Is sustainable growth achievable for European SMEs in 2023?

Without a doubt, small and medium-sized enterprises (SMEs) are essential to the European economy.

Making up 99% of the companies in the EU, there are over 23 million SMEs in the region. The growth and success of these businesses, therefore, is critical.

A period of global financial uncertainty is something all businesses face in 2023, regardless of their size or sector. After the COVID-19 pandemic, the ‘Great Resignation’, and subsequent barriers to talent entering the job market, SMEs will need to utilise the agility and flexibility often attributed to smaller organisations in order to grow.

Some SMEs may look to capital investment to aid their strategic growth plans; however, as European Initial Public Offering (IPOs) values hit a ten-year low, it might prove wiser for business owners to concentrate on their sustainable growth rate. Let’s not forget that a company that expands too quickly could easily find it difficult to fund this growth, and a business that grows too slowly, or not at all, may stagnate.

In this period of uncertainty, how are SMEs reaching this balance and achieving sustainable growth?

Look back to move forward

Every founder remembers that ‘Aha!’ moment, an embryonic idea from which their company was later born. It pays not to lose sight of the reason why the business was launched and its unique value proposition, or UVP.

Your brand’s UVP is more than just the product or service you offer; it’s your core values as a company, and those values must be clear to you, your employees, and your customers. The people you work with, both internally and externally – particularly those in the younger Gen Z category – are these days more likely to do their homework on a company’s culture and ethics. They are also more likely to invest their time or money with businesses that align with their own values. Sustainability is a good example to use here, as brands can easily get this wrong and be accused of ‘greenwashing’.

Workplace changes sparked by the COVID-19 pandemic, such as the ‘Great Resignation’ and subsequent assessment (reassessment) of work-life balance also mean employees are putting companies under the microscope, and are more likely to be invested in their workplace if they share the values of their employer.

These are real and meaningful considerations for founders and business leaders. Appeasing multiple stakeholders is easier when the core values of the business reflect its reason for existing in the first place.

Identify your greatest efficiencies

Startup leaders often talk about “growth levers” — the buttons you push to bring in more revenue. Recently, founders have taken a maximalist approach to this, looking for as many growth levers as possible and pumping capital into them. More channels means more revenue, but it also means more spending.

In a downturn, we can tweak this term to focus more on efficiency levers, the things that bring the best return without costing a fortune. Identify the investments and programs that bring the most value.

Can you easily say today which customer segments or industries bring the most profit, or churn the least? Or which marketing channels bring the best mix of cost-effectiveness and lead volume? Just as importantly, does the rest of the company know?

Take the time to specify your true cash cows, and repeat these over and over with your teams. Ensure that the bulk of company time is dedicated to pushing these particular buttons, and hold off on the moon shots and grey areas for now.

Spotting (and retaining) talent

Sustainable growth is stable growth. Finding the best talent for your business brings the potential for long-term stability – the right people, with the right skills, in the right place. If an employee feels valued and is doing a good job, quite simply, they are happy. And happy employees stick around, thus creating that stability.

In times of economic turbulence, SMEs benefit hugely from employee buy-in — empowering every employee to take ownership of the financial fitness of their company. To achieve this, business leaders must ensure transparency in their decision-making, so employees are clear on the company vision and feel part of the journey, especially when tough decisions need to be made.

Taking a more people-centric approach not only makes employees feel valued, but also means you know where people have additional interests and skills that could add value to the business from within.

Keeping employees happy is easier said than done, but there are ways in which SMEs, owing to their relative agility, can ensure worker morale stays high. For example, by offering greater flexibility with hours and remote/hybrid working arrangements, employees can feel like they are hitting the right work-life balance. The next 12 months are going to take your business on a journey, and everyone needs to feel part of it.

Modern-day businesses crave modern-day solutions

Investing in the right technology for your company is critical. It doesn’t matter if you are a start-up or an established business; getting this wrong can leave you with unwieldy systems that can prove costly.

A sound investment for SMEs is in automation, where businesses can increase productivity by improving services. For example, there has been a huge advancement in the European finance and fintech sectors over the last 10 years, and businesses and employees have been liberated from monotonous and mundane tasks thanks to embedded B2B finance solutions.

Some SMEs lack options in terms of what they can source and what is offered to them, but getting this right means embedding tech into your business that is recession-proof. Developing finance technology can hit resources hard, so building what is core to your business and provides direct customer value is more prudent.

Your customers are your litmus test

SMEs should be cautious around blaming the current economic climate for a lack of growth. Not understanding what is and isn’t working is like having a ‘straw man argument’ with yourself where the real issues are not being addressed.

If your business is not growing, is there an external force at play like a new competitor entering the market? Or are there reasons closer to home, such as an under-resourced team? It is business critical to fully understand the wider market and your company’s position in it. Listening to your customers is a great place to start when focusing on this understanding and context.

Unit economics is your lifeblood

Take it back to basic unit economics. This metric can help simplify complexity by measuring profitability on a per unit basis. It is alarming how many business leaders jump to conclusions by not properly tackling the basic elements of business. For example, assumptions like ‘if it works for smaller numbers it will scale up smoothly’ are not helpful.

If the goal is to build sustainably, having a detailed understanding of the business model and how it will develop as your company grows will be key.

In 2023, there is no reason why European SMEs cannot achieve sustainable growth. If business leaders remember that all-important reason for starting a business in the first place, and hold on to their passion for what they do, they will have a strong foundation from which to make strategic, well-informed decisions around technology and the people who work at the company.

There will be many challenges this year, but the agility, resilience, and sure-footedness of SMEs will mean many are in a strong position to embark on the next stage of their business journey.