A passionate individual with dreams to create something out of nothing – that is how the SME journey usually begins. The first few years are gut wrenching- the entrepreneur works sometimes as a salesman, sometimes as the product expert, often also as the admin resource and the HR pointman. This initial “Jack of all trades” phase is very tough but extremely satisfying and rewarding. During this journey the entrepreneur usually gathers a clutch of good customers, some extremely loyal employees and a strong domain/product knowledge. The organization at this stage is however fluid and unstructured, degree of specialization is high (the organization is likely focused on some product/customer niches) yet low (everybody is doing almost everything), the staff is usually highly motivated and happy-yet does not know much of the world beyond. The public profile of the organization at this stage usually limited.

Overtime the entrepreneur starts yearning for a greater scale of operations and tries to expand into newer areas of operation- sometimes successfully, other times not. It is critical for the business owner to remember at this stage that if his organization is to successfully graduate to the next level it needs to embrace the new way – i.e. acquire newer employees with a multitude of skills, cultivate a stronger public profile, have a stronger focus on working capital management and capital allocation in general, all without the operation becoming a high cost one and retaining its original nimble nature. This process of transition is usually painful and requires a willingness to accept shortcomings and openness to learn and accept the new ways. This process of learning is essential not only for the entrepreneur but also for his key employees – else all are exposed to the risk of falling by the wayside as the world moves on.

What are the key aspects that best serve the organization in this transition phase. This article enumerates some important ones below:

1. Enhance general business awareness/cultivate senior mentors- It is important for the entrepreneur to listen to trusted mentors about successful practices that have helped similar sized businesses grow. This advise is usually best given by businessmen who have been through a similar growth phase not too long ago or by talking to advisers who have worked on similar issues with larger/diverse organisations. Taking growth related advise from similar sized entrepreneurs may sometimes be useful but is often self limiting. While similar sized entrepreneurs may be easily approachable and well meaning but they would usually be searching for answers to the same problems as the businessman in question himself.

2. Embracing new Products/markets- Breaking into larger yet related products/markets is usually critical for an organization’s growth. Getting into newer/larger markets usually increases the complexity of operations and success generally takes longer than anticipated. It is critical that during this extremely tricky graduation phase the businessman does not give up on his core/traditional products/markets. The old market segments will serve the businessman well and provide him with baseline revenues during this transition Phase.

3. Anticipating the skill gaps in the organization- Growth has a habit of throwing up skill gaps in the organization- not just in the frontline customer facing functions but also at the back end that usually gets bigger as the organization grows. While it is important to anticipate some of these skill gaps, it is also critical that the entrepreneur plugs himself into a flexible recruitment agency that could provide him with a steady stream of potential employees as required. Further it is naïve to assume that some of the old loyalists may be able to plug in and act as senior management to the new recruits. This may often be possible but sometimes the old guard may be underskilled to meet the new challenges.

4. Systems/Processes- Having invested in new human resources and taken on new customers, and markets, the organization has to graduate from a hitherto amorphous mass to a relatively better structured self propagating machine. It is important to ensure that this new and emerging machine continues to work as efficiently as the earlier one. It therefore becomes critical to put in place atleast a basic organization and reporting structure complemented with some critical systems and processes on Authority delegation, Inventory Control & Collections, MIS, Performance Appraisal and Employee Incentivisation.

5. Developing a stronger public profile- This is often an ignored area in a small organization. While the importance of public profiling depends on the nature of businesses (brand led businesses usually require greater profiling), profiling is nevertheless important in varying degrees. Not only does a public profile help in business growth, a stronger profile also helps recruit easier and builds greater confidence amongst Company’s customers, bankers and potential private equity providers.

6. Accurate Financial Reporting and keeping Bankers satisfied- Finally the funding issue- banks are usually the primarily external source of finance to these small organizations and it is critical that the bankers are satisfied with the Company’s working. While it is difficult for smaller organizations to have sophisticated ERP systems, they should nevertheless invest in a basic accounting software and also have reasonably competent people manning their accounts department and this software. Quick and accurate reporting to the bankers goes a long way in enhancing the credibility of the organization for the bankers to provide additional funding as and when necessary.