Business Challenges And Growth Opportunities

Article Author: Garry Stephensen
Position: Managing Director
Read time: 5 mins

Australia   All Articles

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What are Australian SME's Biggest Business Challenges and Growth Opportunities?

Australia's SME sector dynamic.  Small and medium businesses are markedly agile, focused on growth and innovation.   When NAB Small Business surveyed SME business owners to reflect on the most important moments and milestones in their businesses, here is how they ranked those moments:

As you can see above, "seeing the customer smile" was the no.1 priority to business owners. Happy customers are the cornerstone of a successful business. This highlights an area of opportunity for small businesses looking to compete with the large corporates on the basis of providing excellent customer service, something that often suffers as a company grows in size. 

Another major moment is "winning a big customer" for the first time. Securing your first large customer contract is a significant milestone for any SME. It comes with various benefits such as a boost to consistent and reliable revenue, and enhanced credibility within your industry sector, allowing you to attract other clients and partners. A large contract may allow you to scale up your opportunities, leading to improved efficiencies and economies of scale.  However it also comes with significant challenges such as strain on your resources to deliver on your promises and meet the demands of a large contract.  You may become too dependent on a large customer. If a contract ends, that may leave you overstaffed and suddenly no work.  Cash flow management in another significant challenge, especially for small businesses that have not received sophisticated accounting training.  Managing a large customer often involves more complex negotiations, higher expectations, and stringent compliance requirements, which can be overwhelming for SMEs not used to such demands.

Persevering through periods of economic downturn ranked third on the list.  Passion is often what gets a SME started, but it's perseverance that sees these Aussie battlers through the tough times.

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A large percentile of Australian SMEs are optimistic about their future and are focussed on expansion and growth.  In fact 12% of SMEs are in a constant state of expansion investing in new machinery, increasing their marketing activities and hiring additional staff.

Research from NAB's SME lending division shows where SMEs are investing their time, energy and focus:

Medium sized enterprises were more probable to have been focused on business growth.  During the 2017 Financial Year, 39% of MSEs hired additional employees, 31% invested in their own businesses.  27% saw profits rise during the 2017 Financial Year.  Almost half (45%) are planning to expand within the next three years. Medium sized businesses stand out when compared to all businesses - 6 in 10 MSEs are looking to expand over the next three years (2019 2022).

Across the board in the Australian economy, the outlook for revenue and profitability assumes growth. The majority of companies (68%)  have reported to the ATO that they expect revenue increases and (65%) expect profitability to increase.

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This of course, is good news for the Australian economy.  But how do SMEs intend to expand?  NAB surveyed various SMEs to gain insight regarding the common strategies for expansion.  The top strategies for expansion come from an entrepreneurial mindset identifying opportunities and chasing success.   Launching new products and services, breaking into new markets domestically and
internationally, and launching extra digital sales channels.

Here is how businesses responded:

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Increasing competition

Increasing competition is a significant challenge faced by SMEs, particularly as markets become more saturated and larger players continue to innovate and expand. 

Some common challenges SMEs face include: 

• Price Pressure
  Larger competitors often have the ability to undercut prices due to economies of scale, putting pressure on SMEs to lower their prices, which can erode profit margins.
  
  
• Brand Recognition
  SMEs often struggle with brand recognition compared to more established competitors, making it difficult to attract and retain customers.
  
  
• Limited Resources
  SMEs typically have fewer resources (financial, human, technological) to invest in areas like marketing, research and development, and customer service, limiting their competitive edge.
  
  
• Innovation Pace
  Larger companies may have more resources to innovate faster, introducing new products, services, or technologies that SMEs may struggle to keep up with.
  
  
• Customer Retention
  The presence of multiple competitors gives customers more options, making it harder for SMEs to maintain customer loyalty, especially if competitors offer better deals or more innovative solutions.
  
  
• Talent Acquisition
  Competing with larger companies to attract and retain top talent can be challenging, as larger firms often offer more attractive compensation packages and career development opportunities.
  
  
  

How can SMEs fight back?

• Niche Focus
  SMEs can focus on niche markets where they can offer specialized products or services that larger competitors may overlook. This can help build a loyal customer base and reduce direct competition.
  
  
• Customer Experience
  Providing exceptional customer service and a personalized experience can set SMEs apart from larger competitors, who may not be able to offer the same level of attention.
  
  
• Agility and Flexibility
  SMEs can leverage their agility to quickly adapt to market changes, customer feedback, and new opportunities, which can be an advantage over larger, more bureaucratic competitors.
  
  
• Brand Differentiation
  Building a strong, differentiated brand that resonates with target customers can help SMEs stand out. This can involve focusing on values such as sustainability, community involvement, or innovation.
  
  
• Leveraging Technology
  SMEs can adopt new technologies, such as cloud computing, automation, and digital marketing, to streamline operations, reduce costs, and reach a broader audience. 
  
  
• Strategic Partnerships
  Forming partnerships with other businesses, suppliers, or even competitors can help SMEs expand their reach, share resources, and compete more effectively. 
  
  
• Innovative Marketing
  SMEs can use creative and cost-effective marketing strategies, such as content marketing, social media, and influencer partnerships, to build brand awareness and engage customers. 
  
  
• Focus on Quality and Value
  Emphasizing the quality of products or services and the value they offer can help SMEs justify their pricing and build a reputation that attracts customers who prioritize these factors.

By focusing on these strategies, SMEs can carve out a competitive position in the market, even in the face of increasing competition. The key is to leverage their strengths, such as flexibility, customer intimacy, and the ability to innovate on a smaller scale to differentiate themselves from competitors.

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