Flemish SMEs fail to realise their full growth potential

These are the main conclusions from a study of 162 Flemish SMEs* aiming to identifying why certain companies grow faster than others. The study was carried out by Professors Miguel Meuleman and Yannick Dillen from the Centre for Excellence in SME Management at Vlerick Business School, in collaboration with Bank Van Breda and Titeca.

What makes this study unique is its holistic perspective on growth. The researchers first analysed how the SMEs surveyed scored on 10 growth competencies that influence sustainable business growth: Purpose, Strategy, People, Finance, Product, Leadership, Decision-making and Governance, Go-to-market, Structures and Processes, and Digitisation. They then looked at characteristics relating to company profile, owner/management, entrepreneurial mindset and overall motivation for growth. Lastly, the researchers took the size of each company into account.

Miguel Meuleman, Professor of Entrepreneurship at Vlerick Business School: “SMEs are an important driver of economic growth, job creation and innovation. To fully fulfil this role, sustainable business growth is a crucial prerequisite. With this research, we wanted to identify areas where SMEs are still missing out on growth opportunities. There is still much to be gained, especially for family businesses and companies without external investors. The study also clearly indicates that investing in just a few growth competencies can make a real difference. While it is not necessary to develop every competence to the same degree in every growth phase, entrepreneurs need to be vigilant in ensuring that all competencies are developing in line with the growth of the organisation. It is essential to proactively invest in specific growth competencies.”

Professionalisation of governance needed to improve decision-making and long-term strategy

With an average score of 51%, this dimension ranks lowest, meaning many SMEs are lacking a professionally structured management framework. This creates an imbalance between central decision-making and the delegation of responsibilities. Most crucial decisions are made at the owner/management level, with a lack of autonomy at lower levels.

• SMEs with external investors score better (60%) than SMEs without them (49%).
• Family businesses score lower (49%) than non-family businesses (58%). While the former perform well in terms of customer relations and long-term commitment, they are often very centrally managed. A more autonomous management structure could have a positive impact on their strategic focus and leadership development.
• SMEs led by owner/managers with a degree in economics also perform slightly better (55%) than companies in which the owner/manager has a different background (47%).
• While many SMEs do have an active board of directors or advisory board, they lack independent external advisers.

Matthias Wallaeys, Business Partner and Associate, Titeca: “This study shows that Flemish SMEs still hold considerable growth potential. Through professionalising corporate governance, both decision-making and long-term strategy can be improved. As a trusted adviser to entrepreneurs, we recommend periodically stepping back from operational matters to think strategically and make decisions accordingly. We believe that this will lead to truly sustainable and profitable growth. The Code Buysse IV provides valuable guidance in this regard.”

Digitisation must go beyond process automation

With an average score of 55%, this growth dimension has the second lowest score. Many SMEs therefore do not yet have the technologies or systems in place to cope with the digital challenges of today's business environment.

• AI applications have a noticeably low score (40%).
• Digitalised business processes perform significantly better (71%).
• Many SMEs have digitalised their internal processes, leading to improved operational efficiency. However, they are still not making enough use of advanced data analytics and AI tools, meaning their decision-making is insufficiently data-driven.

Family businesses need to invest more in HR processes and talent development

Talent management and fostering good employee engagement are both crucial for growth. The average score across all SMEs is 60% in this regard. Investing in this growth competence also has a positive effect on the complementary dimension of leadership. While, on average, this dimension scores particularly highly (68%), there is still room for improvement, especially when it comes to family businesses.

• Family businesses – accounting for 75% of the survey sample – score lower on average (55%) than non-family businesses (63%), They often rely on more informal HR processes. They also score lower on leadership than non-family businesses (66.6% vs 72.2%). Family businesses seeking to increase their long-term productivity and growth prospects therefore need to work on more formalised HR processes, which will improve their ability to attract and retain talent.
• SMEs with external investors attach greater importance to talent management, performing exceptionally well (68%) compared to SMEs without external investors (55%). This is due to the presence of structured HR processes.
• SMEs led by owner/managers with a degree in economics also score higher (61%) than those led by people with a different educational background (54%).
• Across the study, companies score relatively low in terms of developing clear incentive systems, with a clear need to strengthen reward structures to boost motivation and talent retention.

External investors have a positive impact on growth

Only 13% of SMEs in the study sample have external investors on board. Such investors hold a minority stake in three quarters of the companies surveyed. Non-family businesses are more likely to have outside investors. Their impact on business growth is both significant and positive.

• SMEs with external investors score better in terms of leadership, strategy and financial planning. They credit this to well-structured management and outside expertise.
• While purpose scores low on average (57%), SMEs with external investors are more committed to corporate social responsibility (CSR) (65%). A strong purpose often leads to higher levels of employee satisfaction and a more loyal customer base, and it is an important driver for strategic priorities and long-term vision.
• SMEs with external investors perform better in terms of strategy development and implementation (72% vs. 59%), as well as go-to-market strategy (64% vs. 56%).
• External investors also contribute to an improved structure, with more efficient processes (72% vs. 63%) and better leadership (74% vs. 67%).

Wannes Gheysen, Sector Head Entrepreneurs, Bank Van Breda: “While the injection of capital is undoubtedly an added benefit, it is valuable external expertise, advice and guidance that can truly accelerate the sustainable growth of an SME. External parties can help to refine strategy and purpose, while also reviewing financial planning, for example. At Bank Van Breda, we see every day how entrepreneurs who surround themselves with the right people, who have a good sounding board and who are open to input from outside experts, make both themselves and their businesses more resilient and adaptable.”

* Definition of SME for the purpose of this study:

• 10 to 250 full time employees (FTE)
• Annual turnover between 2 and 50 million euros
• Founded over 10 years ago
• Headquartered in Belgium