How to professionalize SMEs

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Andrew J. Masigan

Numbers Don’t Lie

I am a frequent visitor to trade fairs organized by the Department of Trade & Industry, particularly the GoLokal fairs and the Manila Fame, a trade fair targeted towards foreign buyers. Each visit, I am amazed at the creativity and craftsmanship of Filipino-made products. While they are hard-pressed to compete with their equivalents from China on a price perspective, locally made goods are undoubtedly superior in terms of design and innovation. This is what keeps foreign buyers coming back year after year.

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I have noticed, however, that many of the firms that impressed buyers in one year are gone in the next. I discovered that many of our creative entrepreneurs are driven out of business due to their inability to compete, to cope with production deadlines or manage issues relating to finance, personnel, operations and even government compliances. In short, while many SME’s successfully get off the ground, they fold up when they hit the first glass ceiling of growth.

I have been an entrepreneur for more than thirty years and have encountered that glass ceiling numerous times. Thanks to experience, the support I get from the Entrepreneurs Organization and numerous management books I have read including Good to Great by Jim Collins and Traction by Gino Wickman, I have learned that hitting the glass ceiling is simply a sign of business growth. It is an indication that the company must pivot and change its ways in order to graduate from one level to the next.




SCALING UP
When the business is operating in full capacity and everyone is stretched to the limit, you know the time has come to scale up.

For most entrepreneurs, however, they believe that scaling up merely involves increasing production capacity, hiring more people, expanding stock levels and buying more delivery trucks. While this is a part of it, the more important part of scaling up is preparing the company’s mindset for bigger business volumes.

Sure, sheer determination and hard work can get a business from zero to its first thirty million pesos in sales. But conditions are different when you are in the P30 million to P200 million league, and so forth as your business grows. The will power and toil of the entrepreneur will no longer do. The organization will need structure, direction, a guiding philosophy, goals and strategies in order to meet the challenges of being in a bigger league. In other words, the business needs to professionalize. This is where most start-ups fail.

Professionalizing a business generally involves two steps. The first is setting up a management team and the second is defining the company’s purpose, values, targets and plans. The second step is collectively known as a “Vision Organizer,” as it is referred to by management guru, Gino Wickman. It may seem like an unnecessary academic exercise since most business owners assume that everybody in his organization know what they are already. Believe me, based on experience, most employees have different perceptions of what the business is and where it is going. This exercise is important to get everyone rowing in the same direction.

Let’s talk about putting together a management team first. All businesses are fundamentally composed of three functions. The function that generates sales (eg. a sales force, retail stores, restaurants), the function that produces what is sold (e.g. the factory or commissary) and the function that takes care of financial matters, administration and human resources. When forming a management team, each of these functions must be represented by a key executive. They all report to the entrepreneur who acts as the conductor, integrator and coordinator of all. Note, there can only be one person accountable per function.

The Vision Organizer, on the other hand, is composed of six components. The company vision, core values, core focus, 10 year target, strategy and 3 year picture. I’ll explain each one and use examples from my own company to provide context.

The founder of the business is usually in the best position to define the company’s vision. The vision is the grand dream of the business owner and an indicator of the general direction it is heading.

It is recommended that the vision be narrowed down to a single field of specialty. After all, its easier (and more realistic) for small and medium sized businesses to gain dominance in one field rather than two or three. One of the companies that I am involved with is called the Advent Group. We own a group of restaurants. We’ve defined our vision as: “to be the country’s foremost purveyor of Filipino cuisine.” Focusing on the Filipino cuisine allows us to concentrate our research & development, marketing activities, expansion plans, operations systems towards one goal. To specialize in two or three cuisines would muddle our efforts.

Core values are a set of timeless guiding principles. They are the values that a company holds dear. In the case of the Advent Group, they are: having a deep love of country, being detail oriented, being competent and reliable.

Defining one’s core values makes it easy for us to hire, review and reward people. It also compels us to prune people that don’t share our values. In an organization, working with people with like minds opens the way for understanding and synergy. A united team guided by the same principles is a formidable force. Conversely, having people in the team with opposing values can cause conflict and demoralization. They could cause more damage than good.

A company’s core focus, on the other hand, is its reason for being. Core focus is sometimes referred to as “core business” or even a company’s “sweet spot”. In the Advent Group’s case, it is: “to represent Filipino cuisine faithfully and honestly” and to “spread the gospel of Filipino cuisine to the world.”

With these guiding principles, a company will not be distracted by business opportunities outside its sweet spot. It will only work in the “zone” wherein it excels.

The ten year target, also called a Big Hairy Audacious Goal (BHAG) by some management gurus, is the company’s larger-than-life dream defined in a quantifiable, time-bound manner. In the Advent Group’s case, it is to have 500 restaurants in our system in five continents, within ten years.

The company’s strategy is composed of four components: Defining your target market, your three “Uniques,” your proven process and your guarantee.

Your target market is simply your ideal customer. Who are they, what are they and where are they? For the Advent Group it is people who appreciate good food and culture, 25 year old and above in the key cities of the world.

Your “uniques” can also be considered your competitive advantage or what makes you better than the rest. For Advent, it is our honorific Filipino service, our 40-year-old (or older) recipes and the display of snippets of Filipino culture.

Your proven process is the way you provide products and services to your customers in a manner that always works. In Advent’s case it is to “wow” the customer with Filipino culture, service and food.

Your guarantee, also known as a brand promise, must address a point of frustration or worry of your customer. It is often made more effective if it comes with a tangible penalty. An example of this is Domino’s Pizza’s guarantee of “delivery in 30 minutes or your Pizza is free.”

Defining your marketing strategy serves as the foundation in which to create all future marketing materials, advertisements and public messages.

With your vision, core values, core focus, 10 year target and strategy defined, you are now crystal clear on who you are, what you are, where you’re going and how to get there.

Now, paint a picture of your company three years forward in terms of revenues, other quantitative indices and the conditions you are in. Again for the Advent Group, it is to have at least 100 restaurants; several abroad, owning our office headquarters and being a close collaborator with government towards spreading Filipino cuisine and culture abroad.

Defining this 3 year picture allows the organization to “see” what the future will be for the company and their role in it.

Having a management team and the Vision Organizer in place is like having the right people and the right road map to realize your vision. This is the first component to the professionalization of a company and fundamental for scaling-up.

Using these tools has helped many companies break the glass ceiling and become bigger, stronger and better.

One can only imagine the effect on the economy if the thousands of MSMEs developed by the DTI mature to become aggressive exporters and graduate to be large enterprises.

 

Andrew J. Masigan is an economist