SME success: strategies for growth

There are 5.5 million small and medium-sized businesses across the UK. Growth is essential for their long-term health. Entering new markets overseas, creating new products or services or simply investing in new technologies and staff can build resilience, boost productivity, enhance the consumer experience and ultimately attract new customers or clients.

HSBC UK's 2024 Capex report, which was compiled from a survey of 1,583 HSBC UK business customers, revealed that two-thirds of firms have growth ambitions, up from 64% last year. More than a fifth (22%) are looking to grow by at least 20% – the highest recorded since the report was launched four years ago. More than half (55%) said they are positive about their growth in the year ahead, a number that is 9% higher than last year. 

But achieving growth has rarely been more challenging. In 2024, UK businesses have weathered another year of economic uncertainty. Supply chains have been disrupted by climate shocks and international conflicts. And the regulatory landscape both in the UK and overseas continues to change at speed, particularly around ESG. This creates a complex web for leaders to navigate as they look to expand into new markets and stay compliant.

In the months ahead, the only certainty appears to be more uncertainty. In the UK, national insurance hikes could make it more difficult for SMEs to free up cash to hire permanent staff and fund their expansion plans. Interest rates also remain high. This will make it more expensive for businesses to borrow money from banks, which may deter some leaders from pursuing their growth ambitions in the short term. 

The geopolitical landscape is another cause for concern. Donald Trump’s second term as US President may create challenges for businesses looking to export to the US if he delivers on his promise to ramp up tariffs. The UK’s trading relationship with Europe post-Brexit remains an obstacle for businesses looking to export goods to Europe and ongoing tensions with China could cause issues. This is especially true for businesses that are already reliant on Chinese manufacturers and their supply chains.

With this in mind, SMEs must pursue growth strategies that protect against domestic market volatility and have the agility to navigate potential geopolitical roadblocks. A ‘China plus one’ strategy could reduce risk by setting up production facilities in other countries that are less vulnerable to supply chain disruption. India, Thailand, Turkey and Vietnam are popular alternatives. Overseas markets that mirror the UK, such as Ireland, and provide an easier route to export are another option for SMEs at the beginning of their growth journeys.

Technology is also key. HSBC UK’s survey found that 49% of businesses are looking to unlock growth by investing in new ways of working, such as integrated advanced data analytics and artificial intelligence to automate processes and drive innovation. AI could unlock increases in productivity and powerful new operational insights that deliver growth, but its integration must be managed carefully. For example, AI is energy intensive and could increase companies’ overall carbon emissions as they seek to comply with sustainability targets. AI must also be used in a manner that complies with countries’ wide-ranging regulations in different countries and doesn’t compromise customer data.

The tech will demand an innovative approach to workforce planning, too. New talent must be identified with the skills to exploit the potential of AI and employees should be trained to work alongside the tech. But if businesses can build growth strategies that harness AI effectively, choose the right markets and verticals for expansion and have the agility to adapt to changing economic and regulatory conditions, they could begin a profitable new chapter.

Technology is at the heart of SMEs' growth ambitions. HSBC UK's 2024 Capex report found that three-quarters of respondents seeking growth are placing significant importance on tech to fuel their expansion. That figure is 10% higher than those expecting steady growth (65%) and 35% above those looking to maintain current business levels (40%). 

But identifying the right technology is a difficult task for leaders. For some, supply chain software will be essential to streamline operations and comply with ESG regulations. For others, advanced CRM and email automation tools will be necessary to communicate with a growing number of customers. Chatbots offer another avenue for SMEs to connect with consumers, while organisational software could be critical to optimise internal productivity.

It’s a minefield that Alison Wright, Microsoft UK’s SMB director, understands well. “Businesses need to use technology to empower employees to do their best work,” she says. “They also need to make sure they’re using technology that actually removes business friction points and provides insights. You should start with your biggest obstacle to growth – this could be operational costs, efficiency or productivity – and select the tech that solves that problem.”

Digital debt is a risk factor if leaders choose the wrong technology or overwhelm employees with too much tech. It’s a term coined by Microsoft to describe the vast volume of communication and coordination tasks that minimally contribute to workplace productivity. These could include responding to endless Slack messages and Trello notifications or being tasked with taking the time to learn new tech that does little to achieve growth.

To avoid this, leaders must engage their workforce before investing in technology. That’s the view of Roland Emmans, head of technology and growth lending at HSBC UK. “Your staff know what the problems are in their day-to-day jobs. You need to speak to them and ask them what they are,” he says. “Once you have this knowledge, you need to explain to staff why you’ve chosen a particular solution and how it will help them so you’re all aligned.”

