Home Views & Opinions Reasons why SMEs fail or succeed: Leadership challenges

Reasons why SMEs fail or succeed: Leadership challenges

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Statistics suggest that 50 percent of SME (Small Medium Enterprise) business leaders fail in the first year and 95 percent of them fail within five years of an SME establishment. The questions that arises is why? How can the leaders prevent their business from failing? What are the common factors the SME owners need to focus?
The major reason why SME owners fail is that they simply run out of cash – But HR & Strategy experts suggest that the downfall of an enterprise starts much before its financial collapse. Regardless of the industry, improper management and HR strategy is probably the shortest answer.
Insufficient Capital: While it’s obvious that most businesses fail due to lack of capital. What’s not so obvious is that the lack of capital mainly occurs due to other reasons which we explain next.
Unclear Vision & Lack of Business Planning: Lack of business planning is one of the fundamental reasons why entrepreneurs end up making poor resource allocation and invest their limited capital in wrong places. To be successful, business owners must have a written plan of action of how they are going to execute their strategy.
Bad Time Management: As simple as it sounds, most business owners studied are not very good at investing their own time in the most productive areas. They don’t effectively delegate routine tasks and end up doing “Everything” themselves.
Poor Financial Management: Let’s be honest. Financial planning is not the most favorite subject of many entrepreneurs. For years, they operate without budgets, financial closing and reporting. Decision making is based on opinions rather on facts and figures. It causes bad allocation of financial resources, results in shortage of working capital, and eats up owner’s funds.
Not Enough Managerial Experience: Business owners don’t invest enough time in their own professional growth and rarely develop into experienced managers. Especially, their people management skills don’t fully develop. Consequently they are unable to build and retain high performing teams.
Overconfidence, Over-Expansion, & Over-Spending: It is not uncommon to see business owners becoming overconfident after one or two good years. Numerous organizations have put their hard earned profits into excessively risky ventures only to see them fail. Growth is good as long as it is profitable and sustainable.
Unprofitable Business Model: Finally, poor operating systems will fail even the best business strategy. Connecting people, operations and strategy through simple processes and efficient technologies is key to delivering excellent value to customers. Business owners are unable to design powerful business and HR models that significantly reduce cost and increase profitability primarily because they don’t have the knowledge about how to do it.
The human resources (HR) take the business leaders through a rigorous “role redefinition” process. It can gather information about their skills set, time application and work values, and then analyze the data, compare them with leading benchmarks, and craft a new role fully aligned with company mission and strategy.
According to Jack Welch’s 4 E’s and a P Framework, the finest managers and business leaders usually have five key common qualities: energy, the ability to energize other people, the ability execute, edge, or the ability to sense what’s coming and see around corners, and finally, an outsized dose of passion for everything they do. These are basic ingredients which help determine the success and failure of a new business enterprise; they also signify the characteristics of high performing employee you want on your team, and the qualities you should look for to develop in yourself.
Business owners and potential managers/leaders with energy prosper on acts and appreciate change by displaying confidence and optimism from their behaviors. They love their work and life and enjoy every moment of it with passion and proper management as if they have sparks igniting out of them at all times, therefore, their illimitable energy is contagious and transmittable to your organization’s culture. Secondly, employees or managers who energize others get them throttled up, motivated, and firing on all cylinders that is the reason why people love working for leaders who energize them, because they get enthusiastic and keen and feel self-driven to make the company better.
Similarly, employees and potential leaders who have the edge that it takes to stop festering and make tough calls needed to keep business moving forward since every high performing team needs people who can execute and get the job done. Lastly, people with passion – a whole-hearted, deep and genuine enthusiasm about work and life – are naturally going to perform better. These people tend to care for their colleagues, customers and friends, and they care about winning in a positive manner. They love to learn and grow and enjoy watching others do the same.
Positive energy and confidence are the hallmarks of great leaders. If you and your team have it, then the goals you can accomplish have no limits. The more you can gather your team around by defining a clear vision and mission of what’s in it for them if they deliver, the more energy you’ll get.
As a SME owner, it’s easy to get stuck in a pothole. It’s also easy to fill your mind with all the negative reason that why you can’t you as a leader/business organization succeed, why the economy is too tough and there is a recession, why are your competitors gaining advantage of the market every single day and are growing strong with each passing quarter.
Remember, great business leaders are not afraid of recognizing challenges and they don’t show-off that everything is fine when it is not. What great leaders actually do, nevertheless, is to put emphasis on the solution – the footpath through the delinquent issues and the strategies that will allow them to win. As a business leader, you must assertively and positively paint a clear way forward through well-defined mission, vision and values and develop a business model based on successful management practices.
Nobody in today’s workforce and crippled economy wants to follow a leader who is down, dejected, and has no energy. Your team is seeking a visionary business leader who can take them to new heights and who encourages them to do more every single day – to be their best.