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What drives sme growth? introducing the leader’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


The Author


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


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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.

Ray DEpaul

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?

The author

Simon Raby

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 ‘Pracademic’ 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 Leader’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 leader’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.

For Policy.

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.

Reward Reinvestment.

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 ‘locked in’ 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.

broader economy.

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.

more innovative.

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

Strategy Shapers

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



Value Indentifiers

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?

Strategy Shapers

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?

Culture Crafters

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

Rounded •

Do you track how others are evolving in your industry, and consider what this means for your operations?

Aware •

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

Filtering AIR

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

business model.

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

explored earlier).

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

Impact SMEs.

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

job requirements?

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 ‘Method’ for futher information). You will find a

Oil & Gas Extraction Oil & Gas Extraction

summary of these findings on page-10.

Construction Construction Manufacturing Manufacturing

3.0 Demographics

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

3.01 Organization

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

60 -64

60 -64



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

entrepreneur .

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%

Rapid decline

Rapid decline

Steady decline Steady decline


Platueaed Platueaed Steady growth

Steady growth


High growth



High growth


Historical Promoters and Inhibitors Respondents were asked the factors that had promoted

3.1 Growth

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

Staying relevant

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

one’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 “people� 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

Market divrsification

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

Steady growth

Business development

Business development Raising Funds Raising Funds Employee skills


Steady decline

Rapid decline

for over 75% of their revenues. When looking beyond the

Economic growth

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

Product/service development

Employee skills

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


% Revenue




0% High growth

Steady growth


Steady decline

Rapid decline

Business development Business development

Economic growth Economic growth

Raising Funds Raising Funds

Product/service development Product/service development

Employee skills

Employee skills

Product/service quality

Product/service quality

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%


0% 0%






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 firm’s markets are, the more likely firms are to grow37. Figure 3.9: Market Penetration & Revenue Growth

% Revenue exposure in market






0 -20%



Revenue Growth

Growing Growing

Declining Declining

Stable Stable

Inconsistent Inconsistent

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 ‘locked in’ 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

Strategic Priorities

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

Yes, written

Yes, written

Yes, unwritten

Yes, unwritten



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 Porter’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

Brand Brand

offer should be able to command a higher price.



Responsiveness Technology

Culture Technology

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

3.4 Innovation

represent a company’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

company’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







Training Breadth

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%

‘People’ 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

be technology-enabled.

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

On own

On own

With others With Others

By others

By Others

Business function

Work Practices

3.6 People

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

Human Resources

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

leadership levels.

(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)

growth opportunities.

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

Human Resources

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

Working Hours

This study

Statistics Canada

3.7 Finance

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

angels (5%).

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



Private equity

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

0 0








Human Resources


% 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.

Membership Organizations

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.

Customers Customers


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.

Sustainability Practices

% of SMEs

30 25

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

firm growth.

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

Positive effect

Negative effect Negative effect

80 70

No Noeffect effect

60 % of SMEs

Postitive effect

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

is inadequate.

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



Case Study

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

Interview Smaple

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


General comments

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.

General comments

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.

Case Studies

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:

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

3. Ibid.

(2.3%); Health Care and Social Assistance (2.3%); Arts, Entertainment

4. Ibid.

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.

is 39.2.

19. Key Small Business Statistics, retrieved from

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

Business Administration.

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

10. Ibid.

communities”. See:

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

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%.

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

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.

49. Ibid.

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

subcontracted labor.


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:

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 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: 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?


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What Drives SME Growth?

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What Drives SME Growth  

Report By Simon Raby Mount Royal University Calgary, Alberta

What Drives SME Growth  

Report By Simon Raby Mount Royal University Calgary, Alberta