Today marks the start of “Global Entrepreneurship Week”. To recognise and support SME’s, SAP has created a thought leadership program called “The Power of Small” which is designed to help unlock the potential of entrepreneurs and small businesses to create economic, social and environmental impact. This features CSR initiatives as well as a competition – the winner’s of which will be announced at this week’s SAPPHIRE NOW!
The following article, featured in the Financial Times earlier this year, sums up why SAP believe it so critical to support the small business community.
Small business essential to economic jumpstart
By Jim Hagemann Snabe
January 25, 2012 10:41 pm
Link to article on FT.com
Jump-starting the world economy will be a central topic of discussion among world leaders meeting for the next few days at the World Economic Forum in Davos.
Many of the business leaders in Davos lead large global companies. However, you cannot talk about growth, jobs, and innovation without talking about small and medium-sized enterprises and how they can contribute to getting the world economy back on track.
When the oil price shocks of the 1970s triggered recessions in Europe and North America, a shakeout ensued among large industrial firms, sweeping away venerable giants like British Leyland and Penn Central.
The same thing happened again during the tech-led sharemarket crash of 2000 to 2002, which triggered the collapse of such institutions as Bethlehem Steel, Sunbeam and Swissair. Each time, as the global economy rebounded, the charge was led by small start-ups, many of which have developed into the business giants of today.
Some of the world’s most familiar products, things we take for granted – such as aeroplanes, lightbulbs, television sets and personal computers – started off as inventions by independent entrepreneurs and small-business owners. Both the technology giant United Technologies and computer powerhouse Hewlett-Packard started their lives as small companies during the Great Depression.
Growth does not stem exclusively from SMEs, but there are compelling reasons why so much of the innovation that underlies growth can be traced to them.
John Stuart Mill once wrote that the main advantage of smaller businesses is that they run by “individual management” rather than numerous investors. This means they benefit from “the much keener interest of the managers in the success of the undertaking.”
That “keen interest” often means that SMEs develop new technologies, innovative business models and distinctive marketing strategies significantly faster than large global enterprises.
In the United States and other developed markets, SMEs commonly account for half or more of gross domestic product, as opposed to less than 30 per cent elsewhere. A recent study from the European Commission indicates that SMEs generated 85 per cent of all new jobs in the European Union from 2002 to 2010. In Germany, almost all of the 1.8m new jobs created during the last 5 years came from SMEs.
This is “the power of small” – as we like to call it.
As we seek to revitalise the global economy, we must again look to small and medium-sized businesses to drive a significant proportion of innovation to fuel growth.
Unfortunately, these same companies are now experiencing a more painful slump than large enterprises. According to a recent report, small businesses in China say they are faced with “the toughest time in history.” Only 33 per cent of surveyed small businesses in China were producing at full capacity and up to 27 per cent were working at half capacity this year. In the US, the Wells Fargo-Gallup Small Business Index poll found that, looking ahead to 2012, approximately one in three small-business owners said they are worried about going out of business.
One reason smaller enterprises have difficulty competing in a downturn is a shortage of access: access to clients, funding and talent. For instance, in India, many SMEs are started by entrepreneurs returning to the country after stints in the US. 86 per cent of them report using personal savings. 90 per cent of innovative SMEs in Germany use their own financial resources.
When business activity declines, the remaining transactions are more likely to be channeled to the biggest players in the marketplace. Caution impels bankers to limit their exposure to borrowers with shallower pockets, and buyers of goods and services tend to opt for the suppliers they consider the least risky to deal with.
How can information and communications technology change this equation? One way is by eliminating the shortage of information that often drives lenders, buyers and jobseekers to the best-known firms.
Information imbalances are a well-understood phenomenon in the study of economics. But modern business data analytics and the rise of the internet have been steadily eroding these imbalances. The spread of technologies like in-memory and mobile computing are putting comprehensive data tools in the hands of decision-makers everywhere.
And the eventual result will be to eliminate the brand awareness disadvantages that currently hamper SMEs. By taking a real-time view of risks and analysing all available data, bankers can now consistently base loan decisions on fundamentals as opposed to secondary factors such as company size or public recognition. Potential customers can choose their suppliers based on strict criteria of quality and reliability rather than on brand awareness. SMEs can attract top talent from the best schools – if young jobseekers have access to comprehensive data on where their skill sets might best be put to use.
Connectedness can also benefit the small business owner or entrepreneur. One of the major challenges for an SME owner is access to expert advice and collaboration when needed. By taking advantage of the web as a community, increasingly nimble enterprises can now co-ordinate their requirements for expertise and collaboration in a manner that resembles that of online social networks. These “business webs” can generate vast benefits in the form of mentoring and advice and ultimately deliver advanced business services like treasury and transportation management to enable scale – while the SME focuses on its core business.
At the same time, mobile business activities are growing rapidly in volume. Mobile connectivity for small businesses – ultimately offering access to some 6bn consumers – will really enable them to grow.
For instance, in the UK, a new breed of small business has been nicknamed “the TOTs” (twelve-months-old, optimistic, and technologically-minded). These businesses are growing faster than the average start-up and are increasing their revenues with speed. One of the TOTs’ weapons is a heavy reliance on mobile technology. Some 98 per cent depend on smartphones to execute routine business activities.
Policymakers worldwide also have a role to play. They need to help SMEs by streamlining regulations and making it easier to do business. Existing government regulations and uncertainty about future regulations are among small business owners’ top concerns. According the to the US Small Business Administration, small firms in the United States spend $2,830 more per employee annually than larger firms to comply with government regulations. The costs associated with compliance are steadily rising.
Large enterprises can offer help to SMEs as well. For example, many large companies have money to invest in venture funds. They can also provide mentoring to SME owners. Large technology companies have the ability to create open platforms for co-innovation and collaboration with SMEs, as well as online communities for discussion. Most importantly, large enterprises can add scale to inventions created by SMEs. With the right business model and partnership, both the SME and the large enterprise can benefit from the combination of invention and scale, which is ultimately the definition of innovation.
Small businesses start with dreams – typically one person’s dream. These dreams become reality through hard work and innovation. More than ever today, we need to be prepared to go the extra mile to enable and strengthen them. We need the power of small to get the world’s economy back on track.
The writer is co-chief executive of business software maker SAP AG.