[Open Letter] On the missed SME Opportunity in India

Image Courtesy: Canadian Health Coalition

17% of total India’s GDP contribution comes from the 80% of the businesses in India and that 80% named as SMB- Small Medium Business.  As India is on the path to find itself a niche while attempting to replicate the Chinese success story of economies of scale, there is a basic fundamental flaw that exists among the knowledge industry of this ecosystem.

Growth of SMB Market requires easy access to capital and investor community, which they find difficult because of these 4 characteristics, apart from a slew of reasons outside their control:

  1. Most of the SMB lack professionalism in the way they work
  2. They find it difficult to run their business with a goals-driven approach
  3. They don’t think over the long term, say next 5-10 years. Ironically, “the writing on the wall”, the vision statement is barely realized
  4. Business decisions are taken at the dining table with huge biases owing to personal relations with senior management, old staff and vendors
ProfitVendorsPersonalRelationsIn the CNBC show, The Profit, Jonathan Baron is asked by Marcus Lemonis to let go off Steven, an auto wholesaler his father had been working for years, in an effort to improve margins. You can read the episode in full here. Stories about Indian SMBs is no different.

People in leadership positions at small businesses find it difficult to overcome these attributes. It is here, where the knowledge firms like consulting, advisory and auditing firms could step in. They need to learn and execute professionalism while delivering services, building a consciousness around data, and ensure transparent practices both in their business as well as the small business clients they serve.

Based on what I have seen in the last 3 years, I suggest the following strategic steps for consultants and government officials to fuel the SMB Growth Story and realize the vision of Make in India:

For Consultants

Pricing in consulting practices is generally driven on the impact it expects to create. So serving a huge MNC will create a lot of impact because of the scale of the organization. In SMB, with the same efforts or even more, the impact created will be much less. As a result, pricing will definitely go down. Many of you find it difficult to understand because of their experience working at larger scale.

What we had learned and seen about consulting, and had similar mindset. But exposing ourselves early to the market helped us overcome this bias.

Consultants and firms should find ways about democratizing knowledge to serve more with the same effort to create a scalable, repeatable business model. The success factor of this market is scale and efficient way of sharing knowledge will be a key factor. Addressing the SME opportunity in India requires scale like B2C but lacks liquidity owing to its B2B nature. Our friends over at Busy Accounting call the opportunity B2C in size, B2B in behavior.

For Government Officials: Policies

Imagine you are convincing a constantly poor performing kid in academics to study more because it’s good for him. It won’t work, you need to create a benchmark of levels and incentivize on achieving different levels. Similarly, in this case, govt. needs to create specific and transparent multiple levels along with knowledge firms, to evaluate how they run their business as suggested by SMEs in this YES bank newsletter. Incentivization policies are required for different levels which might include assured business from PSU’s, import subsidies, credit ratings etc. A sense of competition among themselves is required by appropriate measurement mechanism and rewards.

This market has started to feel the heat of competition and will become more organized to survive as well as scale. But in this journey, many will die those who won’t be able to adapt to run business rationally.

At Sookshm, every person on the team understands and knows how to work well around these unique challenges. These values define the 30 customers we have served and 400 others we selected to interact with over the course of the last 3 years.

For questions and discussions, please drop a line below in comments or reach me on my LinkedIn. I am a regular there and answer within 24 hours :)