The enemy within

Written by Rick Spence
Your banker doesn’t understand your company. Potential investors avoid you the way teens shun Celine Dion. Taxes are draining your coffers, and you just can’t get ahead of the paperwork.

What’s wrong with you? Maybe nothing. The fact is, few institutions or vendors serving the entrepreneurial market understand the needs of growth companies.

That’s just one of the conclusions of a four-year study from Queen’s University’s Centre for Enterprise Development. Led by Niraj Bhargava, a Queen’s professor of venture management and sometime entrepreneur, the project identifies the key barriers preventing small and medium-sized enterprises from growing into sustainable big businesses. Scrutinize the results, and they could change the way you do business-for the better.

By Bhargava’s own admission, though, he almost missed the point. At first his research, sponsored by two banks and the Ontario government, focused on the usual external barriers: legal, tax, regulatory, financial. But when Bhargava ran these findings by real entrepreneurs, they scoffed.

Yes, they agreed, taxes and regulation and the capital shortage are ongoing concerns. But the real problems, they said, are internal. How do I keep my company growing? How can I keep pace with changing markets? How can we sell more internationally? Do my managers have the skills required to help my company mature? Plus, the ultimate question: Am I still the right person to be running this company as it expands and evolves?

After eight months of research that included personal interviews, case studies and focus groups, Bhargava lumps these so-called “soft” challenges under three headings: business development, management development and organizational development. He then identifies the problems companies face according to the business’s maturity level: startup, fast growth, sustainability stage or global enterprise. (The full report, “Managing for growth: Establish sustainable success in Canadian SMEs,” can be downloaded at http://www.rbc.com/newsroom/pdf/20031022sme_full.pdf.)

The resulting matrix is as complex as a Keanu Reeves trilogy, but the framework contains many challenges you’ll recognize. For instance, one key business-development task Bhargava identifies is market connectivity. At most small firms, this means sales. But as companies grow, Bhargava says, that focus must shift to “connections”, then “alliances and awareness”, and finally “mergers and alliances”.

Similarly, he identifies “professionalizing the business infrastructure” as a key organizational challenge. That means a growth firm must be able to evolve from startup, in which “observation and intuition” are enough, to the more rigorous stages of “reporting”, “controlling” and “benchmarking”. As Bhargava told a recent meeting of the Strategic Leadership Forum in Toronto, “This is the part that scares most entrepreneurs. They say, ‘That’s not why I left big business and started this company’.”

Like it or not, however, you can’t grow without delegating. And as Bhargava says, “You can’t delegate and empower without introducing controls.”

In discussing his findings, Bharagava has seen many entrepreneurs nod their heads and mutter, “That’s me. That’s what’s going on in our company.” His study validates entrepreneurs’ anecdotal experiences, but also tills new soil in analyzing and prioritizing the challenges they face.

Bhargava hopes that identifying these common barriers will help more entrepreneurs view their problems not as signs of personal ineptitude but as natural consequences of business success. This insight alone could help heads-up entrepreneurs avoid many problems that foil unaware companies. Bhargava’s data, for instance, illustrates that leadership styles must change as organizations grow. Rather than assume that what you’ve always done will always work, entrepreneurs must proactively ensure that their leadership traits match the business’s current needs, while at the same time work to develop the skills needed for the next growth level.

But Bhargava also hopes his findings will enable the stakeholders of growth businesses-governments, educators, financiers and professional services providers-to understand their market better. “There’s definitely a shortage of support, content and services to the SME community,” he says.

One problem, says Bhargava, is that “so many stakeholders simplify too much.” Bankers, for instance, often expect businesses to invest more in technology — to which entrepreneurs respond, “With what?” “Comments like these just show that stakeholders are out of touch,” he says. “They’ve got to start helping SMEs with their real problems.” A more effective marketplace, he says, might include: banks partnering with entrepreneurial leaders to help them offer more relevant services; government aid and tax policies geared toward growth businesses, not just startups; more suppliers of risk capital; and more just-in-time training programs targeting specific growth challenges.

Bhargava’s study urges governments to make entrepreneurs a priority; it even suggests Ottawa appoint a junior minister of growth companies. There’s good reason for legislators to listen. The research indicates growth entrepreneurs around the world face the same problems. Imagine the advantage Canadians would enjoy if we could get this right.

© 2004 Rick Spence

Originally appeared on PROFITguide.com