Why Do SMEs Struggle to Scale Up?

By Jeff Gibbs

A defence industry executive recently posed a compelling question: why do so many SMEs in the defence sector, and across industries globally, plateau or sell after reaching a certain size, typically around 15-20 staff and $5 million in revenue? This observation resonates deeply, highlighting a widespread challenge in SME growth.

One significant reason behind this stagnation is the lack of long-term planning among business owners. While many start with aspirations for growth, they often fail to strategies for the future, limiting their potential. Some entrepreneurs opt to maintain their business at a certain scale to support their lifestyle or preserve a legacy, rather than seizing growth opportunities.

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This tendency to remain small has broader economic implications, particularly in reducing economic complexity. Without more SMEs scaling up, countries struggle to develop diverse industries. This issue is particularly pertinent for Australia, were economic complexity lags behind other developed nations. Amidst economic challenges, SMEs require support to overcome stagnation and foster growth.

So, what can be done to break through this stagnation?

1. Embrace a Growth Mindset: Business owners must commit to growth and adopt a proactive approach. Governments can support this by fostering a growth-oriented culture through education and providing incentives for expanding companies.
2. Define Growth Objectives: It’s crucial for businesses to clearly articulate their growth objectives and envision the future state of their organisation. This includes setting specific goals, identifying target markets, and determining resource needs.
3. Delegate Responsibilities: Entrepreneurs must recognise the importance of delegation and building a capable team to support growth. By relinquishing control and empowering others within the organisation, businesses can navigate growth more effectively.

Ultimately, when SMEs transcend their growth barriers and evolve into larger entities, the entire economy benefits from increased diversity and prosperity. It’s incumbent upon us to inspire SME owners to choose growth, thereby creating jobs and fostering a robust economy for future generations.

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