Stressed & moribund: To understand the fundamental problem with SMEs, look at the owners

When economists and policymakers talk about SMEs (small and micro enterprises), they usually define them, in the Indian context, as enterprises with fewer than 10 employees and earning less than Rs 50 crore annual revenue. By that definition, there are about 50-75 million such enterprises in India.

In contrast there are about 10,000 medium and large enterprises in India (enterprises with more than Rs 50 crore revenue). To be sure, every medium and large enterprise would have fit this criterion at some stage of its lifecycle. Here an SME refers to a mature organization (more than five years in existence) that fits this criterion.

But there’s another vital distinction between a large or medium enterprise and an SME. A medium or large enterprise usually has many anchors on which it can differentiate. These anchors typically include brand, product, organization, capital, ecosystem etc.

Based on differentiation across these anchors it is able to create an institutional capability that ensures its profitable sustainability. In contrast, an SME usually does not have any of these anchors to create an institutional capability and differentiate on the basis of that.

A typical SME does not have innovative or unique products for which it can charge a price premium. It does not have the cash to invest in build a brand through which it can charge a premium. It does not have the scale of operations to reduce unit costs, and hence has low margins. It does not have access to low-cost capital, which also puts pressure on costs and margins.

Therefore, an SME is squeezed both on the revenue side, by having little ability to charge a price premium and on the cost side due to lack of scale and access to low-cost capital.

Thus, and this is critical, ultimately the existence of an SME is wholly and solely based on the individual who is the driving force behind it. There is day to day engagement and driving by the individual that keeps the enterprise going.

Now, if we were to visualize the state of an individual who is the driving force behind an SME, it will be obvious that such a person will usually carry a great deal of pressure and stress. It is a constant 24×7 level of stress. Further, the person also has responsibilities towards the home and family. That only further amplifies this constant level of stress.

It is, therefore, very important to visualize this so that one is constantly aware of the state of such a person. Then one will always carry a deep sense of compassion for the individual. Owning and running an SME is a far more stressful job than many others in business.

To understand this even better, consider this: Just as an SME does not have product, brand, technology, financing differentiation, it does not have people differentiation either. The larger the enterprise, the larger the number of ‘branded people‘. Even the concept of a branded employee may be alien to the owner of an SME.

And there’s a flip side: An SME owner may not allow a branded employee to develop, since he may feel that employee is getting ‘too big for his boots’. This means the SME owner misses out on empowering executives. And whenever there’s a big opportunity or crisis, the owner has to handle it. Nobody in the SME has as much skill, knowledge, or bandwidth as the owner.

And then, when something breaks, the owner has to deal with it all by himself, no counsel is available from empowered employees.

That’s why failure rate in the face of shocks is high in SMEs. The structure produces a particular kind of owner, who’s highly stressed, and the one-man-does-it-all culture means responses to crises are limited.

Stressed & moribund: To understand the fundamental problem with SMEs, look at the owners Stressed & moribund: To understand the fundamental problem with SMEs, look at the owners Reviewed by TechCO on 1/18/2021 Rating: 5

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