SMALL BUSINESS ROUND TABLE: Small businesses overcome big challenges

Nov 16 2009 Alasdair Northrop, Business Insider

The recession has made people work a lot smarter and a lot harder. Some have focused on the core of their business. Others have looked at how they can diversify. A lot of Scottish small firms are now a lot stronger, a lot smarter. And they are thinking seriously about how they're going to take advantage of the upturn when it comes

PANEL MEMBERS
Alasdair Northrop, editor, Insider - chairman
Colin Borland, public affairs manager, Federation of Small Businesses
Liz Cameron, chief executive, Scottish Chambers of Commerce
Brendan Dick, director, BT Scotland
Aydin Kurt-Elli, chief executive officer, Lumison
Geoff Leask, head of operations, PSYBT
Bill Magee, Bill Magee Communications
Vince McKeown, membership relations manager, Scottish Council for Development & Industry
Ishrat Sharif, director of tax, Johnston Carmichael
Mark Strudwick, chief executive, PSYBT
Greg Ward, head of economic development, City of Edinburgh Council
David Watt, Scotland director, Insititute of Directors

Q What impact is the recession having on small businesses in Scotland?

Borland: I think what's happened is people have worked a lot smarter and a lot harder. Some have focused on what they do best and on the core of their business. Others, where the core of that business has been in a sector that's been depressed, have looked at how they can diversify. I think if we're looking for silver linings a lot of Scottish small firms are now a lot stronger, a lot smarter. And they are thinking seriously about how they're going to take advantage of the upturn when it comes.

Strudwick: We're going very strongly at the moment. Demand has gone up by at least 25 per cent. Young people are finding the employment situation really difficult and deciding they want to start a business. They've got lots of bright ideas, they've got lots of courage. But finance is really an issue.

Cameron: I think it's quite interesting seeing how small and medium sized businesses have responded to this situation. It has been very, very painful for many businesses. But from this recession we're going to see much healthier business models, particularly from small businesses. They have managed to adapt quicker than some of the larger organisations to this situation. They have demonstrated real innovation. They have looked at how they can change and have looked very closely at the product they have. They have looked very closely at how they're engaging with their customers.

And as a result of that, they have actually developed new business models, which is fantastic for Scotland plc because at the end of the day the SME market makes up the majority of businesses in Scotland. So for me I think this recession, whilst it's been painful, has actually been innovative and has produced new dynamism in a lot of our small business leaders.

Watt: I think the point about finance is certainly worth some lengthy discussion because it continues to be a massive issue. We've lost a number of businesses which were potentially solid [often] because the banks changed their terms and their conditions.

Last week I talked to two separate firms of accountants, who said liquidations and bankruptcies have actually been less than they expected. They expected it to be worse. But we still have lost some really good businesses, and we still have industries like construction, and also small businesses and self employed people, who are in serious trouble and don't look like they're getting anything for two or three years. What happens in two years time when your assets are knackered and you haven't actually invested because you can't get money from the bank, or you don't want money from the bank? I'm concerned that people are avoiding banks and therefore they're avoiding investing in their own business, both in the short and longer term. I think there are some real issues for us and business organisations to be kicking the banks a bit to actually be more responsive but also saying to people 'How do you expand? How are you going to grow? Okay, you're tightening up just now, but what are your plans for one, two, three years ahead? And how are you going to do that?' I agree with going overseas, but that is very expensive, relatively speaking, at a time when you're trying to cut back and sweat assets. So it's a difficult balance. And doing business in China will not work next week, next month, next year, it will work in two, three years time.

McKeown: I think undoubtedly it has been very challenging and remains challenging. For our members it's very much focused now on innovation and diversifying, particularly into new international markets. And we're finding that is strengthening small businesses going forward.

Ward: There is an opportunity in the downturn to look at diversifying and looking south of the border and overseas and not relying on the immediate domestic markets. In terms of the public support that's provided, we could do more in the medium growth market. We really need to see companies growing and scaling up if we're going to help replace some of the jobs lost during the recession.

Sharif: There have been a few businesses that have not survived the current economic climate or are experiencing difficulty in particular sectors, but at the same time many businesses that are quite stable are doing quite well or remaining static. They are cutting back on certain resources and some are changing their entire business model. Businesses are waiting until things pick up and for the economic climate to improve and are meantime managing cash and resources carefully.

Kurt-Elli: We've actually seen about 18 per cent growth in the last twelve months with a substantial increase in revenue and a substantial increase in net margin. It's been very much a year of sticking to our knitting. What I'm seeing is certainly businesses taking a much more traditional approach. Cash is king again. Shock, horror, hold the front page. And it's actually a pleasure to see, frankly, because suddenly these people are focusing on the fundamentals of their businesses in terms of the services they're offering their customers and adding value.

