Scaling Up SMEs

The American University of Beirut focuses on scaling up companies within the region—which could have profound effects on the local economy.

Scaling Up on SMEs

SMALL AND MEDIUM-SIZED enterprises (SMEs) are primary engines of growth in most economies. According to the World Bank, they account for up to 60 percent of total employment and 40 percent of the GDP in emerging nations. Yet they struggle to achieve revenues of greater than US$5 million because they find it challenging to obtain financing, and they often lack critically needed management know-how.

At the Olayan School of Business (OSB) at the American University of Beirut in Lebanon, the tagline on our website simply states, “Transforming business thinking in the MENA region.” One way we are doing that is by helping SMEs scale up. We have launched the Growth Readiness Program with the goal of giving SME leaders access to education, mentoring, and investors.

The program was set up as a close collaboration between OSB Executive Education and the school’s Darwazah Center for Innovation Management and Entrepreneurship. The school also partnered with key ecosystem players, including SME investment advisors Inventis Inc.; the U.S. Agency for International Development (USAID), which provided the funding for the inaugural offering; and the Jordan Competitiveness Program, an NGO that aids SMEs and helped recruit participants in Jordan.

SITUATION AND SOLUTION

There are three reasons most SMEs never bring in more than $5 million in revenue. First, most current research focuses on the “what” of growth, not the “how” of getting there. Second, most available business services are geared toward startups or large companies, but very little advice is aimed at businesses in the scale-up stage. Third, the knowledge that is available for SMEs comes mostly from venture capitalists who only advise their own clients or from consultants who are too expensive for smaller businesses to hire.

Our Growth Readiness Executive Education Program (GRP) helps SMEs overcome all three of these barriers through four key components:

A deep dive. We assess each company in terms of its growth readiness along dimensions of strategy, business model, financial health, governance, legal structure, and financial needs. Investment advisors identify the specific barriers that each firm faces, as well as the competitive advantages that will help these firms outpace their competitors. We share the assessments with each firm’s management team in an easy-to-read format that highlights the company’s strengths as well as the areas that need attention.

Capacity building. Two members of the top management team from each company attend seven executive education modules covering growth strategy, HR tools for growth, financial tools for managing growth, market sizing, sales management, negotiation, and governance. These two-day sessions are interactive and include hands-on exercises with scale-up tools. Over a four-month period, executives spend a total of ten days with OSB Executive Education faculty.

One-on-one mentoring and coaching. We provide company representatives with a basic template for preparing a growth plan, including a growth pitch deck that summarizes their plan. Leveraging the findings from the deep dive results, the pitch deck includes the executives’ objectives for their companies—such as doubling their revenue in three years or expanding to new regional markets—as well as the steps they’ve taken to ready themselves for scaling up. Once these pitch decks are completed, the participants share them with two experienced mentors—generally, professional investment advisors, as well as faculty who have previous experience in mentoring SMEs.

Matchmaking. We hold a “meet and ignite” event where SME representatives can meet with investors and lenders to discuss investing and borrowing opportunities. At one such event, SME managers met with lenders to discuss a co-financing program that would allow customers of the SME to buy products by borrowing money from the investor.

THE IMPACT SO FAR

The Olayan School launched the Growth Readiness Program in 2015. Because the initial offering was subsidized and designed with impact in mind, we put the applicants to the first cohort through a rigorous vetting process to make sure they were fully committed.

The initial 140 applicants eventually were winnowed down to 12, who were required to sign an agreement that they would share company-related data during the assessment stage; commit to taking actions in support of growth; take part in the educational component; and develop a post-action plan.

GSP participants receive mentoring and coaching

GSP participants receive mentoring and coaching that will help them prepare their companies to scale up.

 

Just 15 months after the program was completed, we conducted a phone survey of these companies to determine what impact the program had had on them. The results of the survey showed us that, even within that short period of time, our inaugural cohort had achieved visible impact through four metrics:

Qualitative improvement in readiness. All of the 12 companies reported improvements in strategy, human resources, financial health, marketing, and the sales process.

Growth in revenue. Here, the amount varied widely, from 5 percent to 35 percent; average growth was 20 percent.

Growth in staff. Eleven out of the 12 participants added employees, for a total of 39 employees added.

Securing of additional financing. All of the participants had an improved ability to attract funding, whether by receiving equity investments or by borrowing. Six of the companies raised a combined US$16.5 million in equity investment; another raised just under $500,000 in debt.

As the program continues, we hope to track other key performance indicators, including expansions in products, services, and geographic footprints.

EXPANDING IN SCALE

In 2017, GRP was selected by the University- Industry Innovation Network as one of the top 18 cases of good international practices. That same year it was selected by the MIT iEcosystem Symposium as one of the top 24 international programs to involve stakeholders at the university, government, venture capital, corporate, and entrepreneurial levels.

The GRP has led to additional offerings. In 2018, OSB Executive Education developed the Global Scale-Up Program (GSP) to address larger organizations with revenues ranging from $100 million to $500 million; it focuses on external growth drivers, including launching new ventures and acquiring new businesses. The GSP was first completed in April 2019, in collaboration with IE University in Madrid, and it was delivered in a blended format with face-to-face delivery in both Beirut and Madrid. The GSP is an open enrollment program paid for by the participants and their companies.

We believe that such programs not only will help SMEs and larger organizations scale up, they also will boost the local economy. In a recently published piece on its website, the World Economic Forum noted the importance of SMEs to the Middle East and North Africa region. The article says, “With the fourth industrial revolution underway as the digital age disrupts business, the flexibility of SMEs, their innovative capability and ability to create jobs are crucial for MENA countries’ global economic competitiveness.”

If the Olayan School can help even a small percentage of these companies grow, we can make the radical impact we aim for in the MENA region.

Watch this video to see Bijan Azad discussing the Growth Readiness Program.

Fida Kanaan is director of executive education at the Suliman S. Olayan School of Business at the American University of Beirut in Lebanon. Bijan Azad is associate professor and director of the Darwazah Center for Innovation Management and Entrepreneurship at the Olayan School.

This article originally appeared in BizEd's November/December 2019 issue. Please send questions, comments, or letters to the editor to bized.editors@aacsb.edu.



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