Too small to fail? Adapt or perish…

We have often heard the term “Too big to fail” in the context of large companies like General Motors or Morgan Stanley. These companies are considered as too big to fail due to the repercussions on the larger economy and hence are / can be recipients of government bailouts.

However, we don’t often hear the term “Too small to fail” (TSTF) in the business context. However, many Medium, Small and Micro Enterprises (MSMEs) suffer from the TSTF syndrome. They feel that they are too small to be really affected by the massive changes that sweep through their industries. Some of the thinking behind this delusion are:

• We are just doing a small part in the overall scheme of things…how could that really get affected?
• Massive changes only affect large corporations like Kodak, Wang etc. we are too small to get affected
• Changes in my industry will take so long that I may not even be around, so why bother?

Sounds familiar?

Just to drive home the point we present present a REAL LIFE case study of an MSME client. Given client confidentiality, we have tried to obscure most of the finer details but feel that the narrative will give you an idea.

Case of ABC System Integrator Limited (ASIL)

ASIL was an upcoming Indian SI listed on the stock exchanges. It was led by enthusiastic entrepreneurs who had worked hard to setup the company from scratch.

The key services being provided by ASIL were hardware and software sales, maintenance and facilities management. With the tremendous growth of computerization over the past few decades, the company had experienced a period of great success in the market.

Their share price was hitting all time highs and the management was bullish on growth, so much so that they were fancying their chances of taking on the really large SIs.

At this juncture, we were called in to help them work on a few management initiatives to strengthen the company. After performing a SWOT analysis of the company, it soon became apparent that the company was stuck in a bygone era.

Some of the startling aspects that came to light were:

1. Most of their revenues still came from sales and maintenance of hardware, in an era where Cloud Computing and third party hosting was gaining strength. The margins on this business was wafer thin as it had become commoditized.
2. They had not developed any competencies in new technologies like Cloud Computing, SaaS reselling etc. let alone any radical technologies like RFID
3. The employees were not being re-skilled to address new service requirements

Based on these considerations, we made a presentation to the senior management. The not so subtle message was: Change or perish. They needed to revamp the complete model of the company, look at new services, re-train people, embrace new technologies.

The not so subtle message was: Change or perish. They needed to revamp the complete model of the company, look at new services, re-train people, embrace new technologies.

The reaction to our presentation was stunning. We were asked whether it was our mandate to even make such a suggestion. We were told to stick to our job of helping management strengthen certain service lines. It was like trying to paste some stickers over the damaged bumper of a car.

It was like trying to paste some stickers over the damaged bumper of a car.

Bowing to client pressure, we assisted the client with the “mandated” service.

However, 1 year after this, things started to unravel.

• Their customers moved to new technologies that ASIL did not have the competencies to support.
• Some clients moved to even cheaper alternatives.
• The share price that was at all time high, crashed by more than 95% over the next 3 years.
• Their cash flow was affected and payment of salaries to employees was delayed
• Some of the senior management jumped ship

Today the company is trying to revive itself but it looks like it is a case of too little, too late.

Now more than ever before the spectre of instant extinction of small companies is real:

• Markets are global. Someone could easily wipe you out by importing cheaper products from a cheaper global producer
• Technology is changing at breathtaking pace
• Newer business models (think Uber, BnB) are disrupting hitherto “safe” industries
• Information is available to everyone. Your customers know about better options instantaneously. You can no longer hope for some lead time to cope.

This true story should be a cautionary tale for all those promoters,  entrepreneurs and business owners who suffer from the TSTF syndrome.

Change with the times or perish