Leask: I have spoken to young businesses from Orkney to the Borders and find them to be probably the most resilient of all. And as has already been said, we've never been busier, so the enthusiasm for young people to set up is still there.

I think one of the things with these young businesses is they've never known anything else apart from the current economic climate so they tend to adapt well to the circumstances. I see a traditional plumber business take the attitude of 'let's diversify into renewables' and they're looking at that sort of thing

Magee: I find the businesses I've been dealing with are not able to buy new tech kit, new hardware and are sweating out the things they already have. That's the clever thing to do, improve what you already have. Okay, there's the odd bolt on of a piece of kit, but it's making more of what you already have on the technology side. I think every firm, or most firms, buy technology in and they don't use a lot of it. It's just lying there. So how do you develop more of what you already have? That can be a great cost saver.

Dick: Clearly we've got a lot of business in the SME market in the UK and in the SME market in Scotland. The success of the SME sector matters to us and is very much intertwined. So we're always very keen to understand how the SME sector is feeling about the economy as it stands now, where growth is coming from, what the challenges are, and with a bit of a bias clearly towards how IT is being used and how they see it changing in the future.

And I think on that latter point about ICT, it's quite an interesting time, because I think we're on the cusp of some changes. In the last couple of months I've been out and about with colleagues who serve customers in the small business market. Some of the businesses are talking about diversification. For example, businesses who sell products through shops are showing a massive interest in how to start selling through the internet. And in some cases when things aren't selling, they chuck them onto eBay which a couple of years ago you wouldn't have thought of.

There is quite a lot of concern about not just how you get customers but how you keep them. I think we all know that keeping a customer is a damn sight cheaper than losing them and going getting them back. So I've noticed a stronger discussion about customer attention and keeping them there and keeping them happy.

I think the whole customer satisfaction agenda is taking on a stronger theme in businesses because in a time of recession you're just not growing as much, you're not getting new business through the door so how do you keep the customers you've got happy?

Q How important is it to seek independent advice?

Watt: The feedback I get on Business Gateway across the country is that it is inconsistent. So we have a new challenge - all of us - in sharpening that advice up.

Kurt-Elli: I think it's difficult in the sense that people have difficulties understanding or trusting what independence is. People are taking advantage of networking. This is where the opportunities are for the business groups like the chambers, IoD, FSB, and SCDI - you get people meeting together to talk about where they might be able to work with others to take things jointly to market. So I'm not so sure whether they're necessarily turning to advisors so much nowadays as to one another.

Strudwick: We've now got 786 volunteers. And it's their support over the last year which has made so much difference to the young people who we're helping. Nearly two thirds of the businesses we've supported over the last three years are still trading.

Ward: I've always really admired PSYBT's mentoring - I think the fact it's not prescriptive really helps a lot. And I think you mentioned this issue about inconsistency as far as the Business Gateway is concerned. I would argue really strongly that we need more inconsistency because I don't think the business profile in the cities is the same as the ones in the rural areas. We need to consider that and tailor our support towards that.

I think where independent advice is really important is when businesses are scaling up because it's the rare individual who can take a company from one or two people to a thousand people without some kind of assistance.

Cameron: I think it's very important you do seek advice if you require it and in the right places. Chambers of Commerce also do a business mentoring programme -it's just about to be launched in the Highlands and Islands. We've been doing it across the central belt for the last three years and we've seen huge growth in individuals coming to the table. Not just those who are seeking advice and support but actually businesses coming forward and asking how they can contribute to helping particularly SMEs grow and develop. And there's been a number of them actually asking how they can globalise their business.

I think that's been a fantastic change because up until about two or three years ago, we've not seen a lot of these SMEs coming forward due to the fear factor of not understanding what internationalisation actually means, what globalisation means to their business and where those opportunities are. Now there's this hunger, whether being driven by the pain of what we've been going through or whether it's that we have more ambition now to actually want to grow.

Sharif: Clients come to us and we actively help them improve their bottom line and help them identify where they can cut back on costs. So we're doing more than the standard compliance work - we're getting in there and giving them an added value service. A lot of the small businesses need somebody to help them with financial expertise and bounce ideas, we give them advice that will help their business long term.

Strudwick: I think we need to be careful about knocking Business Gateway, without somebody representing them here. We work very closely with them and, inevitably, a lot of people go to the Business Gateway thinking they're going to get a stack of grants and a stack of very cheap money. They get very good advice, and there are plenty of people there to refer them, and there's no doubt through other organisations there are other mentoring systems.

Ward: I think part of the issue is Business Gateway is fine for one part of the market but what we really need to do in terms of growing the economy is have scalable companies and that's where this is this gap.

Cameron: There are some fantastic stars that do not fit into the boxes to get support from public sector right now. For me, those are the gems we should be looking at focusing in on. I think there needs to be a review of the business support services and the role of the public sector within that. Let's get back to some basics of what public and private sector are about for our economy .

