Top 8 reasons why SMEs fail in India

Small and Medium Enterprises (SMEs) are the backbone of a country’s economy. Indian SMEs are mostly into services and manufacturing. Records show that they contribute to 45% of the country’s GDP and employ over 60 million people. But most SMEs go out of business really fast. It’s by now common knowledge that about 90% of startups fail to meet their mission and growth goals that they set out to accomplish originally. The reasons for their non-performance are for the most part avoidable but there are instances when they are accidental like it happened in the aftermath of the demonetization drive in India. The demonetization drive had a huge impact on the remote manufacturing companies who had not digitalized their businesses.

However, these rather abrupt reasons aside, there are still a lot of areas where SMEs and MSMEs run into several challenges:

1. Skill shortage

Talent-opportunity gap is a big problem in India. SMEs don’t always get to employ people with the relevant skill set. They are forced to hire and train fresh grads because the skilled ones are expensive and are hard to attract. Most SMEs don’t have a dedicated process-trainer either. They either leverage online courses or make the senior employees train the new ones. Big brand name companies have invested in a skilled trainer base and can afford to hire experienced employees, and that makes it that much easier for them to create a service far better than their smaller rivals.

2. Employee retention

Small businesses spend lots of time, money and energy on hiring and training employees and when the employee leaves the organization, all their efforts come to naught. Work-related stress is a major factor that inspires employees to quit startups for less-stressful corporate jobs. But work-stress and work-load are two different things. Employees feel stressed when they are uninspired and demotivated. One way to avoid this is by automating monotonous work and challenging employees with creative tasks. Also, businesses have to make it part of their culture to recognize and reward employees when there is meaningful progress. Statistics show that 79% of employees leave simply because their extra efforts are taken for granted and go unrecognized. There is no better way to kill passion than keeping employees unmotivated.

3. Outdated customer leads

Though e-mail marketing is effective and pocket-friendly, getting the right contact details is still problematic. Not a lot of SMEs use platforms like LinkedIn, CrunchBase, Clearbit etc. for generating new customer leads primarily due to a lack of awareness. Others end up outsourcing this effort to third party agencies. But how sure are you about the accuracy and completeness of the the leads that you are able to generate? What if the e-mail addresses are wrong or outdated? When you send emails to the wrong ID, your emails will bounce. This issue gets even more magnified with bulk emails because when a lot of your emails bounce, your business will naturally be marked as SPAM by the email provider. This is a major reason why the email marketing efforts of SMEs don’t translate into tangible outcomes. So you have to be very careful while deciding who you buy the leads from. Growffyattempts to address this for its customers. We have an up-to-date database where the data is guaranteed to be accurate also so your email marketing efforts will come to fruition.

4. Insufficient funds

2x salary, medical insurances, free cabs, lunches, gym memberships, pool tables, sponsored outings and what not? Big companies always find a way to retain talent by throwing an enormous number and variety of perks at them. Employees get addicted to these and stay trapped in these “comfort zones”. However, SMEs start with small investments and can’t promise a whole lot of perks when recruiting. Eventually, they lose a lot of talent to big companies.

The marketing budget is also a constraint that SMEs typically grapple with. This is especially true when the market is crowded with bigger brands. Large Scale Enterprises (LSE) are armed with large investments from the get-go and splurge on branding. Despite providing the same (or better) quality of products and services, smaller brands find it hard to get attention.

5. Low customer retention

They say, “A good customer is ten times worth their first purchase”. Good customers don’t just come back for more but also recommend you to others. Small companies don’t pay enough attention to customer success. Big brands take advantage of this. Besides having a dedicated customer success team, they also come up with referral benefits and loyalty programs that increase the life time value of a customer. This is yet another reason for customers to leave SMEs for the big daddies of the market.

6. Lack of back-up plans

When estimating the expenses before starting the company, most SMEs fail to consider a financial backup. ‘What if things don’t go as I planned?” is the common question that most founders fail to ask themselves. As a result, even the relatively minor financial shortcomings has a telling impact on the company’s growth plans.

7. Outdated processes

Business processes are upgrading at a neck-breaking pace today. For example, technologies like Rapid Application Development (RAD) have greatly reduced the time it takes to create a new application. But only few companies stay in tune with market trends. Most small companies fail to keep up with the pace of the upgrading to newer technologies or paradigms especially in terms of reinventing and re-imagining their core business functions for the digital world. Because making a 360-degree change in their business process might be really expensive for them.

8. Irrelevant sales calls

There is nothing more futile than marketing to the wrong person. Today’s customers exactly know what they want. Contextual marketing is making more sense than ever before. If you are cold-calling a person without being sure that he will need you, you are only wasting your time. This is why 8/10 sales calls don’t lead to positive outcomes. You have to target your market accurately and pick your leads precisely. Platforms like Growffy come in really handy for solving this problem as we have a curated and targeted set of leads that are readily convertible into paying customers.

Looking for a highly-targeted and curated lead-generation service? Contact us now!