What drives sme growth? introducing the leaderâ€™s growth MindsetTM MTROYAL.CA/businessgrowth
Of central debate amongst academics, government and the private sector are the factors influencing the growth of Small and Medium-sized Enterprises (SMEs). Understanding how SMEs achieve growth is essential to unlocking future economic productivity and performance. In practice, however, we know very little about what successful SMEs are doing to achieve success. In order to address this Professor Simon Raby brought together a team of researchers experienced on small business growth to evaluate the current practices of SMEs in Alberta. The team drew on the Promoting Sustainable Performance (PSP) research model that has been tested and perfected in the U.K. over the past 10 years. Navigate to page 41 for more information on how PSP works.
Author - Professor Simon raby Acknowledgements There are many individuals and organizations that deserve recognition, and only a small space in which to achieve this. The author would like to acknowledge the invaluable support provided by the Leverhulme Trust and their International Academic Fellowship program. The author would also like to show gratitude towards three particular institutions: Mount Royal’s Bissett School of Business (Canada); the University of Calgary’s Haskayne School of Business (Canada), and the University of Kent’s Business School (UK), each of which played an important role in supporting this research. Finally, the author would like to personally thank PhD candidate Kanhaiya Sinha for his interest and continued support through the data analysis phase of the project, and in particular his statistical support for the analysis of survey results. This project benefited from the support of many other parties, recognized on page 47.
About this research This research reports on a large survey with SMEs and in-depth interviews with a set of leaders building High Impact SMEs. The views and perspectives are of the author only, not of the organizations they work for. Cover image: Lightspring - Human Emotion/ShutterStock Copyright @ 2017 Simon Oliver Raby No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise, without the prior written permission of the author.
What Drives SME Growth?
Table of contents Foreword
Section 1. Executive Summary 1.0 Introduction 1.1 Implications 1.2 Summary Survey Findings Section 2. The Leader’s Growth Mindset 2.0 Introducing the Leader’s Growth MindsetTM 2.1 Exuding the ‘A-I-R’ of Confidence 2.2 Filtering ‘A-I-R’ – Investing in Purpose, Vision, Values and People 2.3 Evolve Your Role As Leader 2.4 The Leader’s Growth MindsetTM Mechanism 2.41 Value Identifiers 2.42 Strategy Shapers 2.43 Culture Crafters
6 6 8 10
Section 3. What Drives SME Growth? 3.0 Demographics 3.1 Growth 3.2 Markets 3.3 Competitive Strategy 3.4 Innovation 3.5 Technology 3.6 People 3.7 Finance 3.8 Advisory Services and Networks 3.9 Supply Chain
23 23 25 27 28 31 32 33 36 37 38
Thank You to Our Sponsors
12 12 15 16 16 17 17 19 22
What Drives SME Growth?
Forward Michael quinn
Associate Vice President, Research, Administrative Assistant Scholarship and Community Engagement
Mount Royal University is committed to teaching and learning informed by scholarship. We are evolving a vibrant research and scholarship culture that places high quality research at its heart. We place particular emphasis on research that is timely, relevant, collaborative and community-engaged. Research is woven more closely with teaching. Research questions meet practical or community needs in addition to traditional scientific goals. Faculty are more directly involved with their undergraduate students – helping to engender that ‘spark’ that launches a new researcher on their way.
Elizabeth evans Dean, Faculty of Business and Communication
The study of Alberta’s Small and Medium Enterprises as drivers of economic growth and employment is an exceptionally relevant body of research from faculty member Dr. Simon Raby. The Bissett School of Business and the School of Communication Studies at Mount Royal University greatly values the creation and translation of knowledge that can inform the education of future leaders in our economy.
Director, Institue for Innovation and Entrepreneurship
The Institute for Innovation and Entrepreneurship at Mount Royal University is focused on developing the most entrepreneurial minds in Canada. Innovative and entrepreneurial talent is not only necessary for the creation of new ventures, but also for the growth and success of existing small and medium enterprises. The economic prosperity of Alberta and Canada relies on our ability to grow innovative businesses that can compete and thrive on a global stage. The Institute is fostering the talented innovators that are making this happen. 4
What Drives SME Growth?
Professor, Innovation & Entrepreneurship, Bissett School of Bussines, Co-Founder and Director, Business. Improvement. Growth (BIG)
Think BIG... Think Business. Improvement. Growth. Author of the Ten characteristics of successful SMEs, Simon Raby has researched 1,000s of growth-oriented organizations and has distilled this into an accessible, applicable and practical guide, downloaded over 10,000 times and internationally recognized for its quality and value for innovation.
An Innovative and Entrepreneurial â€˜Pracademicâ€™ Simon is an academic and active practitioner in innovation and entrepreneurship, and strongly believes that the world of research has a lot to offer those who run their own businesses and deliver services to business. That is, if this knowledge can be understood and delivered in a way that is accessible and meaningful. Simon is Co-Founder and Director of Business Improvement and Growth Associates, a venture that uncovers the drivers of growth, challenges convention and offers practical ways that achieve lasting results for ambitious business owners, entrepreneurs, their teams and their organizations. Simon loves to challenge, learn and find new ways of thinking, and has a deep-seated passion for facilitating strategic change. Simon consults with organizations, service providers and government on innovation and growth, holds a Masters and Ph.D. and is an accredited coach and facilitator.
What Drives SME Growth?
1. Executive Summary 1.0 Introduction
SMEs are actually responsible for
development debates12. Overall, this
the bulk of job creation6. This study
study answers a call to embrace
This report captures the main
focuses on these more established
Canada’s growth challenge13 , and
seeks to achieve this by developing
findings of an 18-month study on the growth of Small and Mediumsized Enterprises (SMEs) in Alberta, Canada. While an SME in this study was defined as an organization with
new understanding on how Third, SMEs are disruptors of the
organizations, in particular SMEs,
status quo. There is a reported
innovation gap that is growing between Canada and the rest of
The study involved a large survey
the world7. Building innovative
of SMEs and a set of in-depth
organizations is essential, however
interviews with the leaders of ‘High
what does this really mean, and
Impact SMEs’. High Impact SMEs
how do we go about achieving it?
are organizations that are achieving
There is a challenge to think beyond
high growth (in revenue, profits and
technological innovation to the many
employment), and are disruptive.
other types of innovation8. This study
High Impact SMEs invest in a broader
focuses on more innovative SMEs.
range of innovative activities, and are
First, there is a shortage of empirical
Fourth, there are continued calls for
serve. They exemplify organizations
increased diversification away from
form that many of us aspire to create.
less than 500 employees, nine out of ten respondent organizations were expectedly ‘small’, being under 100 employees in size1. The central question that this inquiry sought to answer was: what are the factors that drive SME growth? Addressing this question is important for a number of
evidence on the growth of SMEs in Alberta. The studies that have been
more diversified in the markets they
a perceived reliance on oil and gas extraction and processing. While not
We first present those factors
a new debate9, these calls are rooted
associated with high growth (see
in the belief that diversification will
page 10), a summary of the findings
lead to a more responsible, and hence
that emerged from the survey. We
sustainable economy. It is believed
reserve the detail behind these
essential that Alberta continues to
findings for later. We quickly move
which we seek to extend in this report.
transition from boom and bust cycles
to present a new model called The
and ‘super-heated artificial growth’ to
Leader’s Growth MindsetTM - that
Second, SMEs are significant job
more predictable, sustainable10 and
explains how the leaders of High
more inclusive11 forms of growth.
Impact SMEs were operating. We
This is a cross sector study which
explain the common set of practices
focuses on SMEs that have achieved
and roles these leaders were applying
sustainable growth and diversification
in their daily work to build high impact
in the markets they serve.
Given the above, it is no wonder that
The label – The Leader’s Growth
SMEs continue to be at the heart of
MindsetTM – infers the inherently
academic, business and economic
human nature of growth. This
commissioned2 have tended to favour a particular type of firm (e.g., technology-based) or sector (e.g., oil and gas). Notwithstanding, these studies have helped to surface some important issues, the findings of
creators. Small firms employ 9 in every 10 private sector workers in Alberta3 and between 2005 and 2015 created the majority of all new jobs4. Indeed, Alberta has the 2nd highest density of SMEs in Canada5. At present, new start-ups are seen to be particularly sexy. Yet, the majority of start-ups fail and more established 6
What Drives SME Growth?
research exposes growth to be a cognitive pursuit. The encouraging finding is that the Leaderâ€™s Growth MindsetTM is something that can be developed in each and every one of us. This study extends previous research by the author on SME growth that identifies the capabilities that an organization requires to achieve high growth14 by shining attention on the leaderâ€™s role. Ultimately, understanding the process of growth is essential if we, as leaders of SMEs, are to devise smarter strategies for growth. It is also essential for those of us developing policies and supporting SME growth, so that we can target the right issues for the right individuals and organizations.
What Drives SME Growth?
1.1 implications For Business.
Develop a Leader’s Growth MindsetTM
Build a Generation of High Impact Leaders.
This study develops a new model - the Leader’s Growth
This study identifies the importance of a growth mindset
MindsetTM – to highlight a set of practices and roles that
in driving SME growth, and hence growth of the economy
each and every one of us can apply in our everyday pursuit
as a whole. Support is required to build future High Impact
of growth and success.
Leaders to evolve their leadership role and take onboard this thinking.
Be Aware, Inquisitive and Rounded Leaders of High Impact SMEs were ambitious for growth.
Standing still was not an option, these SMEs were on the
The majority of SMEs finance their businesses through
move. Headway was made daily by looking up and out of
organic growth. We should continue to ensure debt-based
the business and applying a common set of practices that
growth financing is available and attractive to SMEs.
we call ‘A-I-R’ – being Aware, Inquisitive and Rounded.
Promote Common Language.
Continually Identify Value, Shape Strategy and Craft
This study finds innovation to be broader than technology
and commercialization. Innovations being made to
Leaders of High Impact SMEs were performing three
products and services, processes, organization and
specific roles to drive growth - ‘Value Identifiers’, ‘Strategy
marketing. Agreeing a common, broader definition for
Shapers’ and ‘Culture Crafters’. How much time do you
innovation could help us to identify and support a broader
spend on a daily basis performing each of these roles?
range of innovative activities across the economy.
Evolve Your Leadership Role
Encourage Institutions to Collaborate.
Leaders of High Impact SMEs were actively navigating a
There are many questions to address when it comes to
leadership transition process, to enable them to work on,
the growth of the economy, and SMEs. Finding ways to
not just in the business.
encourage collaboration at a provincial and national level on studies and programs that enable the creation of new knowledge and the sharing of good practice on SME growth would be valuable.
What Drives SME Growth?
For Research. Include the Entire Business Continuum. New start-ups are particularly sexy in today’s world. Yet, research continues to demonstrate their high failure rates. At the same time, SMEs are maturing and the number of medium firms is reducing relative to the total population. We need further research on how firms transition from start-up to scale-up, and beyond. Engage Our Brightest Minds. At present, some of our brightest minds in the province whom study social sciences, (e.g., management and
To understand what differentiated high growth, low growth and declining SMEs we benchmarked the practices of close to 400 firms that accounted for $5.9b of trade across Alberta. The summary on the next page attempts to capture the most important factors. Should you like to read the full survey results please turn to page 23.
organizations) are focused on large firms and international research agendas. Finding ways to engage these individuals in research programs on smaller firms would help to accelerate our understanding of SME growth. Move beyond surface level observations. The lion’s share of research on SME growth takes a survey-driven approach to data collection. While surveys can answer ‘what’ and ‘how many’ type questions, they leave us guessing as to ‘how’ and ‘why’ phenomenon actually occur. Our methods need to get beneath the surface to develop results that hold greater explanatory power.
What Drives SME Growth?
1.2 Summary Survey findings
Half of all SMEs are â€˜locked inâ€™ to highly competitive local and provincial markets.
Growing SMEs are more likely to develop and communicate strategy.
Over half of SMEs are reliant on their local or provincial
The presence of strategy was a strong predictor of growth
market for the majority of their revenue. These firms are
of SMEs, and those SMEs achieving growth are more likely
exposed to higher levels of competition, are more likely to
to share their strategy with all staff, rather than select
experience plateaued growth or decline, and are likely to
members of their workforce. High growth SMEs are more
achieve only marginal growth gains, being reliant on the
focused on factors of reputation, quality and knowledge.
