How Indian SMEs Can Achieve Sustainable Growth

“Under a bright lamp there is a great darkness,” sounds sad but such is the situation of Indian small and medium-sized enterprises (SMEs), which contribute around 40% to India's GDP growth, with approximately 75% failing to reach their full potential. Despite contributing, many small and medium-sized enterprises (SMEs) remain stagnant, the stark reality is that only 1% of these businesses truly excel, while the remaining 99% struggle to make significant strides. This pressing issue was a central topic of discussion amongst industry leaders and experts at Borzo Connect, to map the journey of Indian SMEs toward sustainable growth and success.

But why does this really happen? Let's understand and dig deep into Indian SMEs and their journey towards growth and success. 

Understanding the 1% Goal

Each year, numerous SMEs are launched, but only a few break through. Among the successful 1%, a select group of Indian brands have made a significant impact on the global stage. The disparity between the 1% of successful SMEs and the 99% that falter is a topic that needs exploration. What differentiates this elite 1%? The insights are data-driven and grounded in real-world practices, accurately reflecting the realities of small businesses in India.

Key Lessons for SME Success: The V.R.I.O Framework

There are certain strategic frameworks designed by business leaders to help businesses achieve that coveted 1% success rate. This framework consists of seven critical lessons, organized into the V.R.I.O model. Let’s understand this framework outlined at Borzo Connect:

• V

V stands for value, as it’s really important for businesses to know and understand what the customer really values. Value for money matters the most to customers in business. Owners need to identify what their customers value most and what makes their offerings unique. This involves answering critical questions about why customers choose their business over competitors and what real value is being provided.

• R

R stands for rare, basically what really sets your business apart from others? Discover what makes your value offering rare and unique. For instance, Asian Paints stands out not just for its quality but for its predictive capabilities, which are hard to replicate. They've been collecting data for more than 30 years, and they can predict which color, which paint, which shade, which will get sold where. So maybe what makes them rare is not their ability to manufacture high-quality paints, but the ability to predict.

• I

I stand for Inimitability, basically what aspects of business are difficult for others to imitate? This could be your operational excellence, unique business model, or even regulatory expertise. Companies like Maruti Suzuki have excelled by focusing on their core strengths, such as large-scale manufacturing capabilities over years. 

• O

O stands for organized, which means is a business organized enough to protect your V, R and I? What do I mean by organized? There are lots of definitions of what really organized means. The best organized companies are called organizations. 

Especially, businesses that are well-organized to protect and enhance their unique value, rarity, and inimitability. Effective organization is crucial to maintain and build upon what sets businesses apart. This involves knowing your market, understanding your consumers, and capitalizing on your competencies.

KYC Cube Approach

To grow your SME, adopt the comprehensive KYC Cube Approach—a vital strategy emphasized at Borzo Connect for meeting market demands while effectively leveraging the unique capabilities of your business.

- Knowing Your Category: It’s very important for SMEs to understand the market size, like how many customers and market players there are. Where do you stand? What are your core strengths and weaknesses, so businesses understand the competitive landscape?

- Knowing Your Consumer: To grow in business it’s important for business owners to put themselves in customer shoes to understand what they really want? Hence customer feedback is necessary for businesses, especially SMEs, to ensure business needs are met.

- Knowing Your Competence: Identify and leverage your core strengths to create a competitive advantage. As for SMEs, it's very important to build and focus on competence. Indian SMEs often face challenges due to a lack of focus on developing core strengths. The unfortunate reality is that a new SME closes every 30 seconds due to insufficient emphasis on competence and strategic growth.

95% of Indian SMEs are micro businesses, around 3-3.5% are small, and just 1-1.5% are medium-sized. This skewed distribution highlights a critical issue: many SMEs lack the competence to scale up. Every 30 seconds, another SME in India closes, often because they haven’t focused on building their capabilities.

What’s the way forward?

The journey to becoming a successful 1% is long and it involves just not theoretical knowledge but needs practical implementation of strategies and continuous adaptation. By focusing on creating and capturing value, understanding your unique position in the market, and being well-organized, SMEs can enhance their competitiveness and move towards sustainable growth.

So, if business owners put these concepts into practice, and keep improving, the small and medium businesses in India can also achieve significant growth.

Mr. Umang Maheshwari, Head, Consulting & Research ‐ Schbang