What SMEs are doing wrong

Oxygen8, aims to take the nightmares out of running an SME - a bit like Gordon Ramsay without the tantrums.

According to the Institute of Directors, more than 97 per cent of business enterprises in New Zealand are SMEs, accounting for about 30 per cent of the workforce.

However, Paul Watson, founder of Oxygen8, a company set up to mentor SMEs, says many could be doing more. He says New Zealand has the highest instance of SMEs in the world without governance structures in place.

"There are a lot of people like me with plenty of experience, knowledge and skills who can be matched with struggling SME businesses," says Watson, who came from a corporate sales and marketing background before moving into GM roles after completing an MBA. "In New Zealand, small businesses are crying out for support and there's mutual benefit for businesses and mentors."

A bit like Gordon Ramsay's Kitchen Nightmares (minus the tantrums), Oxygen8 mentors small businesses, such as a benchtop manufacturer owned by two partners who in three years went from losing money to making a $300,000 turnover. It turns out just a few simple steps were needed.

"We put new systems and processes in place and concentrated on sales and marketing," says Watson. "These guys didn't even have a pricing system, they were basically just picking a number off the top of their heads and thinking it felt about right for quoting. It wasn't sophisticated enough, so they had no real control over costs or margins."

He says they were selling "not enough and for not enough money", so a real focus on the sales pipeline was put in place to get the business running more smoothly.

"It was pretty simple, but the partners were too busy making the best benchtops they could to have the time to do it," says Watson. "It was only when someone forced them to go through a planning process, and made them accountable to the strategy, that things started to change."

Another business he helped was a flooring company run by a husband and wife team, whose son had taken over. It was successful, but the family had ambitions to diversify and increase the size of their business.

"They saw an opportunity, but didn't have the confidence or the experience to put a business plan together," says Watson.

"We put basic business principles in place, and modelling made a dramatic difference to that business over a couple of years. Now, they're looking to relocate the office and warehouse, as well as upgrading their retail presence."

He says small businesses do well with the grand vision and dream, but often lack the confidence, skills and experience to go through with the plans. Putting governance, or steering, in place helps them get to where they want to go faster.

"SMEs in New Zealand seem to have very little clarity around their businesses, such as where the sales are likely to be, how much they'll sell things for -- many even find it hard to tell you how much profit they had last month; they have no idea."

Coming from a corporate big business background, where there was so much analysis and level of reporting detail, that lack of awareness was the most surprising thing for Watson when he started working with SMEs.

"So many people go into business thinking they're good at something, such as plumbing, so that means they can run a good plumbing business, but what's often the case is that you need other attributes, such as sales acquisition strategies or an idea of what makes you different," says Watson.

"Even just being able to put good management systems in place to get your accounts in order - it's about so much more."

The high rate of failure of SMEs in New Zealand, with roughly a quarter closing within three years, is a worrying statistic, as well as a sad reality for many of our small business people who've invested time, money and passion into their businesses.

Companies such as Oxygen8 are filling the gap for both businesspeople with skills who want to contribute but don't want to continue a corporate life, and for SME's with big dreams who want help in getting there.

It seems the small things SMEs are doing wrong, which can have a large impact on their businesses, have a straightforward fix with a fresh pair of eyes looking over the business.