How SMEs Can Deliver Value: Creating Growth in 2023

Companies that generate higher returns can attract and deploy more capital, enabling them to grow faster and generate even higher returns. While some companies may prioritise growth over profits for a certain period, the more common and practical approach involves establishing a unique business model and scaling it effectively.

The adage “adapt or die” is more relevant than ever, as the acceleration of pre-COVID-19 trends creates a broader gap between corporate leaders and laggards. Companies that heed trends and expand in ways that maintain or increase their exposure to fast-growing, profitable segments typically generate additional percentage points of total shareholder returns.

A business model that outpaces industry growth rates is a strong indicator of success. Capital markets reward companies with such models, regardless of whether they operate in a fast- or slow-growing industry. Moreover, businesses that successfully capture market share from competitors are more likely to surpass the growth expectations as leaders in the market, which reflects in their share price and leads to stronger returns.

When devising a growth strategy, the initial focus needs to include understanding where the business can achieve growth. It is unlikely to achieve strong growth if the core isn’t thriving. Therefore, unlocking growth in the core should be a top priority.

Diversifying into adjacent segments that already offer an advantage has proved to be a profitable growth strategy for many SMEs. Companies that grow by increasing the similarity of their portfolios can expect an additional boost in their total shareholder return. Moreover, those expanding into new industries can anticipate further gains if the new industry is akin to their core business.

Industry only represents one facet of the “where to explore” conundrum – geography is equally significant! Just as it’s difficult to achieve overall growth if your core business is struggling, boosting your growth trajectory is improbable without conquering your local market.

If you possess an adaptable competitive edge or are not experiencing the growth you desire from local markets, consider venturing into global markets. To excel in international expansion, possessing a distinct competitive advantage that can be applied across different regions is crucial. If you lack this advantage, your business may face challenges competing with local incumbents who have a deeper understanding of the regional context.

Mergers and acquisitions can contribute significantly to revenue growth, with programmatic acquirers often outperforming their organically growing competition. Many SMEs with traditional models now utilise programmatic mergers and acquisitions to expand their operations.