By Cedric Chin | Full Article | 3750 words | Oct 9, 2018
1 minute read
Strategy matters when you’re a complex business, operating in a market at the
margins of what is possible. This might be true when you’re a cutting edge tech
company. It matters less when you’re selling commodities, as we were.
The majority of traditional Chinese businessmen don’t think strategically.
They think opportunistically. And that’s perfectly fine — by and large, the
business domains they work in don’t demand it.
The SME loop is as follows:
Imagine that you’re a traditional small-to-medium-sized enterprise, or ‘SME’.
The business model doesn’t matter for this discussion. You could be making and
selling physical items, in which case you own equipment and hold inventory and
require a fair amount of cash on hand. Or you’re a software consultancy and you
turn programmer hours into code. Or you’re a distributor: you buy some product,
and sell it to consumers for a markup.
After a few years of execution, most SMEs stagnate. They remain small-to-medium
sized. Growth slows to a crawl. If we treat this study of businesses like we
would organisms, there appears to be an invisible ceiling that constrains the
growth of many of these small businesses
The common thread amongst all these companies — or at least, the ones that
successfully broke free from the SME loop — is this: they had access to a line
of capital that enabled their growth.
Maybe strategy matters. Maybe trial and error works only for starting small
businesses, but breaking past the SME loop requires picking markets or