How SMEs can grow by consulting themselves

28 June 2021 Consultancy.in 7 min. read
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The years between 2020 and 2030 would be watershed years of Indian micro, small & medium enterprises (MSMEs). The community will either prosper or wither, spectacularly. On the one hand, hardline economists predict FY22 being worse than FY21. We have a wide range of GDP growth estimates by several entities. 

The SMEs that would grow are the ones that will build management capabilities to anticipate, adapt and accelerate better. Our research indicates that 68% of the SMEs face growth and demand challenges, but 3/4th of the same population would like consulting and mentoring support for efficiency-related problems. While these two may sound contradictory, what lies beneath is the typical behaviour of SMEs when it comes to seeking consulting support. 

More often than not, SMEs driven by the entrepreneurial drive are influenced by decades of relationships built by owners and founders, with a deep belief in their efficacy. Therefore, while growth is a dominant challenge, few seek the help of an outsider to solve growth problems, mostly asking for market access and lead generation platforms and opportunities than pure-play consulting advice. 

Samir Sathe, Executive Vice President, Wadhwani Foundation

A US$1 billion consulting opportunity by 2025

Having said this, there are early signs that they are opening up to growth consultants.

We estimate that the Indian MSMEs between US$ 1-50 million revenue could experience an acceleration of 2-5x revenue and 1-3x in profits, in the next five years, should they spend ~US$ 1 billion, in this timeline, on the curated consultants, for solving the right problems, delivered and monitored appropriately. 

Consulting roadblocks

There are roadblocks to MSMEs spending the money on consultants. They do not think it would help them, they do not know whom and how should they engage with, they have more pressing priorities, they suffer from a lack of faith in external professionals being able to add value to family business matters, and finally, they just do not have the money.

Few consultants have been honest to acknowledge that the majority of evidence is mixed at best and counter-productive, at least. Secondly, the consulting industry for SMEs itself is in its infancy, with most value adds splintered between tall promises with weak implementation and feel-good conversations and few knowing what it takes to deliver a thorough and full-scale transformation of MSMEs through a mentoring journey. 

Notwithstanding a few consultants, the consulting professionals need to consult themselves to re/upskill and reinvent themselves. 

Not all is lost. The early signals underpinning a consulting revolution are visible. These signals are manifest in the changing paradigms of MSMEs in learning, unlearning, doing business and engaging mentors for the same. 

Decoding consulting

I have dimensionalised mentoring on ‘what’, ‘why’ incidence, ‘how’, ‘where’ preferences and ‘who’ the consultant is. It throws interesting patterns for us to imagine a potential revolution that could be unleashed if the industry redraws its engagement models to propel MSMEs to become competitive, thrive and grow manifold.

What and Why of Consulting Incidence

The Exhibit above shows on the X-axis ‘why’ MSMEs engage consultants. They engage them to learn, to help in survival or propel them to growth. Y-axis shows what do they engage consultants on. They engage them to help them do business transactions or diagnose the areas of improvement in their businesses or seek help in transforming them. 

The five circles plotted in each combination of the ‘whys and ‘whats’ show the incidence indicated by the # of shaded circles out of five. For example, the incidence is highest when it comes to consultants helping them learn and/or win business to grow revenue/profit, and it goes down when it comes to learning to discover and transform businesses. They are keen that consultants help them change businesses, but they are not as keen to learn the science and art of doing so. They would rather pay consultants to get the job done.

How and Where of Consulting Preferences

The above Exhibit shows on the X-axis ‘where’ do MSMEs prefer consultants, it includes virtual versus face to face choices and, more importantly, whether they prefer being mentored (and not consulted) alone (Self) or One-on-one (1x1) or in One-Many (1xN) or in peer-to-peer (P2P) sessions. 

The Y-axis shows the preferred sensory choices by MSMEs. Our experience suggests they would rather have consultants change management with them and deliver outcomes, followed by other sensory choices. We also observe that more serious MSME learners would use a combination of doing and reading or doing and listening/reading. A clear change in the last three years is visible with the explosion of video-based learning systems. 

Problem statements and the real gap

MSMEs we surveyed demonstrate five stack ranked problems for which they are ready to engage consultants. These are market access, go-to-market strategies, digital transformations, exports, fixed spend management, partnerships and finally, the thorny issue of succession in family businesses. The preference is towards consultants who would deliver turnkey engagements to solve problems with a preferred success-based fee model.

We notice an uptake by 2.5x in using gigs and short-term variable talent in hiring part-time functional professionals and consultants alike. The challenge is indeed the sustainability of the success of the consultants’ deliverables in the SME transformations. 

The consulting fraternity ranges from one-time confidant advisors in the form of Chartered Accounts and CFAs who know the secrets of the SMEs and entrepreneurs, growing tribe of mentors, 5-25 people small outfits doing largely operations improvement work, strategy boutiques, accelerators, market-making platforms, specialist functional professionals on-demand in sales, marketing, finance, specialist SME focused consulting firms, master training and coaching and mentoring entities who focus on conducting curriculum-based hybrid environment classes.

Not to forget are the multinational consulting firms, such as the Big 4 and the MBB (McKinsey, Boston Consulting Group, Bain) who occasionally entertain an SME with revenues of over US$ 30 million. 

However, there is a vacuum of credible, curated, world-class, practical, implementation focused transformation consultants to help SMEs with revenues between US$ 3 and 30 million.

The real gap is building the management capability amongst the entrepreneurs to learn how to solve business problems and make sound decisions using management science, using data, using change management and project management and cultural transformation principles. 

In my view, the real test is when SME entrepreneurs learn that ‘Thou Shalt Consult Thyself’ is the most sustainable way of reinventing and growing themselves and their enterprises. None had decoded it thus far, at a systemic level. 

Who the consultant is matters

In oriental cultures and in India, who consults whom, is as important a dimension as and, in many cases, more important than the others. The Indians bow to an ‘authority figure, and the age and experience are equated with expertise. Right or wrong, MSMEs prefer the experts to bright young minds. 

As the MSMEs, consulting models evolve, the MSMEs will see mentoring in a new light. There is hope.

An article by Samir Sathe, Executive Vice President at Wadhwani Foundation and Head of the Wadhwani Advantage, a program that helps businesses build capabilities to accelerate their growth.