The most common concerns that are heard from business owners are generally; improving their product or service, driving traffic to their business and retaining current clients. What is more a rarity, at least from small business owners, is the concern that they will fail to meet customer demand. Seems like a nice problem to have!
However, it is a very real issue facing SMEs today. Indeed, Xero published a report (Business Rewired) which found that 23% of SMEs said this was one of their most prominent business worries.
So why is this a major concern for businesses, and what can be done to prevent this being an issue?
The reason SMEs struggle to meet demand
It is inevitable that the world of an SME is unpredictable. Growing a business from the beginning is always unchartered territory, and it can be impossible to predict whether a business will succeed or fail.
SME owners often invest in business coaching, mentoring, marketing, sales training (and a whole host of other improvements to their business) to ensure that they target the right customer, sell a good offer to them, convert them to customers and therefore grow the business.
It is rare that an SME owner has put in place the systems and procedures to allow the business to scale from an early stage. So, when the business starts doing well, and often at a fair pace, the business has not yet been scaled from an operational perspective to be able to cater for it. This leaves the business struggling to deal with inbound leads and fulfilment of customer orders.
If the business can’t get these things right, this will ultimately impact that business’ reputation, and failure to meet demand won’t be a problem for long.
How can SMEs protect themselves against this?
SME owners would be well-advised to build their business with a view to scaling from the very beginning. It is often said that small businesses hire too late, and there is often truth in this. Given the pace at which a business can grow, business owners should consider hiring before they “feel ready” to do so. This can be employees or simply contractors, but it is important to have these additional resources available as and when the business needs it. Now, it is crucial that hiring isn’t done too early, as this can lead to cash flow issues. But SMEs need to employ foresight and make the most of their planning to ensure that the right resources are there when they are required.
A keen SME owner will always look to fulfil customer orders as quickly as possible. Anything to win the client, right? It is important to take a balanced view of this and incorporate appropriate lead times into your orders. Don’t promise a 48-hour turnaround if this is only possible in times of scarcity. This should also be reflected in your customer terms and conditions.
What does this mean in practice?
From a practical perspective, it is imperative that SME owners focus on business planning on a 3-month, 6-month, 9-month and 12-month basis.
Many business owners will find it easy enough to write down their short and medium term goals in this way, but what is often missing is working out the required resources that sit alongside these goals. If we hit this revenue target, will we need to hire more staff? Will we need more production time to fulfil the order? Will we need to order more stock? There are many considerations that should be planned for and triggered as and when certain milestones are hit within the business, which will allow the SME to always be on the front foot.
How can I protect my business from a legal perspective?
In order to protect your business from scaling quickly and not being able to meet unexpected demand for products and services, it is imperative that you set expectations in your customer terms and conditions, as well as in any order forms or statements of work. Building in a buffer in these areas will help to manage the situation.
Additionally, hiring more employees (or contractors, if this is more appropriate to your business model) is a must if your business anticipates demand continuing to grow.
Failure to meet demand can and is a very real issue for small business owners. It may seem like a desirable problem to have, but it is one thing that can very quickly bankrupt a business if it’s not planned for appropriately.
The author of this blog post is Barbara Jamieson. Barbara Jamieson is qualified in Scotland, New York and California, and has worked at top Scottish law firms Maclay Murray and Spens LLP and Brodies LLP. Barbara also spent three years working in-house at investment management firm Martin Currie, advising on financial services and commercial contracts.