Small business leaders are often praised for their resilience. Over the last few years, resilience has become the defining narrative for SMEs navigating economic uncertainty, talent shortages, digital disruption and rising costs. However, resilience alone is not enough. In my work with SME leaders and business schools, a consistent pattern emerges: businesses that move beyond survival mode and focus on capability building are the ones that achieve sustainable growth.
Capability is what enables SMEs to scale, adapt and lead with confidence. Crucially, it also shapes the implicit expectations that exist between leaders, employees and the organisation. When these expectations are unclear or misaligned, performance, trust and engagement suffer. So what does capability building actually mean for SME leaders, and how can it be developed without adding unnecessary complexity?
From “doing everything” to building capability
Many SME founders wear multiple hats. In the early stages, this is unavoidable. However, problems arise when the business becomes dependent on the founder’s personal effort rather than organisational capability. Some common symptoms include:
Decision-making bottlenecks
Over-reliance on informal processes
Firefighting replacing strategic thinking
Growth stalling despite strong demand
Less visible, but equally damaging, is the effect this has on people. When ways of working are unclear, employees form their own assumptions about roles, responsibilities and fairness. Over time, this creates frustration, disengagement and silent withdrawal.
Capability building shifts the focus from who does the work to how the work gets done. This does not require layers of bureaucracy. It requires clarity, consistency, and intentional leadership. Based on practice and research-informed engagement with SMEs, four core capabilities consistently separate high-performing small businesses from those that struggle to scale. Each also plays a role in shaping and sustaining healthy expectations between leaders and their teams. In the subsequent section I will discuss these four capabilities further and add how you can build this into your organisation
1. Strategic focus (not long documents)
Strategy in SMEs is often misunderstood as lengthy plans. In reality, it is about:
Clear priorities
A defined customer value proposition
Knowing what not to do
SME leaders should be able to answer three questions clearly:
Who do we serve best?
What problem do we solve better than our competitors?
Where are we focusing our limited resources?
When these answers are unclear across the team, strategy is not embedded, regardless of how well it exists in the founder’s head. This lack of clarity also creates ambiguity around expectations, leading to misaligned effort and disappointment on both sides.
How to build strategic focus
Hold short, regular strategy conversations (quarterly, not annually) rather than creating static plans.
Clearly define your ideal customer and ensure everyone understands who the business serves best.
Translate strategy into three clear priorities that guide day-to-day decisions.
Regularly stop activities that no longer align with your strategic focus, saying no is a strategic skill.
Clear strategy reduces confusion, strengthens trust and helps people understand how their contribution fits into the bigger picture.
2. People and leadership capability
People challenges are one of the most cited barriers to SME growth. However, the issue is rarely just recruitment. More commonly, SMEs struggle with:
First-time managers without leadership support
Unclear roles and expectations
Informal or inconsistent feedback
Limited investment in management development
Leadership capability does not mean corporate training programmes. It means:
Setting clear and realistic expectations
Developing line managers early
Creating psychological safety
Aligning performance with values
When expectations are unmanaged, employees may feel that promises have been broken, even when nothing explicit was ever agreed. This is where capability building becomes essential, not optional.
How to build people and leadership capability
Clarify roles so people understand what “good performance” looks like.
Invest early in first-line management skills such as communication, feedback and delegation.
Create simple, regular check-ins rather than relying on annual appraisals.
Model leadership behaviours from the top, culture in SMEs is shaped by daily actions, not written values.
Strong leadership capability helps SMEs maintain trust, fairness and commitment as they grow.
3. Operational discipline without bureaucracy
Processes are often viewed negatively by SMEs, yet the absence of simple systems creates inefficiency and stress. Operational capability includes:
Clear workflows
Defined responsibilities
Basic performance measures
Consistent ways of working
When operations rely too heavily on informal arrangements, expectations become inconsistent. What feels flexible to leaders can feel unpredictable to employees. Well-designed processes free up leadership time rather than restrict it. They reduce dependency on individuals and allow the business to grow without constant intervention from the founder.
How to build operational discipline capability
Identify critical processes (e.g. customer onboarding, order fulfilment, invoicing) and document them simply.
Standardise where consistency adds value, while keeping flexibility where it matters most.
Use basic performance indicators, clarity is more important than complexity.
Review processes regularly as the business evolves.
Operational clarity supports fairness, transparency and shared understanding.
4. Learning and adaptation
High-performing SMEs learn faster than competitors. This includes:
Learning from customers
Reflecting on what worked and what did not
Using data to inform decisions
Seeking external challenge and insight
Learning-oriented SMEs also manage expectations better. They listen, adapt and respond, rather than allowing dissatisfaction to build quietly.
How to build learning and adaptation capability
Build reflection into routine activities - ask “what worked and why?”
Actively seek customer and employee feedback and act on it.
Encourage open conversations about mistakes to reduce fear and promote learning.
Engage with external support - mentors, peer networks and business schools. to challenge assumptions.
Learning capability strengthens both performance and relationships.
Why capability building is a leadership choice
Capability does not emerge by accident. It is the result of deliberate leadership choices. Many SME leaders delay capability building because:
“We’re too busy right now”
“We’ll fix it when we grow”
“It works well enough”
In reality, growth exposes capability gaps rather than solving them. Early capability building helps SMEs manage change, maintain trust and avoid the erosion of commitment that often accompanies rapid expansion.
How business schools and SMEs can work better together
Business schools accredited through the Small Business Charter play a critical role in supporting SME capability development. The most effective engagement:
Is contextual and practical
Respects SME constraints
Focuses on application, not theory alone
Builds confidence as well as competence
When SMEs and business schools collaborate effectively, knowledge flows both ways, strengthening leadership practice, organisational capability and regional economic impact.
A final reflection for SME leaders
Resilience keeps businesses alive. Capability allows them to thrive. SME leaders do not need to become corporate organisations to grow successfully. They need to become intentional organisations, clear in purpose, disciplined in execution and committed to learning.
The question is no longer:
“How do we survive the next challenge?”
It is:
“What capabilities - and expectations - do we need to succeed beyond it?”
Author Biography
Rayhan Abdullah Zakaria, Certified Management & Business Educator (CMBE), is a Postgraduate Faculty Lecturer in Management & Business with BPP University Business School. Rayhan works closely with SME leaders, international postgraduate students and business schools on leadership, management capability and organisational development. His work focuses on translating management theory into practical, impact-driven insight that strengthens organisational relationships and sustainable performance.