Declining SMEs are more focused on price.
SMEs competing on a national and international scale are more likely to grow.
To extract value out of technology, integrate to your strategy.
Half of all SMEs are actively diversifying their geographical
The presence of technology was significantly related to
market presence, and are more likely to achieve steady
revenue and profit growth only when technology was an
or high growth as a result. At present, the U.S. offers the
integral part of strategy. That is, to make the best use of
biggest opportunity for growth. Internationalization is not
technology tools SMEs require technology considerations
high on the agenda of those SMEs yet to nationalize or
to be integrated to their strategic decision making.
Growth markets experience less competition.
SMEs focusing on business development, skills and quality are more likely to grow.
Growth markets have fewer competitors, while higher
SMEs ambitious for high or steady revenue growth
levels of competition can be found in declining markets.
are focusing on strategies for creating new business
SMEs with low aspirations for growth are more likely to
opportunities while developing their skill base, and those
be found competing in declining markets. Aspirations are
SMEs ambitious for steady profit growth are focusing
higher for those competing in growth markets.
on creating new business opportunities while improving product and service quality.
What Drives SME Growth?
The broader your innovation and training activities the better your performance.
Growing SMEs develop strategic and technological leaders.
The more SMEs innovate, the more likely they are to
SMEs achieving growth are investing in people, training
experience growth. SMEs with a broader portfolio of
employees in leadership & management, IT software/
innovation activities were investing in a broader range of,
hardware, problem solving and human resources. Low
and spending more time on training. Serial entrepreneurs
growth/declining SMEs are more likely not to train staff at
are more likely to make broader investments in innovation.
The older your firm, the less innovative you become.
Growth requires a strong work ethic.
As SMEs get older their growth slows and the narrower
Employees working for SMEs achieving growth in revenues
their innovation activities become. More established SMEs
and profits work an average of 40-45 hours excluding
are roughly half as innovative as younger firms. SMEs that
overtime, and over 45 hours including overtime. Low
grow quickly to a small and medium size are likely to be
growth SMEs are more likely to work a 30-34 hour week.
To grow, SMEs need employees to invest more time than the average hours currently reported by Statistics Canada.
Creating an equitable workplace supports growth.
Growth is fuelled by external capital.
SME achieving growth in revenues were more likely
SMEs experiencing growth are more likely to use external
to foster an equitable workplace using practices that emphasize harmonized terms and conditions, employee share options, clear grievance and disciplinary procedures and culture change. Declining SMEs were most likely to focus on recruitment and performance related pay.
sources of finance (e.g., private equity, venture capital, business angels, grants). Plateauing and declining SMEs are more likely to leverage internal sources of finance or asset-based loans (e.g., mortgage). Growing SMEs maintain low debt to equity ratios. What Drives SME Growth?
2. The Leader’s Growth MindsetTM 2.0 Introducing the Leader’s Growth Mindset™
We provide handy prompts so you can follow where we
Following the large survey, we interviewed 33 leaders
reflection. At each stage we report on the practices of High
of High Impact SMEs. High Impact SMEs represent a particular type of SME. These are organizations that are achieving higher growth (in revenue, profits and employment), and disruptive. High Impact SMEs invest in a broader range of innovative activities, and are more diversified in the markets they serve. They exemplify
are in relation to this model as we progress through this section. This section has been written to provoke Impact Leaders, and pose some questions to stimulate thinking. The label – The Leader’s Growth MindsetTM – infers the inherently human nature of growth. This research exposes growth to be a cognitive pursuit. The encouraging finding
organizations that many of us aspire to create.
is that the Leader’s Growth Mindset is something that can
We owe a huge debt and gratitude to the many passionate
practices and roles that we can each apply in our everyday
Presidents, Founders and CEOs of SMEs who sat with us for long periods of time. We thank them for their patience, time and enthusiasm for the research process, and for sharing their insights for the benefit of others. To respect confidentiality, a fulcrum of research ethics, we will not reveal their names. What we can reveal is how they were operating. What made them tick? How were they building high impact SMEs? This is the focus of this section. It became quickly apparent that leaders (i.e., CEOs, Founders and Presidents) of High Impact SMEs were applying a common set of practices and roles in their daily work. These practices and roles were generating superior levels of growth, innovation and market diversification. We call these High Impact Leaders and the model that typifies their approach The Leader’s Growth MindsetTM. We explore this model in detail within this section.
What Drives SME Growth?
be developed in each and every one of us. It is a set of quest for superior growth and performance.
The Leader’s Growth MindsetTM Model We found that leaders of High Impact SMEs engage in 3 common practices on a daily basis, which we label ‘A-I-R’, and perform 3 common roles: Value Identifiers | Strategy Shapers | Culture Crafters
Value Identifiers Culture Crafters
A-I-R A - Aware I - Inquisitive R - Rounded
What Drives SME Growth?
filtered through investing in Purpose | Vision | Values | People
3 Common Practices and 3 Common Roles 3 Common Practices Definition
A - Aware
Understand your obstacles and enablers and take action
I - Inquisitive
Connect, pose questions,
growth of you and your business? •
challenge and seek answers
R - Rounded
Obtain and weigh multiple
Are you truly aware of the factors promoting and enabling Do you constantly seek answers to your business growth questions?
Do you make decisions using all available information?
Roles and practices connected via a filter that ensured prioritization, alignment and balance. This was achieved by investing in purpose, values, vision and people
Your organization’s fundamental reason for being; your guiding star.
A clear picture of what your organization wants to achieve within a defined period of time.
The principles or standards that identify what is important in everyday organizational life.
The knowledge, skills and abilities your organization has and/or requires.
3 Common Roles
Create and enable customer
value via the business model
Is there clarity on what ‘value’ is, and how it is being created across the organization?
Are the investments you are making helping to create even greater levels of value?
Define, drive and evolve
strategies for growth
Do you shape and evolve your strategy, drawing on tools like GAGE and the 3Cs?
Are you using technology to enable future development and growth?
Nurture a culture that
Are people put above everything else in your business?
attracts, motivates and
Are you winning the talent RACE? …attracting and
retains high quality staff
retaining high quality people? What Drives SME Growth?
2.1 Exuding the A‘-I-R’ of Confidence
scanning for new intelligence that could build greater protection to current revenues and identify new growth
All High Impact Leaders (herein ‘HILs’) were ambitious for
opportunities. To enable this, HILs were actively building
growth, far more so that the average survey respondent.
their network. This network supported the development
The view was “if we’re not growing, we’re dying”. Standing
of their own skills and that of others in the organization,
still was not an option, these SMEs were on the move.
assisted with generating and qualifying leads, provided
Headway was made by looking up and out of the business.
access to intelligence, and was part of a reciprocal
Three common practices enabled progress on a daily
process of continual building and renewing their network,
basis. We label these practices ‘A-I-R’.
personal and organizational.
A - Aware. HILs were acutely aware of the barriers that stood between their organization and growth, and were running towards these hurdles, not away. Complacency was not
Are you actively networking with other HILs?
Do you constantly question the way you do things?
Do you actively seek out new knowledge and intelligence and consider how this impacts growth?
an option. The difference revealed itself when contrast with the survey results. Where many survey respondents were looking to the business environment “the economy”,
R - Rounded.
HILs were looking within themselves. They held an unwavering belief that the “buck stops with me” and
HILs were systems thinkers. They were continuously
that reasoning could not be attributed to other parties or
seeking to understand how their organization interacted
external conditions. This approach typifies individuals who
with the environment it operated in. This approach helped
have an internal locus of control. Those with an internal
them to identify the developments required in their
locus of control believe that they can take action to
organization now, and in the future. They looked to spread
impact their future, and that of their organizations. Those
their investments across a broader range of innovative
with an external locus of control believe they are inferior
activities and markets and used a more rounded set of
to external factors “the business will perk up when the
data upon which to base strategic decision making. These
economy comes back”.
measures helped to pinpoint the improvements required to organizational processes that lead to growth.
“You need to widen your thinking…there are lots of things that you shouldn’t accept as being true that you have to investigate and make sure you have a plan around what it could look like and how you would react” - Professional, Scientific & Technical Services
Do you track how others are evolving in your industry, and consider what this means for your operations?
Do you believe in your ability to drive the growth of your business?
Are you aware of what is inhibiting and enabling growth?
Are you actively seeking to eradicate inhibitors and support
Do you make bets in a broad range of innovation and market activities?
Do you have a clear set of measures that drive the right growthfocused behaviors?
I - Inquisitive. HILs were continuously connecting, posing questions, challenging and seeking answers. They were constantly
“We draw on a combination of people’s views, from those who are really close to the problm to others who can help us to indentify and navigate opportunities
- Transportation & Logistics What Drives SME Growth?
2.2 Filtering A-I-R: Investing In Purpose, Vision, Values and People
Figure 2.1: Ways of Filtering A-I-R
A-I-R - the three common practices depicted above – that HILs engaged with on a daily basis did not automatically lead to this intelligence being introduced to the organizational system. HILs were adept at filtering
this data and information with others in the organization,
before transforming this into new knowledge and intelligence upon which to take action. To achieve this, HILs invested in four key areas – Purpose, Vision, Values
and People. HILs had developed a clear purpose for why their organization existed. Purpose can be described as a north star, something that guides our actions and we
continuously strive to attain. Purpose was bigger than the individual HIL or revenue generation per se, it focused on value creation and building community. It was capable of igniting passion within others, and was aspirational in nature, something worthy of reaching for. In the driving seat of purpose was Vision, Values and People. HILs had created a vision for growth, capable of engaging individuals within the business, and often beyond, with a shorter term horizon (e.g., 3 years) that
Are you clear why you/your organization exists? Is your organization distinct in its value creation and community role?
Have you translated your purpose into a vision that others understand and find compelling?
Do you have a set of well-defined values that drive the right behaviours?
Do you involve employees in the strategic decision making, and invest in them beyond the technical requirements of their jobs?
made sense to their own roles. HILs were constantly living and reinforcing a set of growth oriented values, in every decision they made and every action they took. These values reinforced and encouraged the right behaviors that would lead to the achievement of purpose. Values were not limiting, not designed to capture the current status quo, but were future focused and aspirational. HILs were continuously looking for ways to invest in their people and help them to achieve personal, and contribute to organizational success. HILs were supporting the
“[Our purpose is to] create jobs through bringing ideas to market that can deliver sustainable agriculture…we interact with the whole community. We’re providing nutritious food and education” - Agriculture
2.3 Evolve Your Role As leader
development of staff beyond the requirements of their immediate role, and encouraging them to contribute to
An essential condition that enabled HILs to successfully
organizational thinking and decision making.
create and filter AIR was the role they performed in the
Vision, values and the way HILs worked with people were
business. HILs had navigated a role transition from a
all focused towards attaining the higher purpose.
technical specialist to High Impact Leader, depicted in What Drives SME Growth?
Figure 2.2 as moving from stage-0 to stage-3. This enabled
Evolve Your Role As Leader
HILs to work on, not just in the business. Figure 2.2: The Evolving Role of the Leader
Stage 0. ‘Busy fool’ Syndrome Most leaders start here, performing many roles, and can remain here as a ‘busy fool’.
Which stage are you currently at?
Do you feel that the time you spend in the business is helping to take it to where it ultimately needs to be?
What practices have you developed to protect you from being pulled back into the day-to-day?
Stage 1. Functional Specialist Hand off functional specialisms (e.g., finance, sales, marketing, HR etc.).
Stage 2. Manager Build a reliable team to manage the ‘day-to-day’ operations.
Stage 3. High Impact Leader Step up and out. Find more time to create and filter AIR, and focus on value, strategy and culture.
The role transition and development process of HILs was promoted either out of need, for instance the business
“I think small business is so ‘under the hood’ usually. You don’t get the chance to look over [the hood] …you’re tinkering away to get your formula right. We have to invest to [look up and beyond]…in smaller businesses the founders and leaders have to build a platform of management” - Finance
grew and an active response was required, or was informed through prior leadership experiences. The latter approach resulted in HILs accelerating towards Stage-3: High Impact Leader. This is because these leaders had
2.4 The Leader’s Growth MindsetTM Mechanism
recognized how important this transition was for future organizational growth and sustainability.
