DVL Smith Ltd / Decision Architecture Ltd / MetLife Inc (2018)
Stuck in 70s!
Why our understanding of the SME sector needs a reboot!
Stuart Baker - MetLife
David Smith - DVL Smith
Adam Riley - Decision Architects
Stuck in the 70s! Why our understanding of the SME sector needs a reboot!
SME … a meaningless epithet?
- There is lots of fighting talk about the success of the UK economy being driven by the engine room: the SME sector
- But the term SME is woefully misunderstood and often mischaracterised - it has become a convenient label for motivational soundbites
- The reality is that unless we actually grasp the complexity of what it is to be an SME, the economy is going to struggle
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DVL Smith Ltd / Decision Architecture Ltd / MetLife Inc (2018)
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Encouraging words from government, but….
“A sustained recovery of the UK economy will rely on the private sector with small and medium sized businesses taking the lead”
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“Government is open for business and wants to work with more small businesses across the UK – SMEs are the life-blood of the economy”
DVL Smith Ltd / Decision Architecture Ltd / MetLife Inc (2018)
...it wasn't always this way
Report of the Committee of Enquiry into Small Firms (“The Bolton Committee report”)
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DVL Smith Ltd / Decision Architecture Ltd / MetLife Inc (2018)
The Bolton Committee first defined SMEs as firms employing up to 250 employees
Bolton was defining a group of firms ‘doomed to extinction’
“the small firms sector was in a state of decline in both number and in contribution to output and employment and in a few years would cease to exist. Economies of scale would make the remaining 800,000 small firms uncompetitive and doomed to extinction”
5m
SMEs in the UK (up to 250 employees)
of businesses
in UK are SMEs
99%
40%
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typical personal cost to owners when an SME fails
SMEs … some basic facts
make it to end of year four
600k
£17k
1m+
of SMEs have less than 10 employees
Only
of SMEs have turnover of
new start-ups expected in next year
96%
DVL Smith Ltd / Decision Architecture Ltd / MetLife Inc (2018)
10%
DVL Smith Ltd / Decision Architecture Ltd / MetLife Inc (2018)
Changing aspiration and huge advances in technology are driving/enabling a complete reshaping of the world of work
- The corporate sector will need fewer employees
(and offer fewer opportunities) - The ‘independent economy’ will continue to expand aggressively
(necessity or desire) - Entrepreneurship will become a more well-trodden pathway
- Out of this eco-system, more firms will be created
Looming crisis or unique opportunity?
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There is an urgent need to start understanding the massively different needs of SMEs
Understanding the variability
DVL Smith Ltd / Decision Architecture Ltd / MetLife Inc (2018)
(50-249 Employees)
Medium
Sized Business
Small
Business
(10-49 Employees)
Focusing on employee numbers and development stage 8
. . . helpful progress but tells only part of the story
Today there is recognition of the following types of business within the SME overall category:
Micro
Business
(1-9 Employees)
DVL Smith Ltd / Decision Architecture Ltd / MetLife Inc (2018)
There have been government initiatives focusing on business owner ‘characteristics’
- Ethnicity
- Gender (with a focus on female entrepreneurs)
- Senior citizen
- New university graduates
- High tech, ex-corporate employees
- Immigrant status
- The recently made redundant
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DVL Smith Ltd / Decision Architecture Ltd / MetLife Inc (2018)
Analysis of the business owner is helpful
These add helpful granularity and address the social cohesion agenda but still fall short of building a full picture of SME needs and how best to help them
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- In the UK there are around 11,000 companies that have grown over 20% pa over three consecutive years
- But these account for only 0.2% of SMEs
- Focusing on this phenomenon runs the risk of overlooking the wider needs of the SME sector
Politicians like chasing Gazelles
Identifying future winners - (tomorrow’s champions) - seems a worthy goal … putting the spotlight on SMEs who export and/or develop disruptive innovation
DVL Smith Ltd / Decision Architecture Ltd / MetLife Inc (2018)
Spectrum from ambitious entrepreneur to the reluctant self-employed
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DVL Smith Ltd / Decision Architecture Ltd / MetLife Inc (2018)
Serial entrepreneurs - who set up and sell multiple businesses
Strategic entrepreneurs - not just opportunity seekers but having a viable business model/marketing plan
Asset building business owner – focusing on building the business asset not just revenue
Unicorns – high tech superstars using venture capital – high growth power house
Experienced ex-corporate employee start-up
User entrepreneurs – create a product/service for their own use that they then commercialise
Exploring the ecosystem …
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- Business owners
- Family business stewards
- Craftsman/technician
- Lifestyle business owners
- Online coaching and information providers
- Novice start-up
- Downsizing business owner
- Reluctant business owner
DVL Smith Ltd / Decision Architecture Ltd / MetLife Inc (2018)
.... all factors that do not figure in the way government provides support services to SMEs
It’s an emotional journey …
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DVL Smith Ltd / Decision Architecture Ltd / MetLife Inc (2018)
- Surviving with no guaranteed income immediately after deciding to leave a salaried job
- Investing personal money/ savings in the initial business start-up/expansion
- Employing first employee and setting up the salary and pensions infrastructure for this
The emotional journey …
...these factors do not figure in the way government provides support services to SMEs
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DVL Smith Ltd / Decision Architecture Ltd / MetLife Inc (2018)
- Getting a bank loan/overdraft for the business (using own house as collateral)
- Signing long term business lease/purchasing business premises
- Relinquishing day-to-day control of business finances to a finance director (who is an employee, not a family member)
Along the emotional journey …
.... all factors that do not figure in the way government provides support services to SMEs
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DVL Smith Ltd / Decision Architecture Ltd / MetLife Inc (2018)
- Releasing equity in the business to employees/third parties (either to help retain staff or obtain funding for growth)
- Using personal money to cash-flow the business (and deal with bad debts and slow payers)
- Investing in expensive business pitches to go to the next level (that do not always win the project)
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SMEs and corporates:
more that unites than divides?