For many SMEs, there is hope that AI will relieve workers of much of this digital debt, while also helping them to deliver growth. HSBC UK’s report revealed that the proportion of tech-focused businesses now prioritising AI and machine learning has leapt by 17% to 41%. But most are yet to harness its full potential. Around half of businesses with an interest in AI place themselves at the thinking stage, or have yet to progress an existing strategy on AI. A further 25% are deploying AI but have yet to see the impact, and just 24% are implementing AI and are enjoying clear benefits.

Those benefits are mainly being yielded in improving process efficiencies. For SMEs at the beginning of their AI journey, Emmans says less is more. “I’d think about how you can use AI to enhance what you’re already doing,” he says. “If you’re using Excel or other Office programs, how can you use AI to work smarter and faster?” 

Wright says clear lines should also be drawn between human and AI roles. “Human interaction is still critical in some areas of your business,” she says. “In B2B, this could be your sales conversations with clients. But in the future, you may be able to outsource omnichannel marketing campaigns to AI.”

While AI and other digital tools could help to deliver growth, leaders must be alive to potential risks. SMEs transitioning from on-premise solutions to software platforms must ensure they partner with providers that can guarantee the security of their customer data in the event of cyber attacks. Wright says leaders looking to utilise tools such as ChatGPT should also tread carefully. 

“I recently worked with a business owner who was inputting sensitive data into ChatGPT,” she says. “This is dangerous. ChatGPT stores your data, so if someone accesses your account they could get their hands on it.” ChatGPT and other GenAI tools are still vulnerable to accuracy issues, meaning leaders looking to utilise tools for customer-facing interactions, such as marketing materials, must balance AI with human fact checking. 

But when utilised well, technology can help businesses to grow. Automation technology has helped HSBC UK customer Comline Group improve the efficiency of its stock picking and win new clients. The auto parts supplier replaced human picking with an automated Autostore stock-picking system that can locate and deliver each requested item in an average of 17 seconds. This increase in speed has reduced costs and enabled Comline to win contracts at a leaner margin. The company’s efficiency gains are likely to see the firm recoup its investment, which was 90% funded by HSBC UK Asset Finance, within three to four years.

For SMEs looking to use technology to power their growth, it’s a success story that shows what can be achieved when the right tech is harnessed to achieve a specific goal.

Mayuri Lakhani didn’t need to expand her business overseas, but something inside her told her it was time to make the leap. “I’m normally risk averse,” she says. “We had a very successful business doing £4m per year in revenue in the UK and we were and still are the market leaders. We could’ve just carried on doing what we were doing.”

Lakhani is the managing director of Hydrotec Group, a Wycombe-based firm that designs and manufactures world-leading water treatment technology to prevent the spread of infectious diseases and protect commercial, domestic and industrial premises. Her decision to involve her sons, Amar and Akshay, in the running of the business challenged her thinking. “They wanted to take a risk – they saw opportunities for us in other countries.” 

It’s a decision that’s paid off. Hydrotec’s expansion into the Middle East has seen the company become the leading water treatment technology in the region. It’s a success story that many other UK businesses are keen to replicate. HSBC UK's 2024 Capex report revealed that one in five domestic-only businesses are considering international trade and 66% of those leaders are optimistic about their growth potential.

But successful international expansion requires careful planning and strategic thinking. Leaders should start by assessing the most suitable markets, where there is both demand for their products or services and ease of access. Prior to Brexit, the EU was a natural first step for UK SMEs looking to export overseas. But the loss of access to the single market has made it more complex for businesses to export to Europe and forced leaders to consider the potential costs of administrative bureaucracy and potential supply chain issues.

While the EU remains a popular choice, SMEs should also consider countries that already have free trade agreements with the UK. This means there are minimal barriers to trade, making it easier for SMEs to export their goods at competitive rates or set up their operations locally. The UK currently has free trade agreements with 70 countries, with Ireland, Northern Ireland, Canada and Singapore among the most popular for UK SMEs. Historically, the US has been another attractive market for overseas growth, but if new US President Donald Trump introduces a blanket tariff on imports, leaders would be wise to look elsewhere.

Market choice is a dilemma that Barry Millar deals with on a daily basis. He’s the head of global trade solutions for HSBC Business Banking UK. He says it’s essential that leaders seek out expert local knowledge to map out their expansion plans. “We provide strategic and financial support for SMEs looking to grow internationally,” he says. “We have 5,000 experts in more than 50 countries who have in-depth local knowledge and can remove a lot of the guesswork for leaders. We can advise on the suitability of markets and the credibility of potential partners, such as distributors, logistics carriers or agencies.”

Before expanding into the Middle East, Lakhani sent her sons on a research mission to scope out the region’s commercial potential and the best approach to establishing their operations overseas. One of their key considerations was whether to move their core UK staff to the Middle East or hire locally. “We realised that we needed a blend of both,” she explains. “We needed our core business knowledge from the UK, but also boots on the ground in terms of local knowledge.”