HILs consistently displayed three common roles that they performed to drive their High Impact SMEs. We have
HILs had to remain steadfast in their delivery of their
labelled these roles – ‘Value Identifiers’, ‘Strategy Shapers’
stage-3 role. Many HILs spoke how, in the early days, they
and ‘Culture Crafters’. Each role is distinct, yet influenced
found it easy to become sucked back up into a stage-2
by and influencing the others. The best way to present
‘operational vacuum’. In becoming a High Impact Leader
them is as a mechanism, a system of parts working
these Indivduals required close allies in the firm to help
together to create a whole. The way the HILs performed
them generate value, execute strategy and develop
these roles was shaped by what we have explored to this
culture. These allies offered different perspectives, and
point - the way they were filtering A-I-R and transitioning to
challenged the way HILs were building the business.
become a strategic leader.
“[The CEO’s] mind is going a mile a minute. I have to say “Stop! Let’s think about that…Let’s put some data into things, analyze it. He’s the big picture and I’m the detail”. - Professional, Scientific & Technical Services
2.41 Value Identifiers In the role of Value Identifier the HIL is depicted as a golden eagle soaring high up in the sky. The landscape the HIL is surveying is the organization’s Business Model Canvas (BMC)15. The BMC is composed of the various
What Drives SME Growth?
activities that an organization needs to effectively perform
Through new products and services, High Impact SMEs
to generate superior value and profits.
were able to differentiate themselves from the pack, thereby improving their ability to compete and capture
HILs were always flying high, surveying their business
more of the market and spread risk/hedge in certain areas.
model. HILs were constantly searching out areas worthy
Investments in products and services were not always
of investigation. HILs were deliberate in their targets and
easy to translate into revenue generation.
actions. They showed great Awareness, Inquisition, while remaining Rounded in their approach (you will remember
A minority of HILs had focused their investment in the
we explored ‘A-I-R’ earlier). HILs were constantly bringing
development of one large product/service or market. The
new thinking to their High Impact SMEs by monitoring
bet they had taken was too big and put the business at
trends in the market, through targeted learning activities
risk. This approach led to the bankruptcy of one of the
(such as best practices via clubs/forums or learning
High Impact SMEs during the period of investigation. This
programs) or via relationships and partnerships with
‘bet the farm’ stance was essentially a big gamble.
others. A high level term that HILs use to describe their
The majority of HILs however took a broader approach
top target was ‘business development’. For HILs business
to innovation, making reference to “shooting bullets, not
development related to anything within the confines of the
cannonballs”. They were deliberate, yet flexible about the
investments being made. They were essentially hedging, keeping options open, doubling down on their investments
In addition to business development, other growth
when promise was shown of future returns.
promoters were essential for High Impact SMEs. Each of these elements were catalyzed as a consequence of the multiple tweaks being made to enhance an organization’s business model. At time of investigation, HILs were actively focusing on three main areas – product/service development, people, and market diversification. Figure 2.3 aligns these areas with the corresponding terms used in the BMC, along with typical questions HILs were appraising.
“Innovation is an interesting one because a lot of people think technology, right? Let’s find the technology and then let’s build a service and market around the technology. We’re thinking differently to this. We’re thinking, what is the value proposition to the customer, and can we layer in technology to make that better? …whether we make it faster, more mobile, more private, more accessible…” - Healthcare
As we explored in the introduction to this report, the term ‘innovation’ can often be reduced to the application of technology, however what became apparent with High
Figure 2.3: Business Model Focus
Impact SMEs was that innovations tended to be low tech solutions that were new to Canadian or provincial markets.
Product and service development (akin to ‘key activities’)
which activities do we need to perform to deliver our value proposition(s), delight customers and generate revenues?
which new activities do we need to invest in?
Evidence was found of world first innovations within oil and gas, agriculture and software development, but these were not the norm. Indeed, those High Impact SMEs developing world first innovations tended to experience uneven performance from these investments as a consequence of the degree of market acceptance.
People (akin to ‘key resources’)
what resources and relationships does our value proposition(s) require?
what skills do we need to recruit and retain?
Market diversification (akin to ‘customer segments’)
for whom are we creating value? which are our most important customer
segments? which other markets can we target?
HILs were actively pursuing improvements to products & services, processes, organization and marketing. These broad innovation areas were significantly contributing to growth. It was typical to observe 10% to 20% of total revenues coming as a result of product and service innovations, and examples of between 50% and 90% of total revenues were not uncommon. The contribution of What Drives SME Growth?
innovation to total revenue generation was dependent on
example, running executive seminars and roundtables
the degree of reinvention.
on topics that added value to their own development, which would enable closer working relationships with key
Some High Impact SMEs had employed expertise to
decision makers and a more nuanced understanding of
support innovation activities. These individuals took
their clients’ needs.
different roles, operating in advisory roles on the boards
Are you a Value Identifier?
of director, as internal experts, or as part of an internal innovation team. This innovation expertise directly impacted the firm’s strategy and operations.
High Impact SMEs, at time of investigation, were more
likely to focus on innovations to support processes, over methods of production and logistics and delivery. Existing,
Do you view your business from 10,000 ft to ensure you are seeing all aspects of the business model? Are product/service development, people development and market expansion core priorities?
Are you hedging your innovation investments?
proven technology was being leveraged across support processes. For example, the streamlining of handover
2.42 Strategy Shapers
processes between functions, along with the use of specific tools including project planning and tracking,
While it may seem an obvious role, there is more to the
project level communications (e.g., Slack), job tracking,
Strategy Shaper than initially meets the eye. For High
accounting and finance (e.g., invoicing). The type of
Impact SMEs, strategy was not only a plan, strategy was a
improvements to production methods and logistics &
process. Here we will discuss what was particularly unique
delivery processes were more dependent on what was
about this process.
deemed a priority for the business (e.g., safety, cost, quality etc.).
A starting point for HILs, whether conscious or unconscious, related to the depth and breadth of their
High Impact SMEs were making significant ongoing
organization’s offer. Those HILs focused on delivering
developments to their organization, including business
depth were deliberately investing in the design of
practices, work responsibilities and external relationships.
proprietary knowledge to achieve higher quality outcomes
At time of investigation, HILs were more likely to focus
than currently available on the market. Those HILs focused
attention on modifying business practices and/or work
on building breadth were deliberately investing in broader
responsibilities, over external relationships.
offers that would cover more of the client’s needs, often powered through supply/value chain integration. Common
Finally, when appraising marketing innovation High
was the unwavering commitment to delivering value to the
Impact SMEs were more likely to be implementing design
customer and consumer.
(i.e., brand) or placement (i.e., channel) changes over packaging and pricing. HILs were more likely to instigate price increases or tweak their business model to deliver lower costs, than lower prices. This indicates that High
“85% of our revenue was basically buying and selling…we were a distributor [at heart]…we decided to sell the distribution business [to focus on] the custom manufacturing business” - Manufacturing
Impact SMEs predominantly took a higher quality/price road.
The contrasting approaches of depth and breadth are reminiscent of the essay The Hedgehog and the Fox by
High Impact SMEs operating in production sectors were
Isaiah Berlin16. Essentially, Berlin provided a dichotomous
twice as likely to make changes to product placement and
classification for different types of thinkers. ‘Hedgehogs’
sales channels (e.g., identifying new channels and ways
view the world through the lens of a single defining idea
to sell). There was an increasing trend for High Impact
(akin to becoming an expert in a specific field), while
SMEs to turn their sales attention to ‘insight selling’. For
‘Foxes’ draw on a variety of experiences in the belief that
What Drives SME Growth?
the world cannot be boiled down to a single idea. The
articulated how they will meet their originally stated goals.
important take away here is that the way we are oriented
Through this strategy definition process HILs were
will guide the way we build our businesses.
aware of the need to be proactive and pivot in order to continuously review and reform strategy. HILs recognized that strategies, the way growth is achieved and the way a plan is executed, will need to evolve and flex. This approach created a greater degree of resilience and
“In some cases we sell our products to customers, and in others we’ll package something up that does not have our equipment in it. Where we really shine is where we combine those two models” - Wholesale
anticipatory capacity in their organizational systems. A written strategic plan was evident in 3 in every 5 High Impact SMEs. Those indicating presence of an unwritten
From this starting point, HILs took a common approach
strategy were most likely to report that a written strategy
to defining and driving strategy. HILs defined strategy in a
was “in progress”, or was unwritten due to a tight knit
way that allowed for a continual process of evaluation and
leadership group, the need to retain flexibility or the stage
evolution, which we label ‘GAGE’.
of growth of the firm.
Figure 2.4: Using GAGE to Define Strategy
“The reason is that [in our business] technology is changing so much that you can’t keep up with it [in a written form], so it is important to retain flexibility” - Information & Culture
First, HILs were setting ambitious and aspirational Goals as targets on the horizon at which to aim. Second, HILs were Addressing key questions these goals raised. These
HILs followed a common process to drive strategy
questions were essentially hypotheses or propositions
execution. This 3C’s process ensured that everybody was
to be tested though the analysis of data on markets,
on the same page. HILs were Creating alignment between
people and technology. Third, HILs were attending to
growth goals and the daily actions of individuals. HILs
Growth, ensuring that their goals and their key questions
were Catalyzing good practice, helping others to abandon
were focused on the delivery of growth (personally and
the ways of the past to take onboard new practice and
organizationally). This growth compass is a key difference
new ways of working more able to deliver on future
to what is found in low performing SMEs. Forth, HILs were
growth. HILs were ensuring that there was a continued
Executing through a well-defined roadmap that clearly
focus on the Core of what the business did, staying true What Drives SME Growth?
to purpose, values, vision and people (all elements we
A closer appraisal of strategic decision making revealed
that High Impact SMEs displayed a tight relationship between strategy and finance, which often presented itself
How did technology fit into this? Technology was
as a close working relationship between the HIL and the
marshalled in areas that warranted its use. Technology
Chief Financial Officer (or their equivalent). The prevalence
was not put before people, it was part of a broader
and interaction between strategy and finance resulted in a
strategic solution. In particular, technology was used for
more financially prudent and responsible approach in High
trend monitoring, for efficiency improvement and for data
and process management. 3 in 5 High Impact SMEs were competing nationally or The implementation of technology was not without its
internationally. The drive for internationalization came as
challenges. These challenges defined the speed and
a result of a unique combination of push factors (e.g., our
success of technology implementation within High
local market is less attractive) and pull factors (e.g., there
Impact SMEs. First, success was determined by the
are new opportunities in other markets). Underpinning
implementation process itself, and the degree of buy-in
the assessment of push and pull factors was the
achieved across the organization. Second, awareness
HILs perspective on whether growth would come as a
and capacity of staff was essential to successful
consequence of diversification. It was not diversification
implementation, having the skills and time to effectively
at any cost.
learn and utilize the new systems. Third, the expectations placed on technology were high and would often shift
Internationalization was either opportunistic, by chance,
throughout a project, making it challenging for technology
or through a degree of evaluation. It is hard to say which
to fulfil a shifting mandate.
approach was more/less successful. Internationalization was most likely achieved through alliances with
It is important to recognize the way in which strategy
organizations that held a local presence in the target
informed financial management and investment decisions,
market. Few High Impact SMEs employed a specific
and market diversification. The most popular approach
individual to drive internationalization activity. Those HILs
to financing the business was for High Impact SMEs to
who had decided to withdraw from international activities
‘bootstrap’, using internally generated capital to fund
explained this was a result of risk exposure and the need
future development. Often referred to as ‘organic growth’,
to first demonstrate a scalable product/service in their
bootstrapping was typically combined with bank financing,
home market. HILs also spoke of the stigma attached
such as a loan or line of credit. This bank financing
to Canadian companies trading in the U.S. U.S. trading
tended to be focused on discrete one-off asset-based
necessitated the setting up of local operations, requiring
significant investment. Overall, internationalization required commitment and adequate resourcing.
Are you a Strategy Shaper? •
Are you continually evaluating and evolving your strategy?
Are people and practices aligned with strategy? Is everybody on the same page?
• “Communication is everything. We [the CFO and I] communicate on a daily basis, not only on how a particular project is progressing but how everything is going on around us” - Construction
What Drives SME Growth?
Is technology integrated to your strategic thinking and execution?
2.43 Culture Crafters
High Impact SMEs were continually investing in people.
HILs were focused on crafting a performance culture. The person was at the heart of crafting culture. Indeed, people were the #1 priority in High Impact SMEs. HILs believed “people are the business” and the most important asset in driving growth. Culture took account of people, products and processes, with technology seen as a support to, not replacement for people.
