The Evolution of Business: SMEs Succeed by Adapting to Changing Markets
Publié le 4 February 2013
The dreaded “R” word: it was on everyone’s lips not so long ago, and now it’s scarcely uttered. The recession of 2008 hit hard all over the world, and forced companies of all sizes to change the way they operate. Since then, however, many SMEs have harnessed the new market climate to grow their business.
Their smaller size gives them agility—and that’s a huge advantage in volatile economic times.
For Arnold Leung, the recession was an opportunity. In 2007, Leung started the Vancouver-based business tech company Appnovation.
“I was able to see the trend that more and more companies were using open-source,” says Leung. Open-source refers to software that is licensed for free public use. Appnovation customizes these programs for clients to meet the needs of consumers, businesses and even government departments.
The company hardly had time to get off the ground when the recession started. By 2009, Leung says he saw clients tightening their budgets and growing less willing to spend on services. Rather than cutting back in his own business, though, Leung decided to focus on meeting his clients’ needs in new ways.
Leung says SMEs are in a unique position to adapt quickly to changes in the market. “[SMEs are] pretty agile and we’re able to focus on areas that are actually in demand when the economy is not great,” he says. This agility allowed SMEs across Canada to weather the recession arguably better than large businesses. While large employers shed 11.8 percent of their pre-recession workforce during 2008–2009, small businesses shed only 2.1 percent, according to Industry Canada.
SMEs have an advantage because they’re able to reorganize quicker, says Francois Brouard, a business professor at Carleton University. When small companies are met with rocky waters, he likens it to the difference between trying to turn around a kayak rather than a cruise ship. Large firms are reluctant to rock the boat, so it takes them longer to chart a new course.
In a large firm, there are often many layers between decision-makers and the employees implementing new strategies, while in SMEs, decisions are typically made more centrally. So, while SMEs develop and move on new ways to meet consumer needs, large companies are still working through the change.
Across the country, the most common ways that small business owners changed their strategies were through adding new selections of products or services, increasing advertising and promotional efforts, and reducing prices. Rather than cutting costs, successful businesses focused on growing their revenue, according to a 2011 survey by the Canadian Federation of Independent Business (CFIB).
During the recession, 42 percent of small business owners decreased their staff, while only 12 percent increased their staff, according to the CFIB.
Appnovation kept hiring because, for Leung, when the market changes it’s more important than ever to get the company noticed. “Make sure to put together a financial plan of having a strong marketing team and sales team to push your business and get whatever small piece of the market you can get,” he says.
With this strategy, Leung was able to grow his business in the recession. In 2010, Appnovation was ranked 16th on Profit magazine’s Profit Hot 50 list, which measures Canada’s top new growth companies. The award was based on Appnovation more than doubling its revenue between 2007 and 2009.
Not all companies were able to keep up in the recession, though. Leung noticed common mistakes of failing competitors. “I see a lot of them following an old path,” he says. “They keep on selling what they were selling before. And I also see them cutting their budget in marketing and sales.”
Business academics agree that SMEs failing in the recession were often too complacent in their business model. Rather than focusing on developing core strengths, they would slash their budget across the board.
A common fatality, Brouard says, was operating with tunnel vision. In a recession, many businesses will have to cut back. This can be fatal to an SME that primarily relies on one customer, because the SME’s success is directly tied to its client.
Leung’s strategy for growth goes beyond marketing. He stresses the importance of research and development to stay ahead of competitors: “When you fall behind, it’s hard to get back on track. Innovation is the key.”
Moving forward, the market for SMEs appears to be improving. Small businesses have now surpassed pre-recession employment levels, Industry Canada reports. “As long as SMEs remain entrepreneurial, innovative, proactive, aligned with market needs, there remain many opportunities for them,” says University of Ottawa business professor Martine Spence.
Spence says that SMEs should begin to pursue increasing potential overseas, as the domestic markets become stagnant because of competition. SMEs have yet to tap the emerging markets in Latin America and Eastern Europe.
As for Leung, he does have one regret about holding back in the recession: “I actually think we should’ve gone more global early on. We should have been more aggressive.”
Danielle Klassen is a fourth-year journalism student at Carleton University.
By Danielle Klassen