- Alignment of business processes – everyone wants lean, agile management
- The skills gap is not that wide – everyone is on a journey in learning to cope with change
- Learning is a two-way street – big firms are trying to rediscover the benefits of ‘smallness’
BUT the big boys can buy their way out of trouble - they have the power, influence and financial resources denied to SMEs MACRO - governments need to work at levelling the playing field
MICRO - SMEs need to:
enhance their Business Goal focus, build their resilience and Business Mindset, and refresh their Business Capability
DVL Smith Ltd / Decision Architecture Ltd / MetLife Inc (2018)
Core motivational drivers …
- Understanding the difference between entrepreneurial thinking - applying agile management techniques - and business owner thinking i.e. classic textbook business-think
- Pinpointing the granularity within the sector, providing a core fundamental framework for understanding successful SMEs
We have been working on a framework centred around business goals, business mindset and business capability
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DVL Smith Ltd / Decision Architecture Ltd / MetLife Inc (2018)
* Source: Federation of Small Business. Total employment in SMEs was 16.1m
MetLife context:
Strong new
business growth
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Only 40% of SMEs provide Employee Benefits
Market context:
Our business challenge...
SMEs employ 60%
of UK employees*
Business challenge:
WHERE TO PLAY
DVL Smith Ltd / Decision Architecture Ltd / MetLife Inc (2018)
HOW TO WIN
Moving beyond a traditional employer segmentation…
Traditional approach:
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DVL Smith Ltd / Decision Architecture Ltd / MetLife Inc (2018)
“A deep view of the SME sector which allows us to better understand the full range of business’ needs, attitudes, expectations around employee benefits”
“BUSINESS DEVELOPMENT” FOCUS
Meaningful & actionable market segmentation
...and establishing meaningful and actionable variables to segment SMEs…
Fieldwork
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Analysis
Identify most meaningful & actionable variables
DVL Smith Ltd / Decision Architecture Ltd / MetLife Inc (2018)
IMPORTANCE OF ‘ONLINE’ IN BUSINESS MIX
Large established
Secure regional
Pragmatic & flexible
Established mid-sized
Younger aspirational
Small, solid, established
Secure White Collar
Secure Blue Collar
… allows us to understand the benefit needs of distinct types of SME
Young & fast growth
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DVL Smith Ltd / Decision Architecture Ltd / MetLife Inc (2018)
53%
have ambitious growth plans (47% are hoping to ‘just’ stay in business)
37%
have ambitions to grow employee numbers (59% have added more staff than this time last year)
Limitations of the traditional lens
37%
want to introduce new products and services
20%
have ambitions to expand abroad
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Number of employees & turnover are (on their own) statistically poor predictors of future ambitions
DVL Smith Ltd / Decision Architecture Ltd / MetLife Inc (2018)
Employees are the lifeblood of the business
Broad correlation between growing the business and recognising the employee contribution – but not universal
Younger Aspirational
Solid & Established
Secure White Collar
Secure Blue Collar
Large Established
Young Fast Growth
Secure Regional
Pragmatic & Flexible
Established Mid Size
Ambitious plans to grow the business
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DVL Smith Ltd / Decision Architecture Ltd / MetLife Inc (2018)
40%
investing in employee
training & development
35%
investing in employee
well-being
investing
in employee
retention
32%
believe employees are the lifeblood of the business –priority is to invest in them as much as we can
42%
Size doesn’t matter (that much)
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Nor do these traditional factors ‘explain’ the relationship between business and employees
DVL Smith Ltd / Decision Architecture Ltd / MetLife Inc (2018)
Young Fast Growth
Recruiting and retaining employees is one of the most important issues for our business
Some firms have yet to fully connect recruitment and retention with the provision of Employee Provided Benefits
Younger Aspirational
Secure White Collar
Solid & Established
Secure Blue Collar
Secure Regional
Large Established
Pragmatic & Flexible
Employee Benefits are important for attracting/retaining staff
Established Mid Size
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DVL Smith Ltd / Decision Architecture Ltd / MetLife Inc (2018)
Those SMEs who are actively managing for a different future of work – recognise the importance of Employee Provided Benefits
Secure White Collar
Secure Blue Collar
Solid & Established
Younger Aspirational
Young Fast Growth
Large Established
Secure Regional
We are managing for a future of work and employment that is changing
Pragmatic & Flexible
Established Mid Size
Employers must offer attractive employee benefits in order to attract and hang onto good staff
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DVL Smith Ltd / Decision Architecture Ltd / MetLife Inc (2018)
What are the implications for how
we should think about SMEs
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DVL Smith Ltd / Decision Architecture Ltd / MetLife Inc (2018)
The SME sector cannot be ignored on the grounds that it is messy and fragmented
SMEs are not a homogeneous group who can be serviced uniformly
Traditional factors don't give sufficient insight to uncover where to play
& how to win
It is important to dig deep to understand the varying needs and emotional decision-making in play
SMEs expect to be treated by corporates in the way they treat their own suppliers - they can spot tokenism a mile off!
Understanding goals, mind-set & capability allows deeper insight into SME needs
Presentation brought to you by
MetLife / DVL Smith / Decision Architects
Designed in
MetLife Europe d.a.c. trades under the name "MetLife" and operates across a range of European markets. In the UK it offers protection products to individuals and employers. MetLife Europe d.a.c. is registered in Dublin, Ireland, and its UK offices are in London and Brighton. These slides are provided for information purposes only. No legal liability or other responsibility is accepted by or on behalf of MetLife for any errors, omissions, or statements made, or any external sources quoted.
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