Opportunities for training and development were flagged up through appraisal practices that emphasized development as a core part, and often came as a consequence of the organization undergoing significant change. HILs reported that capacity limited further development potential. Capacity was a function of cost and time. Taking time out of the workplace has a significant impact
“I came to recognize that you have all the right pieces of software without the right people driving them, with the right attitude around them. I now understand that people are way more important [than technology]” - Retail
on firm performance and productivity in SMEs. Finding ways that staff can learn from the latest practices and embed this learning to the workplace in a cost and time effective manner is a key challenge to be fully embraced by provincial learning providers.
High Impact SMEs were more than twice as likely to have a dedicated resource to attract and retain people, when
Are you a Culture Crafter?
compared to average survey respondents. This meant that Human Resource (HR) issues were “on the agenda”
Are people a central part of your strategic decisions?
and “at the table”. Not only did HR support strategic
Do you dedicate time to crafting the essential cultural conditions?
decisions, support was also provided to the execution of
Do you support others to develop and grow beyond their immediate
practices and policies at a line management level. High
Impact SMEs whom were yet to employ dedicated HR incompany expertise felt that they were too nascent in their growth stage or had developed structures (e.g., employee ownership models) that reduced demand for a centralised HR resource. In these cases, HR was led by line managers in partnership with the HIL and was strategic in nature. Culture Crafters focused on the levers that attracted and retained ambitious, high quality staff. To achieve this, HILs truly understood what made people tick. HILs built a culture focused on four essential conditions that enabled High Impact SMEs to win the talent RACE, there are outlined in Figure 2.5. Figure 2.5: The Talent RACE
Recognize a job well done.
Provide a degree of independence
Work together as a team to reach a shared goal. Share information and communicate regularly.
Afford an opportunity to learn and grow.
“We hired an employee to help us articulate our culture. He says to people we hire “Read this, can you live with this?” The people we hire have to think along the same lines. It’s a part of strategy. It can’t be a tick box…you have to live it”. - Mining, Quarrying and Oil and Gas Extraction What Drives SME Growth?
3. what drives sme growth? This section provides key insights to what drives the
this industry. Overall, the operations of one in ten (10.9%)
growth of SMEs in Alberta. These results are based on
SMEs was associated with the oil and gas sector.
a comparative analysis of responses provided by nearly 400 SMEs to the Promoting Sustainable Performance
Figure 3.1: Sector Representation
survey (See â€˜Methodâ€™ for futher information). You will find a
Oil & Gas Extraction Oil & Gas Extraction
summary of these findings on page-10.
Construction Construction Manufacturing Manufacturing
Wholesale Trade Wholesale Trade Retail Trade Retail Trade
This double-page spread provides an insight to the
RealReal Estate Estate
demographics (i.e., background) of survey respondents.
Finance & Insurance Finance & Insurance Professional & Technical Professional & Technical
Admin andand Waste Admin Waste Accomodation & Food Accomodation & Food
Size - Under 100 Employees and $20m in Revenue The majority of SMEs were between 5 and 29 employees
A supplementary analysis was also conducted on the Real
(63.6%), with a good representation (12.9%) of SMEs
Estate sector. This analysis highlighted that a further 8.4%
between 50 and 99 employees. These statistics reveal
of SMEs were supplying products and/or services to this
that close to nine out of ten (85.6%) SMEs are under 100
industry. These support sectors were largely related to
employees in size. Over three quarters (78.1%) of SMEs
Construction, Professional, Scientific & Technical Services,
had revenues of CDN$20m and under. Few SMEs had
and Finance & Insurance. The operations of just over
revenues of over CDN$50m. In total, the survey accounted
one in every ten SMEs is associated with the Real Estate
for SMEs delivering CDN$5.95b17 of Albertan revenues.
sector. Few SMEs were found to be offering products and/or services in the Cleantech space.
Sector - Well Diversified, Professional, Scientific and Technical Services Predominate
Age - SMEs are Maturing, Less Micro Firms are Transitioning to Become Small or Medium
The survey sample was broadly representative of the SME population of Alberta. Figure-3.1 highlights the sectors
The majority of SMEs were founded between 1997 and
that predominated survey responses18. When compared to
2006, 10 to 19 years ago, with the average age of an SME
Statistics Canada19, the survey data was underrepresented
being 21 years. There was a greater likelihood that SMEs
in the Retail sector, and over represented in the
were founded over 20 years ago than in the last 10 years.
Manufacturing sector and the Professional, Scientific &
Three quarters (76.8%) of SMEs were founded as new
Technical Services Sector.
startups, with a small (13.1%) but important proportion forming as a spinoff from an existing organization. Few
Given the considerable debate as to the relative
SMEs were formed through management buyout or
importance of the oil and gas sector a supplementary
through mergers or acquisitions. An inverse relationship
analysis was performed on this sector. A further 7.3% of
was found between revenue and profit growth and
SMEs were found to supply products and/or services to
organizational age, that is; as organizations get older their
What Drives SME Growth?
growth slows. Taken together with the size demographics
and development of the organization, and the nature of the
above, these results highlight the maturing of the SME
firm’s management practices.
population and the importance of understanding how we can better support organizations to move from start-up to scale-up, and beyond . 20
Ownership - Many SMEs are Family Businesses, and the Involvement of Family Decreases Over Time
Gender - Men Predominate Leadership Roles, with a Greater Gender Balance in Managerial Roles Over three quarters (77.3%) of respondents were male. On closer examination, four out of every five (71.9%) SMEs were owned and/or led by men. The ratio of women to men
Of those SMEs that considered themselves to be a family
improved when considering general management roles,
business (77.5%), five out of ten (53.7%) were in the first
with women accounting for over half (52.1%) of such roles
generation, three out of ten (34.5%) were in the second.
in an SME.
Few SMEs were found to be in the third (7.4%) or fourth (4.2%) generation. SMEs that initially did not define a
Age - Over 40 Years of Age
level of ownership or management by the family later indicated, when reflecting on generational involvement,
The average age of respondents was 48.7 years with a
having an association with the term “family business”.
median of 50.5 years. Nearly half (48.3%) of respondents
This indicates the need for greater definitional clarity as to
were within 15 years of retirement24, with one in every five
what constitutes a family business.
business leaders/owners within five years of retirement (12.1%) or having already eclipsed retirement age (7.0%).
Location - Calgary and Edmonton Dominate, with Rural Regions Making an Important Contribution
Less than one in five (16.6%) respondents were under 40 years of age. These findings provide further insights to the increasing number of baby boomers that will be looking to
On analyzing the operating location of SMEs the 21
exit their businesses in the coming years25.
majority of respondents were found to be based in Calgary (47.7%) or Edmonton (28.0%), findings that are broadly representative of the Alberta SME population22. The
Figure 3.2: Age of Entrepreneurs
remaining quarter (24.3%) of survey respondents were found across a wide geographical area encompassing 11 Regional Economic Development Alliances (REDAs)23, of which Central (encompassing Red Deer County) and South
20 - 29
Central (encompassing Lethbridge County) were the most
30 - 39
30 - 39
40 - 49
40 - 49
50 - 59
50 - 59
3.02 Individual Job - Roles President, CEO and Founder Were the Most Likely Role Titles of Survey Respondents Those competing the survey were most likely to be fulfilling a role as the business leader (73.0%), a functional
20 - 29
Experience Equal Likelihood of Being a First Time Entrepreneur or a Serial Entrepreneur
lead (14.9%) or general manager (10.9%). Business leaders were most likely to have the job title of President, CEO or
Half of all (51.1%) respondents were serial entrepreneurs,
Founder. These findings confirm that those completing
having set up at least one previous venture. A third
the survey were well positioned to report on the growth
(32.7%) of respondents had set up three or more ventures. What Drives SME Growth?
These findings support those of others that once one
growth over the past 3 years with future growth aspiration,
becomes an entrepreneur, you are likely to remain as an
SMEs are most likely to demonstrate a desire to continue
on the growth path they experienced in the past. This
finding highlights the challenge of jolting no or low growth
Qualifications - Well Educated, Degree Awarding Education Prevalent
SMEs onto an alternative growth path.
Figure 3.3: Historical Growth Trend - Past 3 Years
whether at an undergraduate (31.7%) or postgraduate (23.0%) level. A quarter (25.2%) of respondents had exited education following high school/college. Over one in six (15.8%) respondents had achieved some form of professional designation or professional development. These results align with provincial statistics, with Alberta found to have a well-educated workforce27.
% of SMEs
Over half (54.7%) of respondents had attended University, 100%
Steady decline Steady decline
Platueaed Platueaed Steady growth
Historical Promoters and Inhibitors Respondents were asked the factors that had promoted
and inhibited growth over the past three years, the results of which are displayed in Figure-3.4. SMEs reported 26
Trends & Ambitions
possible inhibitors and 32 promoters. ‘The economy’ was the number one reported inhibitor of growth.
On describing their growth trend over the past three years (Figure-3.3), fewer than 1 in 5 SMEs were found to have experienced a sustained period of decline in revenues, profits or employment. SMEs were more likely to have experienced high or steady growth
in revenues (60%)
than profits (48%) or employees (43%). This may indicate
Figure 3.4: Promoters and Inhibitors - Past 3 Years
#1 The economy
#1 Market Presence
Resources capital & people
that margins are being squeezed by more cost conscious customer or leaders of SMEs attach greater significance to revenue growth, than profit or employment growth. When looking ahead to the next three to five years, SMEs were most likely to report ambitions for steady expansion (66%). 1 in 5 SMEs were seeking high growth
Insufficient sales and marketing Business cost
Delivering quality People Financial prudence
(20%). Few SMEs anticipated remaining the same size (7%) or reducing in size (4%). When seeking a forecast on employment growth, SMEs were equally likely to report a desire to remain the same size (45%) as grow (42%), with 1 in 10 (13%) reporting a likelihood of having less staff.
The top growth promoter focused on developing an
When contrasting these results, greater than 4 in 10 (45%)
organization’s presence in the market29, comprised of
of SMEs see the number of employees growing, while
business development (34%) with reputation (18%),
nearly 9 in 10 (87%) aspire for steady or high growth.
relationships (10%) and advocacy (8%) revealing a broader picture than merely ‘sales’. This is important finding
These results highlight that SMEs are more likely to
given that ‘sales and customer acquisition’ were recently
grow revenues before employees, indicating a focus on
identified by entrepreneurs as the most difficult issue in
increased capacity utilization and sales. When contrasting
business30. The experience of many organizations is of
What Drives SME Growth?
a necessary transition from keeping up with demand to
with the development of products and services (16%)
having to identify and create demand. Staying relevant to
also surfaced. When taken together, the capacity of
oneâ€™s market was also considered a key growth promoter,
people was high on the growth agenda, with respondents
with SMEs developing their products/services (24%).
identifying employee skills development (14%), employee
The delivery of quality products and services (27%)
recruitment and retention (14%) and people in general
would seem to support the above picture, with delivery
(9%) as essential support pillars for growth. Finally,
systems playing a key role through: processes, systems
respondents were also looking to diversify and expand
and structures (13%). People were found to be central to
into new markets (13%), improve internal operations
enabling growth when considered together, with the right
(13%) and felt that Government would be able to assist
employee skills (21%), recruiting and retaining the right
growth (10%). Of note here was that few respondents saw
staff (11%), and â€œpeopleâ€? in general (7%) all considered
internationalization (2%) as central to their future growth
important. When taken together, taking a financially
plans. This provides important insights to the market
prudent approach through financial management (10%),
diversification and expansion process, the dynamics of
pricing strategy (5%) and suppliers/sourcing (5%) were
which we will explore in the next section.
seen important. When looking beyond the firm, the economy was also reported to have promoted growth over the past 3 years. Respondents were less likely to report that raising funds (7%), Government (6%), R&D (4%) or geographic diversification via internationalization (1%) had enabled growth. The top growth inhibitor was the economy (35%) which combined with commodity prices (15%), reduced demand (13%) and currency exchange (4.6%). Beyond demand, the availability of resources were also key inhibitors including capital (32%) and labor (26%)31. Beyond these issues, insufficient sales and marketing (21%), increased costs
Figure 3.5: Promoters and Inhibitors - Next 3 Years
Promoters #1 Business development Growing economy People Rasing capital
Inhibitors #1 The economy Availability of capital Government Business cost
of doing business (20%) and government (15%)32 were all seen as inhibitors of growth. When taken together, staff skills/development (17%), the capacity of people (10%) and the lack of vision and strategy (11%) were also noticeable. Those factors less likely to have inhibited growth included technology (0.3%) or succession issues
When asked about the factors that would limit growth
(2%). These findings reinforce the findings of others that
over the next three years (Figure-3.5), nearly a half of all
people capacity and ability is a key growth challenge33.
respondents identified the economy (47%) as the biggest
Future Promoters and Inhibitors
issue. This result is even stronger when combined with those respondents who identified commodity prices (20%), increased competition (18%) and currency exchange (4%)
When asked about the factors that would promote growth
as key restraints on growth. The availability of capital
over the next three years (Figure-3.5), a third of SMEs
(21%), the increased costs of doing business (15%) and
stated that business development (31%) would be most
the need for cost control (10%) were prevalent, indicating
important. When combined, a growing economy (23%) and
the lower resources that respondent organizations would
improved commodity prices (11%) were also important
have to invest in future development. Government (18%)
to assist organizational growth. 1 in 5 respondents
was raised by nearly 1 in 5 respondent organizations as a
(20%) felt that raising capital would facilitate growth,
growth inhibitor. What Drives SME Growth?
