Scalable success for medium-sized businesses

When small and medium-sized businesses think of scaling up or expanding their businesses, it is undeniable that the challenges they encounter are quite different from large corporations. This was the topic of my recent talk during the celebration of the Cebu Business Month last May, organized by the Cebu Chamber of Commerce. It was a good opportunity for me to share some of my insights into the current state of medium-sized businesses in the country and my recommendations on essential steps and strategies that may help them scale up.

Current state

Based on Republic Act No. 9501, or Magna Carta for MSMEs (micro, small and medium enterprises), and the MSME categories used by the Philippine Statistics Authority, medium-sized businesses usually have about 100 to 199 employees, with an annual revenue between P15 to P100 million. As the Philippine economy continues its journey of recovery from the effects of COVID-19, a rapid survey conducted by the Asian Development Bank Institute in 2021 shows problematic challenges that impede medium-sized businesses to scale up, such as dealing with sharp drops in income, demand and revenue, resulting in their temporary closure during the pandemic, which, in turn, has led to disruptions in production, supply chains and domestic demand.

The pandemic has also brought disproportionate impact to women-owned and led businesses. Women became even more susceptible to the risk of losing their businesses since they also have to bear the increased burden of domestic work at home. The United Nations Women’s May 2020 survey confirms the severity of the impact on MSMEs, particularly on women-owned and led businesses, as 90 percent of them said their businesses were negatively affected by COVID-19, and half of the respondents said they were spending less time on their businesses due to an increase in caregiving responsibilities at home. Women are hit hardest by the crisis, and if this continues, it will pose a serious risk to the economy. Considering all these issues and how they affect their potential contributions to the economy, it becomes more imperative for government and nongovernment institutions to provide medium-sized businesses with the appropriate tools and strategies that will help them grow and be successful.

As the environment is evolving under a new normal, businesses require better access to funding, scale-up opportunities, innovative strategies, competitive workforce and effective market strategies. To implement these tools and resources, and exploit available opportunities, we must recognize first that adapting to the evolving environment is no longer a choice as medium-sized businesses have to scale up to open doors to increase revenue, expand market share and enhance competitiveness.

A strategic road map for scalable success

During the event, I proposed a strategic road map to ensure sustained growth and profitability. I call this the “4Gs road map to scalable success: goals, gaps, gear up and grow.”

• Goals: The foundation of any scaling strategy lies in the first step, which is defining clear and achievable goals. Whether it is increased revenue, enhanced profitability, market share expansion, or geographical reach, outlining clear objectives and outcomes can serve as a guiding light throughout the scaling process and increase the chances of success, as well as maximize the potential for sustainable expansion.

• Gaps: Another important step in scaling up is to identify the gaps in the current business. These gaps may manifest in various forms, such as inadequate resources, limited capabilities, or constrained market reach. Resource gaps may include insufficient funding or outdated technology. Capability gaps can be a lack of expertise in certain areas of business, ineffective processes, or outdated staff skills. Gaps in market reach may include limited brand visibility, inadequate marketing strategies, or a narrow customer base. Effective strategies can only be determined once the gaps that need to be addressed are accurately identified.

• Gear up: Having identified the gaps, it is necessary for the business to gear up by selecting and executing the right strategies and tactics, and bridge the gap in key areas like human resources, finance, operations, governance and marketing. For instance, conducting capacity-building training to enhance the skills of your staff can support the scaling process. A clear growth strategy can also attract potential funders, like private equity, strategic partners, banks and other financial institutions. Businesses may also want to consider investing in digitalization by acquiring the latest technologies and computer software or data analytics to enhance their business operations. However, adopting such strategies may not be feasible without good corporate governance (CG) policies and practices in place. Good CG and an effective organizational structure promote balanced decision-making to ensure that the interests of all stakeholders are considered. A marketing strategy that can be considered is to ensure a strong online presence or to launch newly branded products or services that can help businesses adapt to the modern age. This may involve leveraging intellectual properties for additional revenue streams and forming strategic partnerships for long-term sustainability and market differentiation. It is important to weigh the pros and cons of these strategies by assessing the benefits and risks involved to ensure their alignment with your business goals.

• Grow: After careful assessment and planning, the next step is to start to grow and implement your selected strategies. The foundation of scalable success not only lies in strategic planning but also in execution. Growth is never a one-time event but a continuous process that requires monitoring and adaptation. By being responsive to changes in the environment, the business can remain competitive and resilient in achieving its expansion goals.

Scaled-up business for sustainable economic growth

Growth inevitably necessitates business to conduct careful planning, goal-setting and strategic decision-making to position itself for success in a competitive market landscape. However, scaling up a medium-sized business is not just about growth; it is about sustainable economic growth. Being steadfast to our business responsibility and accountability to the community and society are the pillars of sustainable growth. Operating ethically, minimizing harm and contributing positively to communities are the essence of making a meaningful contribution to sustainable development. An entrepreneur must aspire for a business that is not only resilient against market challenges, but also adept at contributing to the overall development of society. INQ

The author is a member of Management Association of the Philippines and president of Mageo Consulting Inc., which provides corporate finance advisory services. Feedback at [email protected] and [email protected].