Why SMB’s (small-to-medium sized businesses) Struggle To Optimize Revenue
If given the choice would you rather buy a cup of coffee from Starbucks or your local eclectic coffee shop with mix matched mugs? Would you rather buy an outfit from Macy’s or from the local boutique where you are on a first name basis and the clothing and accessories are presented in a way that you would never have considered putting together on your own? There’s not a right or wrong answer and I certainly have nothing against Starbucks or Macy’s – they fulfill their rightful purpose in the consumer ecosystem – but it’s a special feeling to support the local small business owners in your community.
Small to medium businesses, or SMB’s, (defined as less than 100 employees or less than $50M in revenue) are considered the “backbone” of the United States economy driving 48% of our GDP, according to JP Morgan. Therefore, our economy is roughly 50% driven by SMB’s and another 50% by publicly traded companies. While SMB’s are not required to report their quarterly or annual performance, they should learn from publicly traded companies who consistently exceed their revenue targets year after year (e.g. Apple, Target, and yes, Starbucks).
SMB’s should thrive not just survive
It’s well documented that most SMB’s fail in the first five years of business but my focus is on the companies that do survive and have built a good-solid business. However, my intention is to dive deeper as to why these companies often hit a revenue plateau and provide solutions to these pain points. While these companies may survive they don’t necessarily thrive.
These companies have built great products and or services and achieved product-market-fit. Congratulations, that is the hardest part of the process! While my examples above are B2C (business to consumer) companies, for the context of this blog, I am focusing on B2B (business to business) companies and am assuming your business has consistent revenue and is profitable. A B2B company could be a DTC (direct to consumer) swimwear brand (i.e. soft goods) who sells their products online but also sells through a wholesale channel to your local boutique shop and/or to Macy’s. Or it could be a B2B pool accessories manufacturer (i.e. hard goods) who sells their products to regional hardware stores.
What is surprising though, is many of these B2B SMB’s never developed a well defined sales infrastructure. So while they are successful, in the simple context that the company pays their employees and vendors on time while achieving annual profitability, the business could be performing much better. The good thing is, SMB’s don’t have Wall Street investors breathing down their neck questioning you about short term quarterly misses. That’s probably why small business owners started the company in the first place – to remain independent and be your own boss. The danger here is, if you are a private company and don’t have shareholders challenging you to improve your business, who will?
It takes a very special self-reflecting, egoless, leader to seek outside help when they know deep down inside that their business could be meaningfully better.
Are you the type of business owner who wants to constantly learn (i.e. Growth Mindset) and surround yourself with people who cover your blind spots?
If yes, then please read on to add to your knowledge base.
What pain points are SMB’s facing preventing them from maximizing their revenue and profitability potential?
Based on the feedback from private equity investors that I talk to and analyzing previous clients’ pain points, I’ll boil it down to a few things:
- Lack of formalized employee training
- No defined sales infrastructure
- Unsure of how to access experienced executives
There are certainly many disadvantages of corporate bureaucracy and short sighted pressure on quarterly results, but a few things most publicly traded companies get right is a formalized training program, well defined sales process, and very experienced executives.
Why invest in formalized training?
Think back to when you made your last hire. As a business owner, try and put yourself in your employees shoes; how was their onboarding experience? Were they given a proper history lesson on the company; did someone really take the time to walk them through the products as if they were a customer; did you go through a 1-2 week long training period on how to use the companies software systems with a formal manual, online tutorial and quiz to make sure they understood the material?
Or did the IT guy provide them with their computer login credentials, pat them on the shoulder, and say “good luck kid?”
Formalizing your onboarding process and properly training your employees from day one significantly improves your company’s success. For one, you reduce employee turnover which can be very costly and time consuming. Secondly, well trained employees deliver far superior customer service and support, increasing the likelihood of repeat customers, and therefore, lowers acquisition costs and increases revenue and profitability.
Make the investment in employee training; it’s smart business and will help your company thrive.
What is a sales infrastructure?
A company’s sales infrastructure is the combination of the sales team, sales process and how they are supported with cross-functional teams (e.g. marketing, legal, operations). One of the consulting services that I provide is a Sales Audit, meaning I conduct an independent examination on a company’s sales processes and team to identify weaknesses and areas for improvement.
It is estimated that 90% of SMB’s do not have an established sales process. An effective process includes SMO (search marketing optimization) campaigns, CRM (customer relationship management) software, sales scripts, pitch decks, and a pipeline process to track customer sales closings at each stage of the journey.
For example, here are a few weaknesses that I uncover during a Sales Audit:
- Does everyone on the sales team follow the same repeatable process or does each sales rep “do their own thang?”
- Do you have well defined sales territories or are there gray areas as to who manages what?
- Do you have proper sales quotas and a clear compensation plan?
- Do you provide quarterly or even annual performance reviews?
- How are customers engaged after a sale is closed?
Ensuring your sales team is led with accountability, clear expectations and they are properly trained on a proven sales process is critical to optimizing your revenue.
How seasoned executives provide your SMB with a competitive edge
I’ve previously discussed how talented executives can make or break a company so for an elaborated explanation, please click here.
In short, does your company have a seasoned senior executive on your team who truly understands strategy and is able to analyze the total addressable market (TAM) within your product sector, and understand the competitive landscape to uncover growth opportunities? Additionally, do they have the skill set to create and present a clear roadmap to the entire team so everyone is working towards the same goal?
Perhaps this executive skill set is not available in your small town or maybe you know of a couple executives that you’d love to hire from the big city but you either can’t afford them or they’d never leave their “secure” corporate job regardless of what you paid them.
In today’s gig economy, SMB’s now have access to rock star executive talent that was never available before. Find an executive who has experience scaling a business much larger than your current business. Outsource this talent and gain a competitive edge over your competition.
Entice them with purpose, equity and flexibility that they likely never received from the corporate world.
How can SMB’s leverage a corporate playbook to optimize revenue?
In short, outsource your sales and strategy leadership to Growth Mindset Advisors.
If you are the president or owner of a small to medium business (SMB) and any of these pain points sound eerily familiar to you, I encourage you to reach out and let’s discuss how I can help optimize your business growth. And if I’m not the right fit, I can help you find someone who is through my extensive network.