When investigating the association between those factors reported as promoting growth and historical growth trends (see Figures 3.6 & 3.7), key drivers of growth emerged.
3.2 Markets Respondents were asked, for their last 12-months, the proportion of their sales that were achieved across five
% of SMEs
Figure 3.6: Revenue Trend and Factors Promoting Growth
market locations – local, provincial, national, U.S. and
international. The results of this analysis are outlined
in Figure-3.8. All SMEs delivered an element of their
products or services to their local market. Indeed, over
half (54%) of all SMEs were reliant on their local market
0% High growth
Business development Raising Funds Raising Funds Employee skills
for over 75% of their revenues. When looking beyond the
province, 3 in 5 (61%) SMEs supplied national markets, and
Economic growth Product/service development
1 in 5 (20%) supplied international markets, twice as many
SMEs than identified by other recent studies35. The U.S. was separated out in the analysis, with a third (32%) of all
Figure 3.7: Profit Trend and Factors Promoting Growth
SMEs being found to hold an export relationship with the U.S.
% of SMEs
Figure 3.8: Market Penetration
0% High growth
Business development Business development
Economic growth Economic growth
Raising Funds Raising Funds
Product/service development Product/service development
Business development was four times more likely to be associated with revenue and profit growth than economic
75 - 99%
50 - 74% 25 - 49%
0 - 24%
growth and raising funds. Product and service quality and employee skills were important factors associated with
These results reveal that half of Alberta SMEs are locally
profit growth. These findings shed new light on how SMEs
‘locked in’, being focused solely on local and provincial
are achieving revenue and profit growth34.
markets. The findings also highlight that half of Alberta SMEs have, or are in the process of actively diversifying
Business development, product and service development
into national, U.S. or international markets.
and employee skills were most likely associated with high and steady growth in revenues and high growth in profits.
When analyzing the relationship between market
Business development and product service quality were
penetration and revenue growth (see Figure-3.8), SMEs
more likely associated with steady growth in profits. These
with a greater exposure to national, U.S. or international
findings reveal that SMEs ambitious for high or steady
markets are more likely to be experiencing growth, and
revenue growth are focusing on strategies for creating
SMEs with a greater exposure to local or provincial
new business opportunities while developing their skill
markets are more likely to be experiencing declining
base, and those SMEs ambitious for steady profit growth
revenues. Further analysis revealed that the greatest
are focusing on creating new business opportunities while
growth opportunity exists in the U.S. market. An important
improving product and service quality. Further research
subset of SMEs (7.6%) were found to be competing
is required to understand the true meaning of ‘business
in national markets for over three quarters of their
revenues. These SMEs warrant further attention36. Overall,
What Drives SME Growth?
this evidence supports other research that the more
Figure 3.10: Nature of Market
geographically dispersed a firmâ€™s markets are, the more likely firms are to grow37. Figure 3.9: Market Penetration & Revenue Growth
% Revenue exposure in market
declining markets. Respondents were experiencing higher competition in declining markets. This finding reveals the benefits of locating growth markets.
Earlier we identified that 9 in 10 (87%) of SMEs aspire Over half (55%) of SMEs that had internationalized, comprising 20% of all SMEs, had entered international markets in the past ten years. The longer an SME had been competing in international markets, the weaker their revenue and profit growth. This may reveal that the energy placed into developing the market or the benefits from international markets accrue early on and reduce over
to grow, however these results reveal that less than half of SMEs are reportedly in growth markets. Additionally, business development was identified as a top promoter of growth. Combining these observations would suggest that the â€˜locked inâ€™ SMEs are highly likely to experience increased competition within the province. This would suggest that SMEs competing solely in local or provincial
time. This insight would benefit from further research.
markets will only experience marginal growth gains unless
A third (36%) of SMEs were found to be competing in
provincial economy picks up as a whole.
growth markets, with a quarter found to be competing in either stable (27%) or declining markets (22%) (See Figure-3.9). Markets had an impact on the aspirations of respondents. Those respondents in declining markets were more likely to have low aspirations for growth. Those respondents in growth markets were more likely to have high aspirations for growth. These findings has
they actively develop and challenge the market or until the
3.3 Competitive strategy Strategy Formation and Execution Examining the strategic approach of SMEs is essential if we are to better understand the choices SMEs are
implications for choice of market.
making. It is typical when studying smaller firms to look
SMEs competing in local or provincial markets were
however overlooks more informal approaches to strategic
experiencing higher levels of competition for their products and services, when compared to those SMEs competing nationally or internationally. Growth markets were found to have fewer competitors, when set against stable of
only for a formal presence of strategy. This approach thinking and decision making. When one finds a lack of formal strategic planning in SMEs the conclusion tends to be that SMEs are somehow lacking. To move beyond this perspective of SMEs this study chose to examine not only the formal presence, but also informal presence What Drives SME Growth?
of strategy, the way in which strategy is formed and
a greater degree of involvement in strategy post-formation,
communicated and strategic priorities. Attention was also
during latter communication stages. Separating the
afforded to identifying the essence of the competitive
formation of strategy from its execution has been reported
advantage and the factors that lead to competitive
to hamper the quality and impact of strategy38, and these
results reveal the need for SMEs to involve employees in strategy development and execution.
When examining the presence of strategy in SMEs (Figure-3.11), half (50%) of all SMEs reported having a
formal written strategic plan. A third (36%) of respondents reported the presence of strategy, although not formalized.
When asked about the focus of their strategic decision
Taken together, nearly 9 in 10 SMEs (86%) engage in a
making (Figure-3.12), SMEs were most likely to report a
degree of strategic planning and thinking, while 1 in 10
focus on developing new markets, product and service
SMEs do not. It is not possible from the survey data to
development or innovation, finance, process improvement,
determine the quality of strategy and strategic decision
product or service quality, human resources or technology.
making. Overall, strategy held a strong significant
SMEs were less likely to report, succession or recovery
relationship with growth performance.
and continuity planning as key priorities. These findings offer further insight to the meaning of business development as a promoter of growth, indicating that the
Figure 3.11: Presence of Strategy
concept is broader than sales and marketing. Figure 3.12: Strategic Priorities 100
% of SMEs
80 60 40 20 0
Strategy was mostly likely formed with other managers in the firm (51%). 1 in 5 SMEs involved ‘some staff’ (20%), and few involved ‘all staff’ (12%) in strategy formation. Strategy was predominately communicated to ‘all staff’ (57%) or ‘some staff’ (25%), with few SMEs retaining strategic information solely at a managerial level (17%) or only in the hands of the Founder, President of CEO (2%). SMEs achieving growth were more likely to communicate strategy than those experiencing a decline. These results reveal that strategy formation in SMEs is typically reserved for the executive team, and that there is 29
What Drives SME Growth?
Figure 3.13: Factors of Competitive Success
organization had a competitive advantage. Respondents
were most likely to report that their competitive advantage
% of SMEs
SMEs were asked whether they believed that their
consisted of one (47%) or two (32%) dimensions. To have
three or more dimensions (12%) was quite rare.
As figure-3.14 highlights, product/service quality was 2.5
times more important than any other factor. Operating
in a particular niche, having particular people expertise and/or knowledge and being a recognized brand were also seen to provide SMEs with a competitive advantage. Given the human nature of quality and brand, people were
Achieving Competitive Advantage and Success
at the heart of competitive advantage. The importance
Respondents were asked to rank the three key factors that
key factor of competitive success. Interestingly, one in 13
are most important to the competitive success of their product or service offer, the results of which are displayed in Figure-3.14). The majority of respondents identified product and service quality, personal attention and responsiveness to client needs or having an established reputation as key to their competitive success to date. High growth SMEs were more focused on reputation, quality and knowledge, while declining SMEs were more focused on price. Figure 3.14 Achieving Competitive Advantage
of brand reinforces the earlier finding that reputation is a organizations could not state a competitive advantage and organizations were 12 times less likely to report new product/market development (1.6%) as a competitive advantage, when compared to product/service quality. This may indicate a lack of confidence or experience in delivering new product/market developments, with firms preferring to focus on investing in increasing the quality of established products and services. Respondents were asked to report the proportion of revenue that was achieved through applying Michael Porterâ€™s generic strategies (Figure-3.15). The strategies
Quality Quality Niche
of lower cost, high quality or differentiated product/ service are seen as a cornerstone in the way in which
organizations seek to achieve competitive advantage.
Those SMEs pursuing a differentiated or higher quality
offer should be able to command a higher price.
Figure 3.15: SME Generic Strategies
Culture Low cost, high quality & differentiated
While slightly fewer SMEs reported reputation overall, this was the most likely factor that SMEs were to identify with first when completing the survey. Respondents were less likely to see flair and creativity (5.3%) or cost advantages (6.1%) as important influencers of competition success. These results reveal that SMEs largely focus on relationship-based factors (reputation, attention to needs) to achieve competitive success.
High quality & differentiated Low cost & differentiated Low cost & high quality Differentiated High quality Low cost 0
% of SMEs What Drives SME Growth?
Respondents were most likely to give preference to high
innovation, SMEs were most likely to have introduced
quality, with over a half (54%) of all SMEs indicating this
new or significantly improved their supporting processes
as a focus for their strategic approach. The remaining
(74%), such as maintenance systems or operation of
SMEs were either likely to be pursuing a strategy focused
purchasing, accounting or computing. Only 2 in 5 SMEs
on offering a differentiated product/service (17%) or
had implemented new or significantly improved methods
lower cost (14%). Interestingly, 1 in 12 organizations were
of manufacturing or producing goods and services (43%),
pursuing a combined strategy of offering a differentiated
with just under a half (48%) of all respondents indicating
product/service in conjunction with a higher quality/
logistics, delivery and distribution as an area of innovation.
niche; a result that may indicate a lack of focus from these
These findings reveal higher innovation activities amongst
organizations and/or the operation of different divisions.
SMEs than those reported at a national level40. Figure 3.16: Innovation Types
Performance Measurement and Tracking
On average, SMEs reported the use of 6-7 key performance indicators. High growth SMEs were drawing on 5-6 growth were using either too few or too many performance metrics. On further examination, respondents indicated their reliance on financial measures, such as total costs (90%) and profits/ROI (84%). Data on productivity (58%),
% of SMEs
performance metrics to inform decision making, while low
60 40 20 0 Goods
unit labor costs (57%), quality (55%), customer satisfaction (55%), training/development (54%) and web performance
Innovation Portfolio and Performance
(49%) were collected by around half of all SMEs. SMEs were less likely to collect data on absenteeism (42%),
To understand innovation further, an analysis was
continuous improvement activities (38%) or labor turnover
conducted between innovation breadth and a range of
(37%). Few SMEs collected data on employee diversity
contextual factors including training investments, revenue
(14%). A small minority of SMEs (2%) used no performance
and profit growth, organizational age and size, and prior
venture experience. Innovation breadth was calculated to
represent a companyâ€™s portfolio of innovation activities. That is, the greater the number of innovations an SME was progressing, the broader their innovation breadth/portfolio.
