Spotting potential blockers or hindrances to the growth of your business can be extremely challenging when you're busy running it every day.
In this article, we talk about five barriers to growth that small and medium-sized enterprises face and provide solutions on how to overcome them.
Internal and external barriers to small business growth
Barriers to growth can come from inside or outside a business. Internal barriers can include a lack of skills or resources, insufficient capacity and operational inefficiencies. External barriers include economic downturns, competition and rising prices, such as bills and raw materials. Proactively identifying these barriers and ways to overcome them is crucial to supporting the continued growth of your company.
Let's take a look at how to break growth barriers, so you successfully drive your business forwards.
What are the small business barriers to growth?
1. Saturated marketplace
Differentiating your company from competitors is one of the most common barriers to growth for small businesses. Simply having 'the right product at the right time' is not always enough, observes Russell Klein, Chief Commercial Officer at BigCommerce, an e-commerce software platform for retailers. Businesses should acknowledge this and explore opportunities to overcome it.
"It's all about the effectiveness of the figurative megaphone by which you connect to buyers and really get past the so-called 'signal-to-noise' issue," says Klein. In business, this means making your message, or 'signal', stand out from the noise of the crowd.
For luxury leather goods company Carl Friedrik, getting through the 'signal-to-noise issue' required a focus on building brand awareness online, through digital advertising and collaborations with content creators. According to the company's CEO and co-founder Niklas Oppermann, this included forming strategic partnerships with brands that share similar values and audiences.
The partnership fuelled growth by enhancing brand credibility and recognition. "The more external sources that vouch for the fact that we're a strong brand, the better," says Oppermann.
2. Managing stock levels
The need to balance customer demand with stock levels becomes increasingly challenging as you grow. After all, you don't want to be sitting on stock you can't sell and you equally don't want to be missing out on sales by not having enough of your products available. For Oppermann, accurately forecasting inventory has been a real challenge, made tougher by external factors like the pandemic.
While it's impossible to predict the exact amount of stock you will need in the future, there are tools you can use to improve accuracy and make forecasting quicker. For example, inventory management software can automate sales tracking and demand, using vast amounts of data such as historic sales volumes, to make estimates on how much stock you will need in the future.
3. Lack of skills
It's crucial to have the right team and skillset around you to support growth, says Oppermann. "Every hire has a tangible impact on growth," he says. Hiring and nurturing new talent also takes significant company resources, from advertising vacancies, to running interviews and getting new staff members up-to-speed.
To support you in building a motivated team and reducing staff turnover, Oppermann suggests having a long-term focus when it comes to hiring.
"Our mentality is that every new employee should raise the team's ceiling and this has served us well so far," he says. He goes on to explain that he also seeks prospective candidates who envisage working for Carl Friedrik for a considerable period of time, prioritising those who plan to grow with the company.
4. Late payments
The Federation of Small Businesses recently found that over half of small companies experience late payments and a quarter have reported an increase [1]. As many as 37% have had to apply for credit to help manage the impact of late payments on their cash flow. This means that when you forecast your cash flow, it's important to remember that money owed is not the same as money in the bank.
To avoid running out of cash, keep a financial reserve available that you can tap into should clients fail to pay you on time. It's also worthwhile using accounting software to automate the invoice workflow. Some platforms will automatically send invoices to clients upon delivery of a product and then generate several reminders until that invoice is paid.
Flexibility in cash flow and access to capital can be a real challenge for business owners as they grow their companies. The American Express® Business Platinum Card can give you more flexibility in how you manage your cash flow with no pre-set spending limit and an extended 54-day term to pay off your balance¹.
5. Market volatility
External influences such as economic uncertainty and rising inflation can hamper growth in many ways. For example, by increasing business expenses, reducing customer spending power and changing customer behaviour. While you can't change these events, you can control how your business responds, by being quick to adapt to shifting circumstances.
When the global pandemic surfaced in 2020, effectively banning all travel and social activities away from home, it posed a huge threat to retail brands like Carl Friedrik. The company had to become 'extremely nimble' with its product offering and supply chain, says Oppermann, to find new revenue streams to make up for the decline in luggage sales.
"We decided to branch into home office accessories to capitalise on the work-from-home trend," Oppermann shares. "The collection was a huge success, allowing us to ride out the uncertainty surrounding the first year of the pandemic."
Identify barriers to success
Blockages to growth aren't always easy to spot but the sooner you can identify potential barriers to success, the quicker you can take action to prevent or manage them.
Start by speaking to your employees. Ask them if there are any areas that can be streamlined to improve productivity and efficiency. It may be as simple as introducing new software or processes to release teams from low-value administrative tasks to higher-value activities that support growth.
Be sure to regularly check your financial metrics and targets. Scrutinise sales data, cash flow, and business expenses. This will help you to identify the most and least profitable parts of your business, such as your top-performing teams, products and services, and any areas of waste, such as unnecessary expenses, a stock that can't be sold, or unsuccessful marketing channels.
Klein concludes by sharing some advice for how small businesses can really fuel faster growth. "To grow more quickly, businesses must consider adopting a holistic omnichannel strategy," he says. This means transacting across multiple channels, such as marketplaces, social media and bricks-and-mortar, he adds. "Showing up anywhere and everywhere that your customers are helps merchants stand out, makes it easier for shoppers to buy, and influences repeat business."
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