Can SME’s embrace the start-up state of mind?

Published at Feb 19, 2016, in Features

Companies are supposed to be agile and chase innovation like a fever dream, but few small-to-medium companies have received the memo according to one consultancy.

Melbourne-based accountancy firm McLean Delmo Bentleys (MDB) has teamed up with head of Adventure Capital Stuart Richardson to partner up the minds at Adventure’s incubator the York Butter Factory. It is here that start-ups and SME businesses partner up in their search for innovation.

Stuart and MDB partner Andrew Pearce often connect start-ups with SMEs in an attempt to bring a new, more agile way of thinking to the SME sector.

Speaking at a roundtable event, Pearce told Finfeed that just 24% of SMEs interviewed by the consultancy said they were focused on innovation within their businesses – and it was simply a factor of not having enough time to focus on the next great leap for their business.

“[Some] SMEs are identifying the need to have that start-up mentality, but how do you do that when you’re really busy? They’re trying to survive day to day in a touch competitive market,” he said.

“They hear from Malcolm Turnbull and co that we need to be the Innovation country, the ideas country, but the SMEs are thinking ‘How do I actually do that when I have an existing business to run?’

“They’re just busy trying to do their stuff.”

One of the major fallacies in innovation thinking is that smaller companies have more room to be agile, but quite often the leaps come from large companies as they have the resources available to make a team available to chase side-projects.

Not so at smaller companies which need all hands on deck.

“For a lot of established businesses, that thinking has been lost”

But it’s not simply a matter of lack of time which has seen SMEs fail to jump on the innovation bandwagon – it’s a genuine lack of cultural change within the SME sector.

Part of the issue for Richardson comes back to what is and isn’t being taught in the classroom through to the MBA level.

“In a traditional business you do an MBA and you’re taught how to take a business from ‘one to n’, but what you’re doing in a start-up environment is the 0 to 1,” Richardson said.

“You start from nothing but an idea and you need to develop the business. That’s a long and hard journey of experimentation and requires a totally different mindset that you get from the MBA.

“For a lot of established businesses, that thinking has been lost.”

Richardson also points to a broader cultural issue within business where incremental growth has been celebrated and people have been too comfortable to experiment.

“It’s about driving change within an organisation and we’ve obviously had a strong re-enforcing cycle whereby incremental growth has been celebrated and rewarded,” he said.

“Now we need to make a change because that sort of thinking isn’t good enough anymore. To make that change takes a fair bit of confidence.

“They’ve been too comfortable, so they haven’t bothered to experiment. They’ve reverted back to what they’re comfortable with.”

“They can’t inject capability fast enough”

Part of the issue has also been the sort of people within the SME environment.

If you go to a start-up incubator such as the York Butter Factory and then take a trip to an SME, you’ll find very different people with different mindsets and skill sets.

If SMEs hire the same kind of people over and over again, they’re not going to get a different result, nor the innovation they need.

But if SMEs don’t hire for diversity, then they’ll need to be more comfortable with collaboration to drive innovation.

John Persico is the executive director of PSCL, and works with both Richardson and Pearce to provide insight into SMEs’ businesses.

He thinks the concept of the ‘organisation’ is shifting, partly in response to a recognition that innovation was sorely needed.

“I think the ability to collaborate more and work with outsiders is really something we’re starting to see and it is partly a response to that cultural issues and identifying that there’s a set pattern of thinking there,” he said.

“In the SME space, there are a lot of companies that make actual things. They make glasses, houses, video. They can’t...inject capability fast enough and ready enough.”

Data is king

Persico says one of the major areas SMEs can innovate is in their use of data – as most have a stack of it lying around but don’t know how to either turn it into insights or commercialise it.

“One of the things that surprises us when we go into companies with that data question is that you have companies which aren’t all that small but you say ‘data’ to them, and they say ‘what?’,” he said.

“That’s astonishing.”

It partly goes back to the issue of time and not having enough of it to sift through data for insights, or sit down and think through the big picture strategic issues such as where the next disruption in their sector is going to come from.

Persico said there’s a lack of ability in SMEs in being able to measure their intangible assets.

“That’s stuff like a Facebook page with a million likes they may have. They don’t think their database with three million emails is worth anything – do you not think your CRM which has been beautifully manicured by your data analyst is worth anything?” he asked.

“Absolutely it is.”

Innovation isn’t a want, it’s a need

One of the key reasons why SMEs are starting to think about innovation and adopting a start-up mentality isn’t just because Malcolm Turnbull rabbits on about it – but rather the old way of doing things isn’t good enough.

“I think there’s enough tailwinds with the government saying that the world is changing and you need to change with it,” Pearce said.

“We’re hearing those messages, and we’re finding a lot of businesses who are in the second and third generation who are hearing those messages and acknowledging them but not knowing what to do.”

The message here is that steady, incremental growth is possible – but it’s simply not probable in the current marketplace.

Instead, businesses of all shapes and sizes need to think of the next big thing to take their business to the next level because if they don’t, another company will, and leave you behind.

“The market has changed significantly,” Richardson said.

“The leadership politically has definitely assisted in that but equally the markets have changed as well and what is Australia’s role, how do we create value?

“Do we play just in the Australian game and limit ourselves or do we try and play the global game and tap into that?”

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