Six Dysfunctions of SMEs: Undefined Demand

Addressing the most common six SME dysfunctions which regularly inhibit effective scale-up

The SME Productivity & Innovation Centre (PIC) at Edge Hill University is an internationally recognised Centre of Excellence supporting SMEs to achieve growth through scale-up. The scale-up phase is typically the quickest and most significant stage of growth, based primarily on the most effective use, allocation and tracking of resources, and one that can bring the most challenges for an SME.

The six articles in this series will share the experiences of PIC’s scale-up experts in addressing the common six SME dysfunctions which regularly inhibit effective scale-up: Undefined demand, Undifferentiated offer, Ineffective communication, Undefined organisational structure, Unclear processes, and Ineffective use of data.

Undefined Demand

Managing and growing demand is crucial to achieving scale-up. It’s the revenue generated through increasing sales which fulfils one half of the ‘scale-up paradox’ – do less, achieve more.

Many SMEs who we see through the PIC, to put it simply, operate a predominantly inbound model to sales; a broad base of mainly existing and previous customers who place orders, enquire directly, and receive routine ‘keep in touch’ account management.

This then is supplemented by some indirect marketing, social media, and SEO. Those SMEs who do operate aspects of outbound sales (i.e. telesales, direct marketing, etc) also however often suffer with performance inconsistencies between individual sales staff/teams, too much turnover of sales staff, or generally static annual revenue growth. Relying on a predominantly inbound sales model overtime can create real areas of vulnerability in the business:

1. It creates blind-spots on the market and competition. Without the external perspective of having to regularly compete (pitching, tendering, winning new customers), tacit knowledge on market dynamics, customer behavioural changes, emergent technologies and alternative solutions is lost or never gathered.
   
   The business is less able to ‘sense’ gradual or subtle market changes, becoming aware of a need to respond and innovate only when changes are sudden or significant (i.e., the loss of a big customer), which can be a highly challenging position to recover from.
2. It erodes the ability to fully understand and articulate its value proposition. Dealing only and regularly with people who ‘know what you do’ means there is often more focus on what the customer wants over why they want it. Discussions with customers focus more on operational activities, processes and outputs, rather than outcomes and impact.
   
   This can mean that when it’s time to renew a contract, the customer market-tests value for money, or you need to increase your prices, it will be harder for them to know the real value your business has created for them. The other consequence of this is that when faced with having to compete to generate new customers, i.e., self-generate an uplift in demand, the value proposition can become blurry.
   
   It will often describe features over benefits and fall short of presenting an impactful value-for-money proposition.
3. It results in a loss of control of new customer pipeline. The PIC often works with SMEs who enjoy generally sustainable levels of demand: inbound enquiry calls; website enquiries, or; word of mouth.
   
   However, even assuming this volume is sufficient, the real challenge is that if an SME is wholly reliant on inbound for its new sales, they will have little control over who their prospective new ‘self-selecting’ customers are. Nearly all SMEs would be able to name their legacy customers who pay too little and take up too much time and conversely which are their most desirable and profitable type of customers.
   
   However, not many SMEs have any real control over consistently generating the desirable customers, nor the real confidence to turn business away, even when they know it will be a headache to deliver. By using their own internal customer data effectively to segment the customer base and re-clarify their value proposition(s), combined with an effective outbound process,
   
   SMEs can take more genuine control of their customer pipeline. Understanding, and defining, demand within an SME includes but goes well beyond facts and figures on the size and make up of a market.
   
   It also comes down to understanding how you make your sales; how effective your sales methods and processes are; how to use inbound and outbound approaches in the right ratio, and that data on performance is gathered and analysed regularly to inform strategic and operational decisions.

See also in the series: Six Dysfunctions of SMEs: Undifferentiated Offer 

Author: Michael Banford, associate director (Employability & Enterprise), Faculty of Arts and Sciences / SME Productivity & Innovation Centre at Edge Hill University. The SME Productivity & Innovation Centre has worked with over 190 SMEs in Lancashire and the Liverpool City Region since 2018 to address exactly the types of issues and inconsistencies described here, helping SMEs drive on average 29% growth.

Until June 2023 places on the Rapid Innovation Sprint Programme are fully funded via the European Regional Development Fund. If you recognise these challenges in your business, find out how we can help. 

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