Kurt-Elli: If you set up a business your job is to grow it and innovate and research new ways of getting from where you are to where you want to go. I would never for one minute think it's anybody else's responsibility to do that other than my own. I think Scottish industry has, to a certain extent, to take responsibility for its own destiny.

Strudwick: There are ceilings between different phases of growth and jumping from one stage to another can be a pretty traumatic experience for businesses. Also, the fact of the matter is it may not be that we want public support. But there aren't that many medium growth companies and that's an area we need to address one way or another.

Watt: I think a brilliant example of the public sector providing help is the Scottish Manufacturing Advisory Service. It goes in and it will basically do a simple audit for you. Once that audit is done, if you want to take it forward and go for it you pay for it. I think that's the perfect model.

Cameron: I agree that, at the end of the day, the ambition, the drive and the vision, is up to the leader of the business. But, practically, how do they actually get there? Maybe support is the wrong word. Connection is probably a better way of phrasing it - to connect businesses to businesses - because there are people who are time constrained, they do not have all the resources to be able to take them to that level in terms of future market research and future development. But there's information out there that can help them there that bit quicker. That's what I was talking about .

Dick: I look at our young employees today in their twenties, graduates, fast trackers and so on. They are of a generation just used to technology. They network a lot more than people of my generation, at a young age.

And they seek advice, they seek help, not just from the boss but from each other in a way I don't think used to happen ten, twenty years ago. So I think looking at small businesses starting up, the same could start to really happen well if we can just facilitate that.

Q What technology should small firms consider to improve their efficiency?

Dick: I've been out talking to a number of small businesses in the last few months with the recession in mind to try and understand where technology fits. I still think one of the challenges businesses have is you don't know what you don't know. For many customers it's quite complicated, it's not something they're entirely familiar with, so I think part of it does come back to getting the advice, getting knowledge if they want to independently, and that can be quite challenging.

My sense is we're at a point where very few businesses should be thinking about how they survive and prosper without looking at the role of IT in what they do .

Magee: I think we all appreciate we're in a whole new different sort of cyber space nowadays with the advent of so-called social networking, which is almost misnamed really. You've got cloud and wrapped round that you've got blogs, Facebook, YouTube, Twitter. They're not aberrations. They each have a content I would argue offers up commercial opportunities for small businesses or SMEs to ultimately return a gain on investment. Suddenly you get this amazing coverage.

Borland: Amongst the small business community, you may either be horrified or regard it as a massive untapped market. We still have members that think an email is something the wee'yins use and it's in the computer in the corner of the house. They don't use one in their day-to-day business.

On the other hand, I don't know any small business owner who doesn't have one or several mobile phones.

Watt: I think we'll start seeing changes. We are on this cusp of converged technology - the pocket PC. A lot of very small businesses might clearly start offwith the mobile as the first thing they must have. That's just a tiny step away from 'oh, I've got the website and it's on the mobile'. That wasn't true even two or three years ago, so I think the world is going to change quite significantly.

Smallish, not tiny , businesses that might be thinking about going into things like having a very small contact centre for keeping in touch with customers - which was quite expensive in the past - now find it so much easier because you can just use services on the web. There are companies that provide contact centre applications, so you're not having to buy an infrastructure. You subscribe to them, use them, relatively simple to get going. So I think a whole lot of things are going to suddenly get a lot easier and a lot cheaper .

Q What one piece of advice would you give to small businesses to get through 2010 successfully?

Strudwick: Stick to old-fashioned standards of money in, money out and keeping your book keeping straight. And making sure you identify your market. And the market and communications research you do is absolutely essential.

Cameron: Know your customers, be clear about what your product is, and go out and sell.

Leask: Know your customers and communicate well with them.

Borland: Simply stick to what you're good at and play to your strengths.

McKeown: I think there are still opportunities out there, focus on them and work with the wider support networks that are out there to help you succeed.

Magee: Apparently there's a bit of a false notion out there amongst employers that their staffare adequately skilled when it comes to technology. So it's just to be canny with skilling up your staff.

Sharif: Its important to seek good professional advice so that your advisors can support you as you need it and when you need it most. Make sure you are seeking advice from suitably qualified advisors.

Kurt-Elli: I would aim big but sweat the small stuff.

Watt: Look at the vision and the positivity of leadership - I think that is massively important. And I also believe very strongly in networking. Scotland is a very small community, but what happens in small communities is that you fight with each other all the time. We really need to work together.

Dick: Absolutely focus on the core, I think that applies for big businesses who are trying to do that. Look after your customers. Something I've been thinking about a lot and talking to people about a lot is that everybody in the organisation can have ideas, even the sixteen year old at the front door.

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