Why do some SMEs thrive and others nosedive?

Starting your own business has never been more popular. Around 90% of the world’s companies are SMEs, according to the ISO, but the reality is that 8 out of 10 small businesses will fail within their first 18 months.

So why is it that some SMEs thrive, while others nosedive? Community support for independently-run organizations is at an all-time high, with messages like shop local, ethical production and investing in artisan talent high on the agenda, so the answer must lie in their structure and strategy.

Looking at the retail sector in particular, the key separator between success and failure for small businesses is cash flow. Money is what keeps company owners awake at night; where to accrue new business from, how to manage outgoing costs, and balancing supplier payments with incoming revenue.

But poor cash flow is often symptomatic of a broader issue, beyond having the right technology in place for processing payments efficiently. It can be a signal that:

The last point is an interesting one in the context of omnichannel retail. It’s well established that shoppers crave consistency and relevance in all channels; our report, The Omni-Illusion, discovered that 56% of Europeans feel it would be helpful if retailers have a single view of them, wherever they shop. But are consumers likely to be more forgiving of an SME than a larger retailer?

Yes is the answer, but only up to a point – and size shouldn’t be used an excuse to offer a disconnected customer experience. The personal touch is one of the main reasons that consumers choose to shop with smaller businesses, as opposed to the (in their opinion) faceless conformity of chain stores.

However, SMEs need to back up that personal service with availability of products and services. Small business owners are incredibly savvy about marketing on a low budget; most are using social media and email marketing platforms to drive business growth and increase customer retention. So how will shoppers react if they see a promotion on Twitter, but arrive in-store to find the item concerned is no longer available?

The influence of digital on physical retailer is impacting SMEs in other ways, too. Increasingly, we’re seeing successful grassroots online businesses making the foray into bricks-and-mortar, but with that brings a fresh set of challenges – and an established reputation that can easily be compromised.

Being unable to recognize an ecommerce customer in the store, for example, is something that can alienate shoppers who’ve been loyal to that brand’s development online. However, a relatively low proportion of small businesses are investing in the omnichannel technology to recognize total customer value and behavior.

Budget is no longer an excuse for lack of investment, either; the migration of retail technologies into the cloud has made digital systems more affordable across the board. There are some great examples out there of SMEs driving business growth through cloud-based solutions, developing joined-up experiences across the digital and physical spaces.

This is a very exciting time for small businesses, as public support for independent endeavors is very strong. The challenge for SMEs is to convert this willingness to succeed into an impressive customer experience – one that shows size is no issue when it comes to loyalty and profit.