Small Businesses Matter: Why FT report on health of SMEs in London is scary?

Small businesses need to invest in alternate capital and good management to get going…

Takeaway Ideas:

• Small Businesses are too important to be ignored
• Building alternate forms of capital: Social, Human and Labour
• Applying this capital with judicious management and leadership

Here are some facts about small businesses:

• 93 % of all European enterprises have less than 10 employees. Two thirds of all jobs are in SMEs
• In much of the developing world the private economy is almost entirely comprised of SMEs
• Economy dominated by SMEs like Taiwan can generate a low level of inequality in the distribution of primary income

Most large firms have grown out of the SME sector, so its health helps to determine the future supply of large firms.

• SMEs tend to dominate a country’s new and fast growing industries.

A region with a poor small business sector risks its own future. And recent Financial Times report that says “Small and medium-sized businesses … are finding it increasingly hard to make a living in London because of high property costs.” is ringing the alarm bells.

We need to start focusing back on the basics on how to make market work for all. How do we do that?

There can be no substitue to access of capital, however

capital is not only about money.

There are several forms of capital:

• If we don’t have money, we can invest in relationships, and build our social capital. Small businesses have one inherent advantage over large firms, they can maintain personal relations with their customers, forge trustworthy partnership with their local suppliers. A small gesture of goodwill can trigger good relationships, and good social capital can go a long way in building a thriving community of successful businesses.
• If we don’t have money, we can invest in training, build our human capital. Good business need not be about the best brains, but it is certainly about continuously gaining skills. Better financial literacy, better negotiating skills, better knowledge of business processes… these are some simple skills that can when come together can lead to increased efficiency.
• If we don’t have money, we can invest in people, build our labour capital. While fledging times can be testing, it is an even more important that people are treated more respectfully, so they feel valued. Treating people respectfully in tough times, gets reciprocated more, and leads to better outcomes. So, a tough time may not be about layoffs and bottom-line, but can as well be about high quality and motivation. After all good firms are those to which people want to stay, for something more than just a monthly salary!

Whatever be the situation, let’s keep building capital.

But capital is only the raw material. In tougher times, small improvements become increasingly more important. Firms often focus on cutting slack (people, resources aka potential), but instead it may be wiser to first cut wasteful time through better processes and motivated people, through good planning and leadership.

When the going gets tough, building alternate forms of capital and showing good management, can help a tougher firm going.