I came across a case wherein the entrepreneur imported a machine by availing DPG (Deferred Payment Guarantee) facility from his bank. However he has not taken forward contract for forex exposure. Rupee depreciation seen in last two years resulted in the forex loss of almost 10% of loan amount. Although he blames the Bank for not informing him about forward contract, thorough preparation of DPR which contain risk analysis including forex risk at the beginning could have saved that money for him.
Every business is unique. One should not copy somebody’s success. This is not to say that you should not learn from another company. You have to research, analyse and adopt your new plan within your overall business strategy. That is how it will be a personalised plan. When you tailor you growth strategy to your business and customers, it will be nothing but a successful plan.
Success at the start-up stage gives confidence to think bigger for SMEs. However sustaining success in the next stage is more challenging and requires more thorough preparation. Better you are prepared; lower will be chances of failure.
To supplement the above we suggest you to visit the following links in www.smeadvisors.in