SMEs redefine success and customers come out on top
Customer satisfaction, becoming a viable business and surviving tough economic conditions are the top three moments that matter for Australian SMEs, according to a new report released by NAB. And while almost half of SMEs are set to expand, they’re feeling some pressure.
The top three moments that matter for Australians SMEs are a customer smile (34 per cent), becoming a viable business (23 per cent) and surviving tough economic conditions (23 per cent), according to NAB’s SME Moments that Matter report, released in June.
Investigating the views of hundreds of Australian SMEs, NAB’s report explores the key moments that define SME businesses, including the outlook for growth, challenges and opportunities, the millennials as the next generation of SMEs and how SMEs are embracing technology.
For most SMEs, what makes viability such a notable milestone is that the pathway isn’t always smooth, requiring hard work and a growth mindset.
One SME owner comments: “It’s a rollercoaster ride. You start at the bottom and you work up. But you have to be ready for the free-fall. Sometimes things just happen – you can either fold or tackle things head-on.”
Perseverance is another key ingredient to surviving the highs and lows of entrepreneurialism in Australia. As another respondent comments: “We went through a period in the first five years when we didn’t have a client for eight months or any prospects. I’m glad we stuck it out. I’ve built the business up since then and now we’re turning over $12 million.”
Top ten success factors don’t include profitability
So what makes a successful SME?
According to the report, 58 per cent say good financial management, 56 per cent say positive word of mouth, while customer retention comes in at a close third (52 per cent).
Surprisingly, high profits didn’t even make it into the top 10 measures of success (it ranked 11th place at 32 per cent) while only 11 per cent agreed large turnover is a measure.
Angela Mentis, Chief Customer Officer of Business and Private Bank at NAB, says the research dispels the assumption that small business owners are driven by things such as money prestige and high turnover.
“While sales and profits are important for Aussie SMEs, it’s clear that customers are at the heart of why thousands of our small business owners around the country get up and do what they do. Despite intense workloads and pressures on all fronts, business owners are energised and motivated by their customers to succeed.”
SMEs have a positive outlook and are set to expand
In further good news, most SMEs have a positive outlook for the future, with 71 per cent agreeing Australia is a great place to have a business and 69 per cent acknowledging you can be successful in Australia – so long as you have a great business idea.
When it comes to the future, growth and expansion are firmly on the horizon for SMEs, with almost half (45 per cent) intending to expand their business in the next three years.
Medium-sized businesses are much more likely to intend to expand, with 6 in 10 (62 per cent) looking to expand over the next 3 years (compared to 45 per cent of all SME respondents).
The SME outlook for revenue and profitability also assumes growth, with the great majority expecting both revenue (68 per cent) and profitability (65 per cent) to grow over the next three years.
This growth mindset ramps up amongst millennials – almost two-thirds (66 per cent) intend to expand their business over the next three years, compared to just 40 per cent of other SME owners.
Strategies for growth and expansion include launching new products or services (40 per cent), breaking into new domestic markets (35 per cent), online sales (32 per cent) and breaking into international markets (21 per cent for all SMEs and 38 per cent for medium-sized businesses).
While SMEs look to expand, they will need support to enable them to thrive.
Mentis comments: “Small and medium businesses are the backbone of the Australian economy, so harnessing and supporting their energy is central to our nation’s financial wellbeing.”
Millennial SMEs stand out in attitudes to technology
One in five SMEs are owned by millennials and, while the SME sector as a whole is agile and dynamic, the millennial SMEs appear to be more so.
It seems the responsiveness of millennials to SME entrepreneurialism signifies a shift in attitudes to what makes a successful and desirable career path.
Associate Professor of Strategic Management, Melbourne Business School, comments: “The aspiration has shifted; the ‘end goal’ is no longer automatically to have a life-long career at a corporate … now an entrepreneurial career path has also become a legitimate option. A lot of our students are interested in doing their own thing in the future.”
Fierce competition means agility is key to SME success
While the overall outlook is optimistic, there are many challenges for SMEs – and competition is fierce.
With findings showing that around one in two SMEs believe there’s so much competition in their sector it’s hard to stand out, to survive and succeed over the long haul, SMEs must adapt and be swift to respond to change.
And it seems the majority is indeed agile. The majority (75 per cent) of SMEs have changed the nature of their business since they were first established and just under half (48 per cent) have undergone between two to four distinct phases of contraction.
“SME owners are often our most innovative businesspeople – they’re nimble enough to be ahead of the curve, and have the skills to understand how to manage the risks of the new and daring,” says Mentis. “But it’s not good enough that over two thirds of Australian SMEs still cite dealing with red tape as taking a lot of effort.”
“From our conversations with customers across the country, we know businesses are desperately wanting to spend more time on their businesses, and less time on dealing with paperwork and regulators. The effort to adhere to compliance comes at a considerable cost to them.
“Just as they put their customers at the heart of everything they do, we’re continuing to call on all levels of government and the community to do the same for them, by making things simpler, reducing the compliance burden and establishing a single, clear definition for small businesses,” Mentis says.
About the Moments That Matter whitepaper
To explore the state of play in the Australian SME sector, NAB commissioned global firm Ipsos to undertake qualitative and quantitative research with Australian SMES to explore what matters in their world, and how they’re approaching business in 2017.