This local insight can unearth critical cultural differences between the UK and overseas territories that could otherwise derail international expansion. In the early months of Hydrotec’s venture, Lakhani was stunned by the noticeable difference in pace between the Middle East and the UK. “The pace of business is much slower,” she says. “At first it was painstaking and we had to really push to get things moving. We also realised that some businesses still use cheques rather than bank transfer. Nobody writes cheques in the UK, but you have to adapt to local customs if you want to do business there.”

Trade shows offer SMEs another opportunity to glean valuable international insights. These are sector-specific events that see businesses share their experiences in navigating overseas expansion. “Trade shows give leaders the chance to learn from the mistakes of their peers,” says Craig Green, export finance manager at UK Export Finance, the UK government’s export credit agency. The department advises SMEs on their exporting strategies and provides credit for businesses looking to fund overseas expansion. “They can also learn about areas such as international currencies and exchange rates,” he adds. “Even small fluctuations in rates can have a big impact on margins and profitability.”

But if SMEs are successful in avoiding these pitfalls, the results of their international growth strategies can be transformative. “We’ve seen the benefits time and again,” says Millar. “Businesses build resilience, new supply chains and valuable relationships.” Lakhani has only one regret from her own overseas journey. “I just wish we’d done it sooner,” she says.

The first step to building a workforce that can deliver growth is identifying the right person to lead that expansion. For businesses that have enjoyed great success, the realisation that the current CEO isn’t the right person to move the business forwards can be a difficult one. But it must be met with honest conversations about the need to find a suitable successor.

In 2022, it was a predicament facing technology recruitment specialists La Fosse. Having grown from a 40-person business to a 400-strong international team under their CEO, the company’s founder and chairman, Simon La Fosse, decided change was necessary. A search firm was hired to find the right candidate, but in the months that followed he struggled to find the right character fit for the employee-owned firm. 

After a 12-month search, he made the bold decision to promote internally. Ollie Whiting had only been managing director for six months, having previously served as the company’s director of recruitment, but was identified as the right person to lead the business. Since then, the company has enjoyed 30% year-on-year growth. Whiting believes his internal knowledge has been key. “It enabled me to get up to speed much faster,” he says. “I was already ingrained in the culture of the business and was invested in its outcome.”

With the right leader in place, businesses must then establish the wider purpose of their growth plans. Whiting says it’s a lesson he learnt prior to the pandemic when the company encountered difficulties after undergoing another period of growth. “We stagnated,” he says. “We realised we had no firm mission, values or purpose. It’s not enough to want to grow, you need to understand why, so you can identify the skills and personalities you need to move the business forwards.” 

With a purpose and goals in place, the strategy must then be communicated to the employees who already work for the business. “Transparency is so important,” says Matt Bloch, managing director of Boss Motor Company. “Some leaders don’t share the goals of the business with all stakeholders. You need to have these conversations and take people on the journey with you. Whiting says transparency also serves another purpose. “It creates psychological safety,” he says. “That’s a key feature of high-performing teams and businesses that achieve successful growth.”

Once employees are onboard with plans, education is critical to ensure they have the skills to execute the strategy. Upskilling is especially important for businesses looking to invest in new digital tools to supercharge growth. HSBC’s UK 2024 Capex report revealed that 59% of leaders see tech as an important area of investment. “We have individual education plans for all our staff,” says Bloch. “This ensures they can use the latest technology, but also work towards their own personal goals. We want them to grow with the business.”

But internal education can only go so far. For businesses that are serious about growth, particularly those seeking to set up operations overseas or use new technologies such as AI, identifying new talent is essential. Despite being the beneficiary of internal hiring, Whiting has adopted a different approach to recruiting talent to drive growth and future-proof the business.

“Diversity of thought is really important,” he explains. “I think it’s been neglected by leaders over the past 18 months, but it’s crucial to get new perspectives on what you’re trying to achieve. I’m also an advocate of hiring out of industry. It can take talent longer to adapt, they certainly won’t be up to speed in three to six months, but once they are there will be huge benefits.”

Overseas expansion presents another challenge for leaders and their workforce planning strategies. Boutinot is a UK-based wine business that now operates in 50 countries, with offices on four different continents that employ over 200 staff.  A key decision along their international growth journey was deciding whether to procure wine remotely from the UK or hire local talent with expert regional sourcing knowledge.

“If you really want to get the best out of those sourcing markets, it's better to be on the ground,” said Boutinot commercial director, Paul Moriarty. “You build relationships with people and spend time understanding more about the market,” he adds. “Having somebody on the ground opens up amazing new doors for you.”

But even with the best growth strategy in place and the right talent in the building, long-term success won’t be achieved unless staff are empowered to execute that strategy. “People overcomplicate business,” says Bloch. “Identify the right people, map out their futures and continue to train and educate them. It’s not enough to just hire staff and then see how they do for 18 months.” 

If businesses heed that advice, growth will surely follow.