WHY SMALL AND MEDIUM-SIZED ENTERPRISES DON’T GROW – AND WHAT CAN BE DONE ABOUT IT
The growth challenges of SMEs are often attributed to markets, competition, or financing, but recent research shows that the real barriers are usually internal. A study analyzing the growth of Swedish SMEs highlights three decisive dimensions that interact with each other and determine a company’s true growth capacity: business model, leadership, and people.
These three areas form the foundation of growth. If any of them fails, growth slows down or stops – even when the market is healthy and demand exists.
1. CLARITY IN THE BUSINESS MODEL CREATES THE DIRECTION FOR GROWTH
SMEs often recognize the challenges in their business model but fail to make sufficiently clear choices. This manifests in vague target segments, fragmented sales efforts, and offerings that customers find hard to understand – and therefore, to buy. If the business model lacks precision, growth depends on random success rather than repeatable performance.
Growth is supported when a company clearly defines who it wants to serve – and who it doesn’t. An Ideal Customer Profile (ICP) helps focus actions and investments in the right direction. Sales channels should be chosen to support scalable growth.
The offering, in turn, should be focused, unambiguous, and relevant to the chosen target group. Services and products should be packaged in a repeatable way so that growth doesn’t rely on constant customization.
2. LEADERSHIP IS THE BIGGEST SINGLE CHALLENGE FOR SMES
According to the research, the toughest growth-related issues in SMEs are linked to leadership. As the organization grows, previously functional structures begin to slow down decision-making and blur responsibilities. Growth requires clear structures and a shared understanding of direction – areas where growing companies often stumble.
In practice, this means that the growth strategy must be articulated clearly and shared across the organization. Everyone’s roles and responsibilities should be made visible and understandable. The company should strengthen its everyday operational leadership by delegating tasks from the owners or top management and ensuring there is enough time left for continuous strategic work.
3. PEOPLE AND CULTURE DETERMINE WHETHER GROWTH IS SUSTAINABLE
The most surprising finding of the study was that people and organizational culture are the most challenging areas of growth for SMEs. Companies were aware of market and business model challenges, but issues related to people were perceived as the hardest to solve and anticipate.
In practice, this means that recruitment should be planned proactively, not reactively. A culture that sustains growth requires clear practices that guide collaboration and learning. Each role should have a defined learning path to ensure that competence develops alongside business growth.
SUMMARY
SMEs rarely stop growing because markets are saturated or customers are missing – but because the business model lacks clarity, leadership structures are insufficient, and the organization’s capabilities or culture do not evolvewith the company. When these three areas are balanced, an SME can grow faster, healthier, and more sustainably.
Do these challenges sound familiar?
At Growth Agency IHME, we help companies assess their current situation and support their transformation journey toward sustained growth.
This article is based on the research by Kindström, Carlborg & Nord: “Challenges for Growing SMEs – A Managerial Perspective” (2024).
For more on Ideal Customer Profiles (ICP), see Growth Agency IHME’s earlier article: “A Precise Customer Profile Is a Growth Company’s Best Friend.”