Innovation Types On analysis of innovation breadth and growth Within this study, different types of innovation activities
performance, a greater proportion of high growth SMEs
were captured . Data was collected on product (i.e., goods
were found to have a portfolio that included at least four
or services) and process innovation (i.e.., production,
out of the five types of innovation outlined earlier. Growth
distribution or supporting activity). Further detail on
performance tapered off for those SMEs covering all five
these innovations was collected at the interview stage
innovation types, but was still superior to investing in
including other types of innovation such as organizational
less than four types of innovation. These results held for
innovation (i.e., new business practices) and marketing
both revenue and profit growth. The more SMEs innovate
innovation (i.e., new marketing concepts or strategies).
therefore, the more likely they are to experience growth in
revenues and profits. At the survey stage (Figure-3.16), SMEs were most likely to have innovated in their service(s) (74%) when compared
An analysis was conducted on training investments and
with their products/goods (51%). When it came to process
innovation. Training investments were conceptualized
What Drives SME Growth?
both as a training breadth measure to represent a
intuitive sense as larger SMEs are likely to have more
companyâ€™s portfolio of training activities, along with the
resources than smaller SMEs. When taken together with
number of days per annum staff are trained. A curvilinear
the findings on organizational age, those SMEs that grow
relationship was observed between innovation breadth
quickly to a small and medium size are likely to be more
and training breadth. That is, SMEs with a broader
portfolios of innovation activities were investing in a broader range of training activities. These findings hold
Finally, an analysis was progressed on innovation breadth
true up to eight types of training activities, at which point
and prior venture experience (PVE). PVE equated to the
the effect tapers off.
number of ventures the Founder, CEO or President had started during their career. The analysis reveals that serial
Figure 3.17 Innovation Breadth and Training Breadth
entrepreneurs are more likely to make broader investments in innovation. These findings reveal the importance of serial entrepreneurs sharing their experiences with first
time entrepreneurs. Innovation Breadth
Barriers to Innovation
Over the previous three years SMEs indicated that high
price competition, lack of qualified personnel and lack of financial capital served as the key obstacles in meeting
their innovation goals. Respondents were less weary 00 00
of their competitors or the regulations and costs of government regulations. Figure 3.18: Barriers to Innovation
A non-linear relationship was found between innovation 70%
breadth and the number of days, on average, staff are
trained each year. These results reveal that investments days of training per staff member, with five days and over offering marginal gains in innovation performance. We will later explore the dynamics of training further in the
% of SMEs
in training provide clear innovation returns for up to four
50% 40% 30% 20% 10% 0%
â€˜Peopleâ€™ section. High
An inverse relationship was observed between innovation
breadth and organizational age. This finding indicate that the breadth of innovation activities are likely to decrease as firms get older. Extrapolation of these results reveal that older SMEs are roughly half as innovative as younger SMEs. These results highlight that more established SMEs require a greater degree of emphasis, and potentially support to catalyze innovation activities. A linear relationship was found between innovation breadth and organizational size; the larger the SME, the broader their innovation portfolio. These findings make
3.5 Technology Entrepreneurs are increasingly reporting the disruptive role that technology is playing in changing the way business is conducted41. Within this study, SMEs were asked the degree to which they had adopted technology tools across the organization. Respondents were most likely to have technology-enabled sales and marketing (81%), or support processes including IT (64%), finance (55%), What Drives SME Growth?
organizing management information (55%), or purchasing
(47%). SMEs were less likely to have implemented tools for strategic thinking (22%), distribution and logistics
Few Founders, CEOs or Presidents ran their business on
(28%), production (33%) or managing people (35%). These
their own, with the majority of leaders managing their
results reveal that input functions such as advertising,
firm with others. Only one in five SMEs had a role in the
marketing and sales, and output functions like finance,
business that was solely focused on people (e.g., HRM
are where technology is most pervasive in SMEs. The
Manager). The majority of SMEs were either relying on
processes of translating inputs to outputs is less likely to
an individual with partial responsibility for HRM or no
focused role at all. These findings indicate the limited centralization of the HR function, and the likely resolution
Further analysis was conducted on technology and
of HR issues at a line management level or directly with
growth, in revenues and profits. Akin to the innovation
external advisors. When considering the management of
analysis, a firm was conceived of investing in a portfolio of
the organization and of the HR function together, these
technology tools. This supplementary analysis therefore
results indicate the prevalence of the owner-manager
examined the relationship that a portfolio of technology
in the top team and their heavy influence on people
applications held with growth. The results revealed that
management throughout the firm.
technology tools were significantly related to revenue and profit growth only when technology was an integral part of strategy. That is, to make the best use of technology tools,
Figure 3.20: Managing the Organization
SMEs require technology considerations to be integrated to their strategic decision making.
% of SMEs
Figure 3.19: Technology Enabled Functions 90 80 70 60 50 40 30 20 10 0
With others With Others
SMEs achieving growth (in revenues and profits) were more likely to be using practices that emphasized an
People were identified earlier to be at the heart of the
equitable and transparent workplace, including the
growth of SMEs, being a key growth promoter (e.g.,
harmonization of terms and conditions, employee share
experience and skills) and inhibitor (e.g., availability of
options, clear grievance and disciplinary procedures and
labour) . Understanding more about the dynamics of
culture change programs. Low growth and declining SMEs
people and the management of the human resource
were placing a greater focus on recruitment practices and
function in SMEs is therefore essential.
performance related pay.
What Drives SME Growth?
When considering communication practices, SMEs
of the Human Resource component, which includes
achieving growth (in revenues and profits) were more likely
recruitment and selection testing, developmental aspects
to emphasize two-way forms of communication, including
of appraisals, the effectiveness of training systems, and
attitude surveys, suggestions schemes, social media and
the extent of cross training, job rotation and/or flexible
company intranet. Declining SMEs were more likely to
work assignments. Finally, employees are incentivized
communicate via newsletters, notice boards, or not at all.
through the reward and commitment component that
When it came to training, SMEs achieving growth (in
comprises performance-linked appraisals, appropriate
revenues and profits) were more likely to be training staff
systems of pay and incentives (e.g. performance/
to become strategic and technological leaders, focusing
profit related pay, employee share options), promotion
on training staff in leadership and management, IT
opportunities, minimum status differentials, and job
software/hardware, problem solving, and HRM practices.
The management of human resources was further
Figure 3.22: The Frequency of HPWS
examined through the lens of a High Performance Work System (HPWS) framework43. A HPWS is a unique combination of work practice that can help to attract, motivate and retain employees. Conversely, a poorly constituted HPWS can also demotivate and increase labour turnover. It is suggested that the appreciation of the HPWS can provide a useful lens through which to examine work practices in SMEs. No one universal model exists, however practices typically occur across three bundles, and these are outlined in Figure-3.21.
Figure 3.21: High Performance Work System
IP Involvement & Particpation
When applying the HPWS to SMEs within the sample, the most popular practices were contained with the human resources and reward and commitment bundles. SMEs were therefore more likely overall to focus on practices
Reward & Commitment
that recruit, develop and reward employees. SMEs were less likely to implement practices that support involvement and participation in the workplace. These results are displayed in Figure-3.22. The HPWS bundles within this analysis include a variety
The involvement and participation component includes
of work practices that are strategic in nature (strat),
practices that encourage opportunities for employees
acknowledge how work is organized (org), the way
to participate more readily in the workplace through
information is communicated (comms), how people
communication and information sharing, group problem
are recruited into the firm (HR), and the focus of skill
solving and decentralized decision making44. Employee
development activities (skill). We will now explore each
skills and abilities are developed through the activities
one of these bundles outline in Figure-3.21. What Drives SME Growth?
Involvement and Participation
abilities (Figure-3.24). The most popular approach to developing people capacity was through staff appraisals,
This HPWS bundle includes work practices that support
with 3 in 5 (62%) SMEs utilizing this practice. Managing &
involvement and participation in organizational decision
developing human people (60%) was high on the strategic
making and development (Figure-3.23). By far the most
agenda. Given the importance placed on quality as a
popular approach to involving employees in the workplace
promoter of growth, as outlined earlier, it was surprising
is through team briefings (74%) and organizing work into
to find only 2 in 5 (39%) SMEs having implemented formal
teams (68%). The work of these teams appears to be
quality control practices and less than a third (29%) with a
connected strategically to the organization, supporting
quality management system. Only a quarter of SMEs see
innovations and improvement to products/services (72%)
it important to formally test (22%) staff during selection
and processes (62%). This connection is most likely to be
and orient (28%) once joined. Skills development was
downward forms of communication, as we found earlier
most likely focused on leadership and management
that strategy formation is mainly reserved for senior
(49%) development and the operation of new equipment
(50%). It is likely that the former is focused towards the senior leadership levels in SMEs, with the latter towards the rest of staff at the firm. This approach towards skill
Figure 3.23: Involement and Particpation Practice Bundle
development, allied with the limited evidence of staffing
Product/service innovation (strat)
orientation, may hamper the ability for staff to contribute
Process innovation (strat) Culture Change Program (strat)
towards strategic decision making and capitalizing on
Teamwork (org) Problem solving groups (org)
Team briefings (comms) Consultative committees (comms) Suggestion scheme (comms) Atttitude surveys (comms)
Figure 3.24: Human Resources Practice Bundle
Newsletter (comms) Intranet (comms) Notice board (comms) Social media (comms) Communication (skill) Teamwork (skill) Problem solving (skill)
% of SMEs
Communication practices beyond team briefings usually included within this bundle received little attention in SMEs. On studying communication arrangements
Manage & develop HR (strat) Improving quality (strat) Customer satisfaction records (strat) Multiskill or cross-train (org) QMS e.g., ISO9001 (org) Formal recruit & select (HR) Selection testing (HR) Staff orientation (HR) Staff appraisal (HR) Equipment operations (skill) Quaity control (skill) Leadership & mgt. (skill) Mentoring & coaching (skill) Workforce diversity (skill) 0%
% of SMEs
that would not be considered high performance work practice per se, it became evident that many SMEs rely on
Reward and Commitment
‘communication via email’ (64%) or ‘through managers’. This approach exemplifies informality in the workplace
This HPWS bundle contains work practices that reward
and the proximity of key decision makers with the wider
employees and engender their commitment to the firm
workforce. Around 2 in 5 SMEs train their employees in
(Figure-3.25). By far the most popular approach in SMEs
communication skills (43%) and problem solving skills
is to reward financially via profit (60%) or performance
related pay (56%), with 3 in 5 SMEs implementing a formal practice. Despite this air of formality, when taken together
with pay being more likely ‘decided on a personal basis’ (60%), and the minority of SMEs with harmonized terms
This HPWS bundle includes work practices that support
and conditions (9%), the picture of pay appears more
the recruitment and development of employee skills and
informal across and within SMEs. This approach to pay,
What Drives SME Growth?
and broader working practices, may hamper the scaling
data raises questions as to the true levels of productivity
of SMEs due to time it may take to unwind precedents
achieved in Alberta, and the extent to which working hours
that have been set in the past. On 2 in 5 SMEs capture
have declined in recent years.
data on labour turnover (37%) or absenteeism (42%). This Figure 3.26: Working Hours in SMEs
might indicate high levels of employee satisfaction with working conditions, or that leaders of SMEs do not believe
it important to track this data.
40 Figure 3.25: Reward and Commitment Practice Bundle
Av. weekly hours incl. OT
Absenteeism records (strat) Labour turnover records (strat) Employee satisf. records (strat) Formal pay system (pay) Performance related pay (pay) Profit related pay (pay) Employee Share Options (pay) Internal promotion (commit)
30 25 20 15 10
Job security (commit)
Harmonized T&Cs (commit) 0%
% of SMEs
To add further context to the work environment SMEs were asked for the average hours of working, including and
Data was collected to understand how SMEs were funding
excluding overtime, for an average employee. The results
growth, the outputs of which are reported in Figure-3.27.
of this analysis are displayed in Figure-3.26. This study
The majority of SMEs finance growth through internal
identified the average working week excluding overtime in
capital (73%)46 or a bank overdraft/loan (56.4%). SMEs are
an SME to be 38.2 hours. Half (52%) of all SMEs reported
twice more likely to draw on their own private equity (13%)
a length of working week of 40 hours, excluding overtime.
or grants (13%) than use venture capital (5%) or business
Three quarters (74%) of SMEs reported working overtime
hours. The average working week including overtime was 42.6 hours. 3 in 10 10 SMEs reported a working week of
SMEs achieving growth in revenues were more likely
between 41 and 59 hours, including overtime.
to use external sources of finance (e.g., private equity, business angels, venture capital, and grants) when
When compared to the average weekly hours including
compared to low growth and declining SMEs. Low growth
overtime of paid employees in Alberta, reported at 31.3
SMEs were more likely to leverage internal sources of
hours , these results indicate higher than average working
finance or asset-based loans (e.g., mortgages).
hours among SMEs. Employees working for growing SMEs (by revenue and profit) were working an average of 40-45
Taken together, these findings indicate the desire for
hours excluding overtime and over 45 hours including
Founders, Presidents and CEOs of SMEs to retain control
overtime. Employees working for SMEs experiencing low
over the way growth is financed, turning first to internally
growth were more likely to be working a shorter working
generated capital to fuel growth. This stance towards
week. Either existing statistics underestimate working
financial management benefits from tax policies that
hours, private sector SMEs have higher than average
reward the retaining of earnings for reinvestment in the
working hours when compared to other organizational
forms, or respondents miss-reported their data. This What Drives SME Growth?
