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Challenges And Pitfalls Facing SMEs And Startups

Tips To Overcome Common Hurdles
David Yeong
Keith Tan
BY David Yeong and Keith Tan


  • SMEs and startups have many challenges arising from limited resources, that impact their growth and sustainability.
  • The three key challenges facing SMEs are namely branding, talent acquisition and succession planning.
  • The three key challenges facing startups tend to centre on business, technology, and governance.

In “Strategic Planning And Balance Scorecard, Part 1”, published in the June issue of this journal, we discussed what strategic planning is and introduced the Balance Scorecard (BSC) for small and medium-sized enterprises (SMEs) and startups. In “Strategic Planning And Balance Scorecard, Part 2”, published in August, we discussed how companies can implement a BSC and shared some tips for the successful implementation of strategies from business leaders. In this article, we look at the different challenges and pitfalls facing SMEs and startups. For both types of businesses, the key issues typically arise from their limited resources. Here, we identify the top three challenges facing SMEs and startups, and suggest ways to tackle these problems.

Figure 1 Key differentiators between SMEs and startups in Singapore1


SMEs form the backbone of economies worldwide and it is not surprising that they make up 99% of all enterprises in Singapore. While SMEs contribute significantly to innovation and employment, they also face unique challenges that can impact their growth and sustainability. In this article, we delve into three key challenges that SMEs often encounter, namely branding, talent acquisition, and succession planning.

1. Branding

For SMEs, establishing a compelling brand identity is a pivotal challenge in a competitive market. Building a brand goes beyond creating a logo – it involves shaping a company’s reputation, values, and the emotional connection it forges with customers. Here are some strategies to overcome branding challenges:

  • Define your brand: Understand what your brand stands for, its core values, and the unique proposition it offers. This clarity will guide your branding efforts.
  • Brand storytelling: Everyone loves a good story as it generates positive feelings. When done correctly, good storytelling is an opportunity to establish an emotional connection with your audience. In the case of brand storytelling, it uses narratives to mould and convey the company’s identity to your customers. It provides information on the who, what, when and why that tells people what the company is about and why they should care. A good brand story infuses value that is important as it offers companies the opportunity to personalise their brand and form an emotional connection with their customers.
  • Consistent visual identity: Develop a consistent visual identity across all touchpoints from your website to packaging, and delivery of service. A recognisable and cohesive brand look builds trust.
  • Authenticity in social media: Authenticity in social media builds consumer trust. When brands share genuine stories and connect on a human level, they create transparency and trust, strengthening the brand-consumer relationship.

2. Talent acquisition

Acquiring and retaining top talent is a constant challenge for SMEs, particularly when competing against larger enterprises. To address this, SMEs need to foster an environment that nurtures talent and promotes loyalty:

  • Offer growth opportunities: Emphasise career growth and skills development. Employees are more likely to stay when they see opportunities for advancement within the organisation. Having formal and informal feedback is equally important to guide employees on the right track for organisational advancement.
  • Emphasise company culture: Cultivate a positive company culture that values collaboration, innovation, and inclusivity. As remuneration packages are different between multinational corporations (MNCs) and SMEs, SMEs should focus on the importance of culture and shared values, and identify the right fit for potential employees as early as during the interview stage. In order to cultivate a culture that attracts talent, SMEs must find the “why” or the purpose that it exists. With the right purpose, SMEs will then be able to attract the right people.
  • Flexible work environment: The post-COVID era has seen changes not only in many companies’ business culture, it is seeing changes in employees’ values. Companies should consider phasing in flexible work arrangements and recognise the importance of work-life balance. Before the companies embark on such flexible work arrangements, we encourage the reassessment of existing operating model and reimagine the possibilities of existing roles.
  • Recognise and reward: Regularly acknowledge and reward employees for their contributions. Recognition boosts morale and encourages loyalty.

3. Succession planning

Succession planning remains a sensitive topic that is often avoided in discussions or board meetings. SMEs commonly overlook the necessity of succession planning due to the strong interconnection between the SME and the founding CEO. In truth, it is unlikely to find a similar-trait successor as the founding CEO. Having a succession plan that incorporates the company’s business strategy would ensure business growth and continuity. SMEs can consider the following approach for succession planning:

  • Identify potential leaders: Spot potential leaders within the organisation and provide them with opportunities to develop leadership skills. Each individual will have different strengths, weaknesses and varying capabilities. It is sometimes easier to identify the unwanted traits and use them to eliminate unsuitable candidates.
  • Document roles and responsibilities: Clearly define roles, responsibilities, and workflows to ensure a smooth transition during leadership changes.
  • Mentorship and training: Establish mentorship programmes that facilitate knowledge transfer and grooming of future leaders.
  • External recruitment: In cases where internal succession is not feasible, be open to external recruitment while ensuring seamless transition and integration. Potential candidates can be sourced either vertically or laterally in the industry. Such opportunities can also be found through word of mouth, networking events (for example, conferences) or industry associations.

