Managing, risk and innovation for SME success

The contribution of entrepreneurs, particularly those who start and grow small and medium-sized enterprises (SMEs), is rightly recognised as being essential to the economic growth of the country.

What is less readily acknowledged is that entrepreneurship almost always involves stress.

This may simply be the pressure of meeting the day-to-day demands of running a business, let alone the additional expectation that every business must continually innovate or risk being left behind.

Many hardworking business owners find themselves investing significant amounts of time, energy and money searching for the latest formula that promises business success.

Good management comes before innovation

Whilst innovation undoubtedly plays an important role in business growth, it does not necessarily make sense for every SME to become obsessed with it.

If you break many entrepreneurship programmes down into their parts, one thing quickly becomes apparent.

Remove the focus on innovation, and what remains are the fundamental management skills of:

• Planning
• Co-ordination
• Administration
• Control
• Routine supervision

These are often the areas where smaller businesses need the greatest support.

Many SMEs lack access to practical experience and guidance on how to develop these management skills in a way that reflects the unique way their business and they themselves operate.

Every business is different.

That is where a business coach can add real value by bringing insight, perspective and practical experience to help shape an approach that works for the individual business.

Three principles of effective management

Strong business management is built on three key principles:

1. Being effective – doing the right things at the right time.
2. Driving efficiency – using the fewest possible resources to achieve the desired outcome.
3. Achieving economy – obtaining those resources at the best possible value.

Focusing on these areas can often improve profitability more reliably than constantly chasing innovation.

Once a business is running smoothly and efficiently, owners usually create the time and space needed to think more creatively about future opportunities.

The first role of the SME leader, therefore, is to become highly effective at managing.

Understanding risk

Alongside effective management comes another essential leadership skill: understanding risk.

Risk is often viewed by inexperienced managers as something negative that should always be avoided.

Successful entrepreneurs usually understand something different.

Taking risks can be entirely sensible when the potential rewards justify them.

A business coach can help owners understand both the business's appetite for risk and their own personal approach to risk-taking.

Generally, organisations fall into one of three broad categories:

1. Risk-taking
2. Risk-neutral
3. Risk-averse

None of these approaches is inherently better than another.

The important thing is understanding which approach best suits the business and then managing risk accordingly.

By introducing practical processes for identifying, assessing and controlling risks, businesses increase their chances of achieving greater rewards while reducing unnecessary uncertainty.

Embedding risk into the business

Business coaching can also help leaders communicate the organisation's approach to risk throughout the wider team.

This is often referred to as embedding risk into the culture of the business.

Done well, it creates greater consistency in decision-making and helps employees understand both the opportunities and boundaries within which they can operate.

Because these conversations can sometimes feel uncomfortable, they are often avoided altogether.

However, avoiding them rarely represents good management practice.

Managing uncertainty

Whilst risks can often be identified and managed, uncertainty is different. By its very nature, uncertainty cannot always be predicted or measured.

One description of effective leadership is that great leaders:

"Know how to be when it is not clear what to do."

In other words, they remain calm, think clearly and continue to lead when circumstances are uncertain.

This quality might be described as a leader's inner stance, and it is something that leadership coaching can help develop.

Bringing it all together

Innovation remains an important part of business growth, but it should not come at the expense of strong management.

By first developing effective management practices, understanding the organisation's attitude to risk and cultivating the confidence to lead through uncertainty, business owners place themselves in a much stronger position to innovate successfully.

The second role of the SME leader, therefore, is to develop a calm inner stance.

Once effective management and confident leadership are in place, the time, space and confidence to pursue profitable innovation naturally become much easier to achieve.