Figure 3.27: Sources of Growth Finance
Figure 3.28: Investing in People and Technology
Factoring or Invoice discounting Business angel
Venture capital Source of finance
As and when As and when
Equity investment Mortgage
Partof of aalong term planplan Part long term Integrated to other areas
Credit card finance Family, bus. partner, director loan
Integrated to other areas
Bank overdraft/loan Internal capital
% of SMEs
Debt to Equity Ratios
3.8 Advisory Services and Networks
To understand the financing of SMEs further data was
Understanding the sources of advice and the networks
also collected on debt to equity ratios. The debt to equity
upon which Founders, Presidents and CEOs of SMEs
ratio measures how much debt a business carries when
draw can provide some unique insights to the type of
compared to the amount invested by its shareholders .
information they turn to when making key strategic
These findings revealed that 1 in 5 SMEs have no debt
decisions. To obtain these insights, this study examined
(19%) and two thirds of SMEs maintain a debt to equity
the organizations that SMEs retain membership to,
ratio less than 1.00. A ratio less than 1.00 is considered
the type and source of advice, and the nature of their
advantageous. These findings reveal that many SMEs
have the capacity to fund future growth, should they choose to.
SMEs experiencing growth in revenues and profits were
This study collected data on the membership of SMEs
more likely to have a debt to equity ratio under 1.00, while
(Figure-3.29). SMEs were most likely to hold membership
low growth and declining SMEs were more likely to have
to a trade or industry association, with two thirds of SMEs
a ratio of 1.01 to 1.99. This reveals that SMEs that grow,
(65%) retaining membership. 2 in 5 SMEs were members
hold less debt.
of their local Chamber of Commerce, and a quarter of SMEs were affiliates of member-only organizations
Approach to Investment
(e.g., Entrepreneur’s Organization, TEC Canada), and the Canadian Federation of Independent Business (CFIB).
To further understand the nature of the finance function in SMEs, respondents were asked how investments were made in people and technology. The results are outlined in
Figure 3.29: Membership Organizations
% of SMEs 0
These findings reveal that the majority of SMEs make investments in people (56%) and technology (49%) ‘as and when the need arises’. Only 1 in 10 SMEs integrate their investments in people and IT to other areas within the firm. SMEs are more likely to integrate technology considerations to their long term plan, than people investments. 37
What Drives SME Growth?
Trade association Chamber of Commerce Member organizations CFIB Employers' association ICD, CCCE Other None
Few SMEs held membership to employer associations (7%) or director’s networks (e.g., Institute of Directors, Canadian Council of Chief Executives). These results indicate the high degree of engagement that SMEs have with their industry and trade bodies and that these organizations offer a powerful network and important way of communicating between organizations across Alberta.
Figure 3.31: Sources of Advice External accountants External lawyers Other business owners Family & friends Management consultants Bank manager Government of Canada Provincial Gov. Other professional bodies Hiring agency Trade or employers association University
Information and Advice
Other learning provider Other None
Respondents were asked about the information and advice they had accessed over the past three years, the results
Head office Unions Fed. Mediation & Conciliation 0
of which are displayed in Figure-3.30. The most popular form of advice sought was tax and financial support (64%),
% of SMEs
followed by business strategy (57%), IT software and hardware, and marketing (49%). 2 in 5 SMEs had procured
Finally, data was collected on the networks, clubs and
advice on leadership and management development
forums that SMEs belong to. SMEs were most likely to
(43%), new technology (43%) and sales (39%). Surprisingly
belong to one network (27.0%) or three or more (23.0%)
few firms, only 1 in 5, had accessed support for innovation.
networks. These results reveal that some SMEs are
Depending on how innovation is defined, this may
focused while others take a broader approach to their
underestimate the degree of support on innovative firm
networking. 1 in 7 (14%) SMEs did not reportedly belong
activities. A minority of SMEs (5%) had chosen not to
to a network. For those who were members of a network,
access support. These results provide interesting insights
club or forum only 3 in 5 (60%) reported that the network
to the functions and degree to which SMEs are open to
had assisted them in some way. This leaves a large
taking onboard new ideas.
minority (46%) that retain membership while not extracting the value that meets with their expectations.
Figure 3.30: Forms of Advice 70
3.9 Supply chain
% of SMEs
60 50 40
An organization’s supply chain contains a range of actors
that are crucial to the delivery of customer and consumer
value. This study appraised the supply chain of SMEs.
In particular data was collected on the collaborative
relationships between SMEs and others. The survey then focused on the quantity and quality of customer and supplier relationships.
Collaboration The most prevalent source of advice was external accountants (78.1%), external lawyers (70.2%) and other business owners (66.3%). SMEs were at least twice as likely to access these sources for support when compared to their bank manager, a government agency or department. Only 1 in 7 SMEs accessed a University for
Over the last three years, 3 in 5 (57%) SMEs had established a collaborative partnership. On closer inspection, these collaborative partnerships were most likely to be with suppliers (35%) followed by customers (27%) and ‘others’ (26%).
support. What Drives SME Growth?
Figure 3.32: Collaborative Relationships
to be maintaining relationships with between 20 and 49 customers. When asked the proportion of customers that were ‘key’ customers, SMEs reported 30% or less customers in their current portfolio were ‘key’. The 80:20 rule applied to half of all SMEs. A ‘key’ customer was defined as one whom provides an SME with essential cashflow to sustain the business and offers the potential for long term sales growth SMEs were less likely to define a ‘key’ customer as one with a significant share of the market they served, or offering the potential for increasing or providing them with above average profit margins.
Suppliers Suppliers Education establishments Education establishments Other Other
The majority of SMEs were sourcing supplies from between 10 and 49 suppliers, with 1 in 5 SMEs servicing between 20 and 49 suppliers. Of these suppliers, between
Given the high return of ‘other’ responses, these were later
1 and 10 were deemed to be ‘key’. As a ratio, close to three
thematically coded. Figure-3.33 reports the results of this
quarters (71%) of SMEs indicated that between 10% and
supplementary analysis. Alliances were best represented
40% of their supplier portfolio was deemed ‘key’. When
here, with a third (32%) of SMEs having some form of
asked what a ‘key’ supplier offers their organization, the
alliance. Beyond this, co-opetition (the act of working in
majority of SMEs reported the provision of goods and/
collaboration or partnership with your competitors) was
or services that are critical to their business and those
favored by 1 in 7 (14%), being of similar importance to
whom “go the extra mile”. 1 in 5 SMEs placed a value on
sales agents. SMEs were less likely to have developed
those suppliers that provided goods and/or services that
relationships with community partners (7%), financial
are hard to find, made investments in supporting their
bodies (7%), First Nations (6%), Government (2%), or
business, or supported the development of new products
educational institutions (1%).
or services (21.7%). Whereas 2 in 5 SMEs valued suppliers
Figure 3.33: ‘Other’ Collaborative Partners 35
that helped them to reduces costs or improve quality.
% of SMEs
Finally we were keen to explore the voluntary efforts that
SMEs are making to operate in an environmentally, socially
15 10 5 0
and economically responsible manner. When asked which corporate social responsibility initiatives (CSR) SMEs had implemented, or considered implementing, respondents were most likely to have taken action, or were considering taking action in their community. SMEs were less likely to have championed CSR initiatives in their marketplace or in the general environment.
Customers Because CSR can be seen as a narrow concept we also The majority of SMEs were servicing relationships with
investigated broader sustainability practices in SMEs,
between 20 and 500 customers, with SMEs most likely
the results of which are outlined in Figure-3.34. SMEs
What Drives SME Growth?
achieving growth were more likely to focus on business
the majority of SMEs (57%) do not believe that promoting
profitability and then layer in social and environmental
their organization as environmentally friendly will impact
practices. SMEs were most likely to turn to social
sustainability practices over environmental practices. This may reveal that leaders of growing SMEs perceive
Figure 3.35: Impact on SME Growth of Supporting the Environment
social practices add greater value to their business model or provide a competitive advantage over environmental practices. Figure 3.34: Sustainability Practices
Negative effect Negative effect
No Noeffect effect
60 % of SMEs
50 40 30 20 10 0
From a social perspective, SMEs were keen on supporting good practice in recruitment and development of employees and supporting their local community. The environmental focus of SMEs was predominantly on producing less waste, which included recycling. Few SMEs were championing the use of renwable energy. Interestingly, 2 in 5 SMEs identified business owner succession planning as a key sustainability practice that had been implemented, slightly higher than those SMEs who had integrated succession to their business strategy. These statistics align with other studies48. The presence of a succession plan increases steeply when a leader is between 60 and 64 years of age; being twice as likely than 40-49 years of age. The greater focus on economic and social sustainability is not surprising given the result of asking SMEs whether promoting their organizations as environmentally friendly would affect future growth. The results of this analysis can be viewed in Figure-3.35. These findings highlight that What Drives SME Growth?
Method The Promoting Sustainable Performance (PSP)
The Promoting Sustainable Project (PSP) does just
methodology relies on business owners, entrepreneurs
this. Data is rigorously collected from SMEs via three
and leaders of SMEs sharing their objective and honest
cumulative data collection stages depicted opposite: the
insights on how and why their organizations achieve
survey, the interview, and the organizational case study.
growth and enhanced levels of performance.
SMEs can choose to take part in all three stages, and at a minimum are invited to complete the survey. This
The majority of research in the field of management and
approach (labeled ‘mixed methods’ in the academic world)
organizations tests theories using quantitative data via
allows researchers to start with observations of a broad
impressive statistical approaches and tends to focus on
population and then focus on understanding a particular
one disciplinary area at a time (e.g., finance, marketing,
subset of this population, in this case – High Impact
etc.). This approach can tell us what variables are related,
but not how or why. Where theory is less developed, which is the case for the growth of SMEs, this type of approach
At each stage, data is collected on a broad range of
issues at the heart of entrepreneurial and SME growth and performance.
Instead, researchers need to explain how or why the effects we observe occur. To do this they need to include a
The PSP program is expanding. Research teams in other
wider set of variables in their analyses that can influence
geographical contexts are adopting the PSP method and
growth. Adopting broader research models that take
research instruments to collect data on SME growth.
account of multiple disciplines affords researchers the
Our longer term vision in Canada is for PSP to be run in
ability to unlock the organizational ‘black box’. This is
each province, offering local and comparative insights on
important so we can better understand the process by
how and why SMEs achieve growth. We believe this will
which inputs are transformed into outputs and build new
offer huge value in unlocking future Canadian economic
theories in management and organizations.
productivity and performance. Figure 3.1: PSP Method
What drives SME Growth? 41
What Drives SME Growth?
Sample & Data Collection
A primary set of selection criteria were applied to the
SMEs included in the sample were headquartered in
survey sample. To pass this selection stage SMEs had to
take part in the next research stage
Alberta, privately owned independently operated for-profit organizations. The sample was representative of the broader Alberta business population, by NAICS industry
A total of 507 individuals responded to the survey, of
closed, multiple choice and open question formats. Data was collected across 15 sections, including: background; markets and competitions; supply chain; growth; strategy and management; innovation; corporate social responsibility; technology; human resource management; training and development; finance and funding; sources of information, advice and networks; demographics; and,
diversifying in their markets, reporting a proportion of revenues generated from working outside the province
The survey was made available online and in hardcopy. The survey included 72 questions, with a mixture of
strategic, reporting an informal or formal presence of strategy
which 396 were SMEs. Navigate to page-23 to understand more on the demographics of the sample.
ambitious, reporting a willingness to rapidly or steadily growth their enterprise
sector and employee size. The Canadian definition for what constitutes an SME was adopted49, 50.
open to further research, reporting a willingness to
innovating in their products/services and processes, reporting investments in innovation across five main innovation areas52
The rationale for applying the above criteria came from the desire to identify organizations more actively investing in their own development and growth. When applied to the
further comments and next steps.
survey sample, just over a quarter (26.5%) of surveyed
The survey presented over 1,000 possible variables for
A secondary set of selection criteria where then applied.
