Why do so many Small Businesses in India Never Scale?

India is home to not hundreds, not thousands, but lakhs of Micro, Small and Medium Enterprises (MSMEs). To be precise there are 633.88 lakh unincorporated non-agriculture MSMEs in India according to the Government’s annual MSME report. Astonishingly, out of these 633.88 lakh enterprises, 630.52 lakh are estimated to be Micro enterprises, which is well over 99% of all MSMEs. 3.31 lakh Small and 0.05 lakh Medium enterprises bring up the rest of the count.

These numbers speak volumes about the state of businesses in India. There are hundreds of reasons why businesses can’t or won’t expand. Here are some important insights to help understand the factors that influence Business expansion.

Don’t Want to Scale

When talking about business expansion, what most people fail to factor in is the humans behind the business and their intentions. Just because a business did not expand does not mean it could not do it, or it failed to do it. What if they did not want to expand? Not everyone wants to expand their business. There are so many businesses out there that have no plans of scaling. Why? Because they don’t want to.

Here are some reasons why business owners would not want to expand-

Satisfaction

It would be a mistake to think that every business owner would be driven by money, power, or greed. There are business owners who are happy with what they have, there are owners whose priority list does not have Money on the top. There are business owners who value a healthy work-life balance and would not want to compromise their family time. Simply put, these owners are content and have no reason to expand.

Risk

Many business owners know the risks associated with expansion. If a business owner is successfully running a profitable small business, why would they risk it to expand? It is already profitable for them, and that risk is simply not worth it to throw everything on the line. This is why they don’t want to expand.

Effort

Expansion is no simple task, the amount of work and strain on the owner dramatically increases. This is why some owners ignore expansion because of the hassle it comes with. They don’t want to deal with the additional work due to expansion and are not prepared to expend their body and mind.

Not Able to Scale

If the previous section talked about why business owners don’t want to scale, this section will explore the common reasons and factors limiting the business owners’ ability to scale.

Resource

Lack of financial resources is one of the most common limiting factors for business expansions. A majority of small businesses don’t even have access to a proper credit line. Lack of sufficient collateral cuts them off from banks and other financial institutions, making high-interest sources like local money lenders their only choice. This has been the problem for MSMEs till now, Here’s hoping the recent push by the government will be a game changer for MSMEs.

Apart from money, the lack of human resources can be a problem too. The “lack of human” resources here is not by any means referring to the general working populace, we have an abundance of that here. What is needed is the right people, people to form strategic partnerships with, people to run the business with, people to manage your business with, and of course, competent employees.

Popularity

If the business barely has any recognition, the expansion would be a waste, it would only be a disaster. Lack of marketing and popularity will eventually lead to the closure of the business. If there is no need for a business’ product or service, or if no customer wants them, forget scaling, the business has essentially failed.

Skill

There is no scope for expansion If the business owner is not skilled enough. Apart from being a founder, the owner also needs to have leadership and management skills. They should have an idea of how businesses work because owning a small business is vastly different from a large business. Even to make expansion possible, the owner has to exhibit at least some amount of entrepreneurial skills.

Passion

Passion is a huge driving force, an uninterested owner who is not passionate about their business won’t be able to scale their business. Even if some miracle they do, it is a castle of cards waiting for the wind.

Excessive Loyalty

Loyalty is a great quality, but too much of it in businesses, not so much. So many small businesses in India are family businesses, or businesses started with friends. In businesses like these not every partner, or individual with stakes is competent. Latching onto these people will take the business nowhere, leading to stagnation.

By no means is this list exhaustive, but these are some of the most common causes behind businesses' ability to scale.