2012: The year of the UK SME

At long last, 2012 has seen David Cameron and the coalition recognise the importance of small and medium businesses as the backbone of the British economy. Was this the year the UK’s SMEs finally received the attention they deserve?

SMEs make up a staggering 99.9 per cent of all new enterprises, but only 45 per cent of them survive the first five years. “Much of the research into small firms has focused on their failure,” so reads a recent report into unlocking the key to SME success by the Surrey Business school, “Success in challenging times”.

The report surveyed over 1,000 SME owners and senior managers to take a fresh look at UK SMEs: by measuring their success. The report, commissioned by Kingston Smith, made key recommendations for SMEs to increase durability and survive turbulent economic times.

We picked out the report’s top points and spoke to business leaders and industry experts about what really made a successful business in 2012.

1. “Successful SMEs are likely to use more than one source of finance to both start and sustain their business”

More than 70 per cent of young businesses rely on personal or family savings, and nearly 40 per cent of established businesses still rely on this form of finance. Surrey Business school urges owners to diversify their sources of finance.

“Our research shows that banks come a poor third in terms of finance sources – which is disappointing given that the UK is considered to be a market economy,” explained study director, professor David Gray. “SMEs need ‘patient’ capital, finance that is there for the longer term. This is the only way to stimulate and sustain high-growth businesses.”

Borrowing from family or friends, or re-investing retained profits are often an inadequate source of funding. Some 15 per cent of SMEs finance their business through credit cards, which can restrict growth and ultimately lead to failure. What about venture capital finance, invoice discountingcrowdfunding, and government schemes?

John Antunes, director of SME and Channels at SAP UKI, commented: “SME success isn’t completely dependent upon government initiatives, but having public backing and funding can often give start-ups and small businesses the financial (and confidence) boost they really need.”

Simon Thompson, director and co-founder of ConferencesGroup, questions the power of government initiatives: “Still only a limited number [of businesses] are actually taking advantage of these changes, with about a third of UK SMEs thought to be unaware of the schemes available to them. The greatest challenge is that despite the headlines that we are ‘officially out of recession’, we are all still very much in it, as the effects continue to be felt.”

The relationship between SMEs and high street banks has been particularly turbulent. Surrey Business school stated: “Banks still do not provide enough capital required and seem to know very little about what businesses – especially what small businesses – need.”

2. “Successful SMEs consider direct referrals and search engine optimisation as central to their success”

The web has become an intrinsic tool for marketing, be that for allowing customers to do online shopping, reviewing feedback through company websites or utilising social networking sites. But despite the internet’s instrumental role to business, the web remains a problem for UK SMEs. (see: “Why are our mid-sized and smaller businesses reluctant to get online?”)

Brits are spending an estimated £68bn a year shopping online, but only one in four SMEs carry out online marketing to drive their business, according to recent research commissioned by bdaily.

James Nash, director of Bike Dock Solutions, stresses the importance that business leaders “ensure they have an online presence, whatever industry they are in. Ensure service levels are high – this way they can ensure repeat business.”

Some four per cent of SMEs consider direct referrals important to their continuing success and 67 per cent consider search engine optimisation important.

3. “Successful SMEs are willing to find new ways of doing things and encourage their employees to think and behave innovatively”

“Thinking innovatively about the way you do business, from customer interaction through to talent acquisition, can ensure you stay one step ahead of your competitor,” considers John Antunes, director of SME & Channels at SAP UKI.

Over 80 per cent of business leaders strongly agreed that their business is willing to try new ways of doing things and seek unusual, novel solutions. One solution is tackling energy:

“In Opus Energy’s poll of UK SMEs earlier this year, 42 per cent highlighted the revenue opportunity behind any decision to generate renewable power,” reveals Charlie Crossley Cooke, managing director of Growing Business Awards finalist Opus Energy. “It’s an investment in their business future; a way to reducing overheads and to make savings on their energy costs.”

4. “Successful SMEs have the flexibility to adapt to changing market conditions”

Discovering new markets is crucial to success, as organisations strive to keep control of cash flow and attempt to keep head counts down. This year has seen UK Trade and Investment (UKTI) urge UK SMEs to export repeatedly. This involved implementing initiatives, including the “Headstart” scheme to achieve David Cameron’s “national challenge” (to add 36bn to the economy by increasing SME exports). “Britain is in a global race to succeed today,” argued Cameron. “Every week you step off aeroplanes in the South and East and feel the pace of change there.”

John Antunes: “Exporting isn’t right for every business, but looking into the possibilities of new markets is something which I predict will be a crucial consideration for many SMEs in the coming year.”

“From a practical level, of course it requires a certain amount of bravery to take the plunge in an overseas market, but the support and information available to SMEs to make informed and strategic decisions is what’s really driving exporting opportunities.”

SMEs with larger numbers of employees view exporting as important to their continuing success.

Not to forget: Successful SMEs participation in last summer’s events

The UK is out of recession – thanks to the summer’s events. But many have their doubts that the economy will continue to grow. Have the Olympic Games and Queen’s Jubilee been instrumental in the success of UK SMES?

James Nash, director at Bike Dock Solutions believes an element of their success was down to “winning larger projects, such as the tender to supply the cycle parking equipment for London 2012 Games.”

On the other hand, this summer had a negative impact on the Conference Group. Simon Thompson, director and co-founder explains: “Our typical seasonal peaks and troughs have been off kilter this year due to a number of one off events such as The Jubilee and London Olympics.”

“Much of our business comes from the sourcing of London hotels for corporate meetings and events, but as businesses opted to stay away during this time…Contrary to expectations of huge hikes in the cost of London meeting venues, we were actually faced with an abundance of discounted rates, with some four star properties offering room hire for as little as £100, often saving up to 80 per cent.”

2012, the year of the SME

In the UK approximately 45m businesses employ fewer than 250 people. SMEs provide 13.7m jobs, equal to half of the whole private sector workforce in 2011. There is no doubt that unlocking SMEs full potential could be key to the UK’s future economic success.

“It’s been a year of mixed fortunes for SMEs,” evaluates Allan Archer, director of customer experience at Riverview Law. “Our SME clients have told us they’ve struggled with accessing finance but also in navigating increasing legislative requirements. However, they’re also likely to have seen an influx of experienced talent come onto the job market which has given growing SMEs an opportunity to access experienced hires.”

SMEs have endured a variety of diverse issues in 2012 to be successful – most instrumental was combating finance and cash flow problems, but social media and innovation also presented issues. However, whatever an SME’s idea of success the means to achieve it is always evolving: it’s vital SMEs keep up.

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