SMEs were found to be exhibiting these characteristics.
analysis. Data was analyzed using SPSS version 24. Data analysis began with descriptive univariate analysis and
To pass this selection stage SMEs had to be achieving high growth, reporting 20%+ growth in employment,
was followed by more complex analysis.
revenue or profit for the past 3 years. When applied to
above, just over half (56.2%) of the interview sample and
the SME sample that passed the primary criteria outlined 1.5 SMEs out of every 10 (14.8%) of the full survey sample,
Interviews focused on a sub-set of High Impact SMEs
met this criteria.
identified from the survey sample. Figure 3.2: Identifying High Impact SMEs
1. SMEs Investing in growth
2. SMEs experiencing growth
3. SMEs characterizing difference
What Drives SME Growth?
To ensure that those SMEs studied were representative of the general SME population a tertiary set of selection criteria were applied. The belief was that a heterogeneous sample would allow the findings of the study to be
Research Impact Impact of the Survey
generalisable to the broader SME population, rather than
At the beginning of the survey respondents were
focusing on any one type of SME. To achieve this, the
asked whether they were clear on the challenges their
criteria adopted the technique of ‘maximal variation’.
organizations faced in achieving future growth and/or
Essentially, SMEs identified for interview had to represent:
performance. Respondents were then asked at the end of the survey whether they had gained greater clarity on the
all sectors, all major NAICS sector codes to two digits;
challenges their organization faces in future growth and/ or performance.
all sizes, including small and medium SMEs;
all genders, including equal likelihood of male or
Figure 3.3: Impact of the Survey
female leadership; •
all ownership forms, including family, private and employee ownership models; and,
Access to new info Opportunity for reflection
Call to action
All locations, including SMES from the main REDA
Identified a specific need
This resulted in 33 organizations being contacted and secured for interview. Interviews include 76 questions, including a combination of multiple choice and open questions. Interviews took on average two hours, with
Access to new info
a degree of post-interview follow-up. The majority of
Opportunity for reflection
interviews were conducted in-person at the interviewees
Call to action
business premises. The interview followed the same
Identified a specific need
section structure as the survey and probed deeper into each survey area.
All interviews were recorded and transcribed verbatim.
9 out of 10 (90.6%) respondents initially stated they were
Data was analyzed via NVivo version 11 qualitative
clear on the challenges they faced. By the end of the
analysis software. Interviews were thematically coded and
survey a third (34.6%) of respondents had gained greater
comparatively analyzed within the section and question
clarity on their challenges; and were subsequently asked
the reasons for this through an open qualitative space.
Two in five respondents (39.5%) revealed that the survey
Data is currently being collected and processed on a
had provided an opportunity for reflection, including
subset of case study organizations. These case studies take time as they involve multiple in-depth interviews with employees across the firm. The findings from these case studies will be published in the coming year and we will notify you of them when they become available. 43
What Drives SME Growth?
examples like “I am not spending as much time as I should working on the business”, “it [the survey] caused me to pause and think, to create a focus”, and “you asked some questions I should have been able to better answer!” A quarter (25.9%) stating that they were to take action
following the survey, with examples including: “highlighted areas for improvement”, “stimulated ideas, burning questions to discuss with staff/team”, and “encouraged/ inspired me to push forward!”
Impact of the Interview Respondents were asked at the end of their interview whether they would do anything differently as a result of the interview. The majority (88%) of interviewees reported that they would, and that the interview had helped them to reflect on their current approach and operations, had catalyzed action or was of general interest to them. Figure 3.4: Impact of the Interview
Drives Introspection Catalyzed action Interesting
Drives intospection Catalyzed action Interesting
“[The interview] made me more aware of some of the decisions I’ve made, and we discussed some of the new areas I’d like to pursue. It’s been really positive”. - Forestry & Fishing
What Drives SME Growth?
Endnotes 1. Findings that align with official government statistics that find 97.9%
18. Sectors under 3% in representation are excluded from Figure-3.1.
of organizations to be sized between 1 and 99 employees. See: Statistics
These sectors include: Agriculture, Forestry, Fishing and Hunting (1.3%);
Canada (2016) Key Small Business Statistics, Retrieved from: www.ic.gc.ca.
Transportation & Warehousing (1.0%); Information & Cultural Industries
2. For example: ABCTech, ATB, BDC, Ernst and Young.
(1.5%); Management of Companies & Enterprises (0.5%); Educational Services
(2.3%); Health Care and Social Assistance (2.3%); Arts, Entertainment
and Recreation (1.3%); Other Services (2.0%). The Utilities Sector was not
5. Ibid. Alberta has 50 SMEs per 1,000 employees, while the Canadian average
represented within the survey.
19. Key Small Business Statistics, retrieved from www.ic.gc.ca.
6. Acs, Z. J., Parsons, W. and Tracy, S. (2008) High-Impact Firms: Gazelles
20. These findings lend further weight to those found by BDC in their 2016
Revisited, unpublished manuscript prepared for the United States Small
research publication “The Scale-up Challenge: How are Canadian Companies
Performing”. Within this report BDC researchers identify that the average
7. Savine, K. (2015) Canada’s Innovation Performance: A Scorecard, Centre for
age of businesses continues to rise, despite the number of new start-ups
Digital Entrepreneurship and Economic Performance.
increasing, and that few businesses grow beyond 100 employees.
8. For a good discussion see: Parent, L-M. and Poitevin, E. (2016) Beyond
21. Company name was used to track location, and where this was
the Big Idea: Re-Thinking the Innovation Agenda, Canadian Federation of
unavailable IP address was used as an approximate.
Independent Businesses, October Research Insight.
22. Government of Alberta (2013) The Number of Businesses in Alberta is
9. Debates began in the early 1900s, and their veracity heightens during
Gaining Momentum, Economic Commentary, March.
‘bust’ periods. See: Brisbois, J. (2010) Economic Diversification: Alberta Style,
23. Alberta has developed a network of ‘Regional Economic Development
presentation to ABCTech AGM, June 34th, Western Centre for Economic
Alliances’, or ‘REDAs’ for short that aim to “stimulate long-term economic
Research, University of Alberta.
development and growth strategies in Alberta’s rural and urban
communities”. See: http://economic.alberta.ca/redas.
11. Advisory Council on Economic Growth (2017) Unlocking Innovation to
24. The indicative retirement age in Canada is presently set at 65 years, with
Drive Scale and Growth, Government of Canada, February 6, 2017. Retrieved
labour laws stipulating that individuals cannot be forced to retire.
25. PwC. 2014. Securing the future: family business survey 2014, Canadian
12. For an example see: Government of Alberta (2014) Building on our
Entrepreneurial Spirit: A Small Business Strategy for Alberta, October 2014.
26. ATB Business Beat (2016) What is the DNA of an Alberta Entrepreneur?
Retrieved from http://smallbusiness.alberta.ca.
Volume 14, July edition.
13. Robinson, N. R. (2016) To Promote Growth, Canada Needs to Fixate on
27. Government of Alberta (2017) Highlights of the Alberta Economy 2017,
Data Before Credentials, Report on Business, The Globe and Mail. Retrieved
Retrieved from: www.albertacanada.
28. High growth in this study drew on the OECD definition of high growth,
14. ilman, M., Raby, S. and Turpin, J. (2012) The BIG Ten: The Ten
which equates to 20%+ annualized over a three-year period. Steady growth
Characteristics of Successful Growth. ISBN: 978-1-902671-76-5.
was recorded as between 0 and 20%. www.oecd.org.
15. For a simple depiction of a business model I would recommend locating
29. Business development in this study shares some commonality to
the ‘Business Model Canvas’ at www.strategyzer.com.
factors supporting growth identified within other provincial studies
16. Berlin, I. (1963) The Hedgehog and the Fox: An Essay on Tolstoy’s View of
including ‘marketing’ in ABCTech’s 2014 report “The Missing ‘M’ in SMEs”
History, Weidenfeld and Nicolson.
and ‘attracting new customers’ in the Calgary Chamber of Commerce’s 2014
17. Figure extrapolated as an overall average from those survey respondents
report “Small Business in Calgary: Challenges and Opportunities”.
that provided their revenue level for the last financial year.
30. ATB (2016) What Keeps Alberta Business Owners Up at Night? ATB
What Drives SME Growth?
Business Beat, April.
31. ‘Labour’ and ‘finance’ were also found to be key growth challenges
50. Size calculations included full time, part time, seasonal and
in BDC’s 2015 report “High-Impact Firms: Accelerating Canadian
51. BDC referred to the term ‘high impact’ when referring to SMEs that
32. While of lesser importance in this study, these issues are surfaced as the
disproportionately contribute to job creation.
main growth challenges in the Calgary Chamber of Commerce’s 2014 report
52. OECD (2005) Proposed Guidelines for Collecting and Interpreting
“Small Business in Calgary: Challenges and Opportunities”.
Technological Innovation Data, Retrieved from: www.oecd.org.
33. Ibid. 34. These factors are in contrast to BDC’s 2016 report “Entrepreneur’s Challenges and Needs”. Within their study, BDC identify ‘human resource challenges’, ‘quality challenges’ and ‘process issues’ to be associated with ‘high growth’. ‘Management’ and ‘personal planning’ are found to be associated with low growth SMEs. 35. Ibid. 36. It would be valuable to understand whether these SMEs were ‘born national’; examples of firms that compete on a national scale from startup. 37. Ibid. 38. Martin, R.L. (2015) Stop Distinguishing Between Execution and Strategy, Harvard Business Review, March Edition. 39. Ibid. 40. Statistics Canada 2015 report “Summary of the Survey on Financing and Growth” reported that only 42% of SMEs had introduced at least one type of innovation. 41. ATB (2017) Are Alberta Business Using Technology to Transform Their Businesses? ATB Business Beat, July. 42. Ibid. After sales and customer acquisition, attracting and retaining the right people appears to be the biggest (persistent) issue keeping business owners up at night. 43. See: Raby, S. (2013) Explaining the Role of Human Resource Management in the Performance of Small and Medium-sized Enterprises, PhD Thesis. 44. For example, see: See: Gilman, M., Raby, S. and Pyman, A. 2015. The Contours of Employee Voice in SMEs: The Importance of Context, Human Resource Management Journal, 25(4): 563-579. 45. Average weekly hours (including overtime) for employees paid by the hour, by province and territory. Retrieved from www.statscan.gc.ca. 46. Ibid. These findings re in contrast to those of Statistics Canada that over half (53.4%) of SMEs seek external finance. 47. To calculate your debt to equity ratio navigate to: www.bdc.ca/en/articlestools/entrepreneur-toolkit/ratio-calculators/pages/debt-to-equity-ratio 48. Bruce, D. and Wong, Q. (2012) Passing on the Business to the Next Generation: Survey Results on Small Business Succession Planning, Canadian Federation of Small Business, Research.
What Drives SME Growth?
Thank you to our Sponsors
What Drives SME Growth?
MTROYAL.CA/businessgrowth NEXT! The DNA of Sales and Business Development This research, in addition to a series of industry roundtables has highlighted the need for businesses to build capacity, and graduates to be educated in the fundamentals of sales and business development. Despite the terms of ‘sales’ and ‘business development’ being used frequently within organizations, a close appraisal of the literature reveals a lack of consensus on how they are differentiated. The aim of this upcoming review will be to dedicate attention to sales and business development disciplines, to examine how these disciplines have emerged over time, and the skills and functions that individuals require when working in these fields. The outcome is the development of a competency-based framework for sales and business development that offers further clarity on these fields and how they interact, helping to inform curricula development and further research in the field.
In partnership with: The Institute for Innovation & Entrepreneurship, Mount Royal University Expected release date: Winter 2017
Report By Simon Raby Mount Royal University Calgary, Alberta