In conclusion, SMEs play a vital role in the global economy, and addressing challenges is crucial for their growth and sustainability. By focusing on effective branding, talent acquisition and loyalty, and succession planning, SMEs can position themselves for long-term success. These strategies empower SMEs to navigate the dynamic business landscape and emerge as resilient and thriving enterprises.


One sad truth for startup enterprises is that most startups do not succeed. It is widely known in the startup community that more than two-thirds of them never deliver a positive return to investors. However, those that do succeed may become the awe-inspiring and celebrated unicorns raking in more than 10-fold returns for investors that had supported their entrepreneurial ideas. This startup journey is laden with hurdles that demand strategic thinking, adaptability, and resilience. In our opinion, these are the principal challenges facing startups.

  1. Business challenge: Balancing vision and reality

For startups, having a great idea is one part of the puzzle. The other piece of the puzzle involves possessing a feasible business strategy that can be professionally executed. The passion and zeal that drive entrepreneurs are often confronted by the need for sustainable revenue generation. Overcoming this challenge requires a delicate balance between visionary aspirations and pragmatic execution. To achieve this balance, startups can do the following:

  • Market research: Thoroughly understand your target market, customer needs, and competitors. Data-driven insight via surveys or focus group sessions will guide your product development and marketing strategies.
  • Iterative approach: Consider developing a minimum viable product (MVP), which is a core version of a product that includes only its essential features and functionalities. The main purpose of creating an MVP is to validate assumptions, gather user feedback, and assess market demand before investing significant time and resources into building a full-feature product. An MVP enables a lean and iterative approach to product development.
  • Learning to say no: Prioritise resource allocation. Invest in areas that provide the most value and align with your core product scope and target customer group. A product with encompassing capabilities is resource-intensive and not viable.

2. Technological challenge: Harnessing innovation

In today’s digital landscape, technology underpins the success of startups. Technological challenges range from selecting the right tech stack to staying ahead of technological trends. Here are some tips to manage this:

  • Choosing technology: Select technologies that align with your product goals and scalability requirements. If you know that certain technology upgrade is required down the line, this should be a key consideration when selecting the initial technology infrastructure. A well-considered technology stack ensures efficient development and maintenance.
  • Innovation adoption: Embrace emerging technologies like artificial intelligence, blockchain, or Internet of Things if they align with your product vision. Staying ahead of the curve can give your startup a competitive edge.
  • Security and data privacy: Address cybersecurity and data privacy concerns to protect sensitive information and build customer trust.
  • Technical talent: Build your team around the key business technologies. Prioritising the appropriate technology choice aligned with the founder’s objectives (after conducting thorough due diligence) should take precedence over selecting technical talent. This approach enables a clear identification of required skill sets for the chosen technology. Conversely, if technical talent is chosen first, there is a risk of bias towards familiar technology, potentially hindering the selection of the most suitable option.

3. Governance challenge: Building a strong foundation

Maintaining good governance practices is often overlooked in the excitement of launching a startup. However, sound governance sets the foundation for sustainable growth and long-term success. Here are the considerations:

  • Entrepreneurial ethics: This refers to the entrepreneur’s moral principles and values that guide the behaviour and decision-making in business activities. It entails conducting business in a conscientious and morally upright fashion. The importance of entrepreneurial ethics is underscored by its capacity to cultivate faith and reliability. When entrepreneurs prioritise integrity, openness and equity, they cultivate robust connections with customers, employees and business partners, thereby ensuring business viability.
  • Legal compliance: Ensure compliance with legal and regulatory requirements specific to your industry and location. While there are costs to ensure compliance, the penalty for non-compliance can be much higher. This is especially so between shareholders. Hence, shareholders’ agreement is paramount for all startups to minimise or manage conflicts.
  • Intellectual property (IP) protection: Safeguard your innovative ideas with appropriate IP protection mechanisms, such as patents, copyrights, and trademarks. The Intellectual Property Office of Singapore (IPOS) is a good platform to protect IP. There is also a panel of lawyers that startups can seek advice from, on areas such as IP infringement.
  • Stakeholder communication: Establish clear communication channels with stakeholders, including investors, employees, and customers. Regular updates instil confidence among stakeholders.

In conclusion, startups navigate a challenging landscape that demands strategic acumen and adaptability. By addressing the Business, Technological, and Governance challenges, startups can lay a strong foundation for growth and success. Each challenge is an opportunity for learning and improvement, enabling startups to emerge as resilient and impactful players in their respective industries.

David Yeong is Partner of Consulting, SAC Capital Private Ltd; and Keith Tan is Director of Business Consulting, RSM Risk Advisory Pte Ltd.

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