The conundrum of SME survival and success : grow profitably or wither

                                                                                                             (Picture courtesy of Annette White, http://bucketlistjourney.net)

I have been in Management Buy-In(s), mostly with B2B and industrial companies, for nearly 3 years, across 2 countries: France and Belgium. In the 6 months before that, I reached out and discussed with everyone who’d agreed to share their experience: from stellar successes (growing to mid-cap) to complete crashes (from profitable to chapter-7-type liquidation) to everything in-between.

In almost all of my own instances and the ones described above, the reasons were inherent to the specificities of SMEs: self-funding and access to capital, lack of resilience in volatile markets, access to key skills for the “next step”, and unability to act on big opportunities because of size and unability to ramp-up fast enough - the exceptions being the founder’s experience and risk apetite. This seemed to be unrelated to whether they got bought-out or not. 

While my datapoints do not amount to hundreds, it is safe to state that the effects of unability to self-fund growth, attract talent or withstand a downcycle would have been much defining (in sucessful as much as in unsuccessful cases).

Very few SMEs undertake R&D risks (and even fewer should), and many SMEs I have met owner-managers that have an strong awareness of their market, their competitiveness and the export ability of their goods and services (digitization has helped strongly in leveling the playing field as far as access to data and quality research).  

I would go as far as state that most SMEs (particularly family-owned ones) manage to get an exceptional alignement of their teams and a true commitment to the goals, in a far superior way than mid-cap companies.

In my humble opinion (based on about 50 B2B companies in the 2 countries mentioned) the clear discriminating factor between success and (big) failure was whether the companies accepted the risks inherent to their asset class, or whether their acute awareness pushed them to move away from that exposure: whether you think in terms of liquidy discount when exiting the business, cost of capital, surviving market downturns or diversifying the portfolio (products or customers), there was no better way than growth. Any sense of safety in constant sales and cash flow always reminds me of the picture below. It is only as sustainable as the pile of cash the company is sitting on (or fuel for this hot-air balloon), which only concentrates the risks.