Catalysts of growth, yet the silent contributors. Creators of competition, but originators of employment, often called innovators and architects in improving efficiency. Welcome to the world of small and medium enterprises.

Over decades, SMEs have metamorphosed into a lucrative business model, with an attitude of flexibility and adaptability, alluring aspiring entrepreneurs to mark their presence in the business world with innovation. As exciting as it may sound, practically, SMEs share their own set of hurdles along their way to success.

Let’s discuss the five important stepping stones to keep in mind before venturing into SMEs. I call them the IRODS of the SME journey.

Investment — The need indeed

Without investment, an idea will remain an idea. Investment is the catalyst that brings ideas to light, and most often ideas need capital investment to unleash their true potential. To begin with, SMEs should develop a strong vision followed by strategic business plans to make maximum utilisation of investment.

Smart use of knowledge and investment into technology to increase operational efficiency is imperative for SME’s success. However, despite being a major contributor to the economy, SMEs are unfortunately bound by certain constraints in acquiring investment, like inability to procure timely and affordable credit, a higher cost of credit and lack of access to equity capital.

Unlike large enterprises, financial institutions are usually cautious to fund SMEs and inadequate funds would result in lack of access to technology and skilled talent. This is where the SME Chamber comes into action, where weaknesses of the SME’s are understood and proper financial injections can be prepared.

Risk — A part-and-parcel of business

In any business venture, probability of profit and possibility of loss are two sides of the same coin. SMEs, in particular, are more vulnerable with limited resources and lack of a structural approach. Risk can arise either from external factors or internal (human resources, infrastructure, or technology.) As an enterprise, the focus must be to secure the assets of the company.

To avoid risk from competition, SMEs must engage themselves in understanding the sector dynamics and targeting the potential customers since they predominantly cater to a domestic market. A bigger risk is also in the retention of trained staff, as most workforces treat SME as a stepping stone to garner training and head on to greener pastures or bigger names.

Opportunity — Creating platforms

SMEs as a sector create opportunity platforms. And not having a bureaucracy to deal with, they can seize opportunities faster with faster decision making. For instance, SMEs have an ideal platform to manufacture products locally, understand specific demands and define their target end-user, which gives them an edge over a large enterprises.

With the rise in SMEs and demand from other countries, many have witnessed exponential growth through exports. SMEs come into business with their killer instincts intact as they know that there are no parachutes of regular salaries or bonuses holding them up. They know they either do or die.

Diversification — Remove the blinders

‘Change is inevitable and growth is optional’, and the quote holds good for SMEs. It would be advantageous to diversify in complimenting industries that create demand and opportunities for each unit. They also have the advantage of being flexible by diversifying into a different sector if a particular sector hits a downturn.

They, however, cannot function like a mutual fund as a lot of research is required to venture into different lines of business. Resources being limited, diversification can result in adverse effects, like increased costs, a requirement for talent and, most importantly, diversification can take away the focus from your best product.

Sustainability — The strong foundation

It’s hard to reach the top, but it’s hardest to sustain the spot. Hence sustainability must be the highest priority for SMEs. What you need to guarantee this is involve like-minded people from different spheres and skill sets to make sure that each and every management link keeps the business cemented in reality.

SMEs usually recruit entrepreneur minded individuals to drive the business forward. Skill set is secondary. Once that is in place, sustainability comes by fuelling that passion to reach higher. The focus is not on money, but accomplishment. Though there are many other reasons for SMEs to succeed or fail, having a strategic business plan with these factors would put your business model on the right track. The future looks bright for SMEs as it provides more opportunities, creates more employment, encourages innovation and healthy competition.

The writer is the Regional Director at the SME Chamber of India, India International Trade Centre.