Karnes offers pearls of wisdom to research SMEs

Last week we challenged several researchers to describe 2010 in one word. You can read their responses here. For Kyle Karnes, a former head of corporate development at Harris Interactive turned independent strategy consultant, ‘focus’ will define the coming year. It will also determine who will be the winners and losers as the industry picks its way out of recession.

Karnes’ new business Red Pearl Advisors aims to advise SMEs on growth strategy, using his 11 years of experience working for one of the industry’s biggest brands. But will growth be the main issue when most companies have spent the past 12 months just hoping to stay alive?

“A growth focus is critical to the success of any business, particularly SMEs,” says Karnes unequivocally. “The market is never static. New and existing competitors are constantly attacking the market with better mousetraps; key people holding valuable client relationships are changing teams every day; local competitors are getting stronger as their larger acquirers deploy deeper and broader resources to the business.

“While an SME’s offering may be strong enough to compete effectively and retain key customers today, unless they constantly grow and strengthen their offering, regardless of underlying economic conditions, it may not be strong enough to withstand those competitive challenges tomorrow.”

Karnes talks of ‘focus’ as the starting point for any SME growth strategy. Specifically, he says, companies should begin by looking within themselves to “identify those elements of the business that add the most differentiated value”. Think like a potential acquirer, he says: “What are the elements of the business that would be worth paying for, particularly a premium?”

Whether or not you’re an SME owner looking to sell up, this advice appears sound. In many ways research buyers – as in clients – are thinking in much the same way as the big global research agencies when it comes to determining whose services are worth acquiring. Karnes notes, as others have, that “the big fish are already in [the SMEs’] pond” when it comes to providing generic research capabilities. Matched with global reach and economies of scale, the big players have “a distinct competitive advantage”.

“To be successful in today’s environment, SMEs must be able to offer clients something that the big players cannot,” says Karnes. “If they can do that, they not only give themselves a fighting chance to effectively compete against larger competitors with more resources, they also make their organisation more attractive to those same larger competitors in the process.”

Karnes believes SMEs should look to differentiate themselves through more advanced research science, technology platforms or subject matter expertise. Which path an agency chooses will depend on their circumstance, the resources they have available and where their heritage lies. For those looking for an exit strategy, however, Karnes sees opportunities in the areas of mobile research and social media research and other emerging research platforms.

Though competition in such areas is already fierce, so far the bigger agencies have held off from investing in any meaningful way either in their own tools or by acquiring a solution. Spare cash has been in short supply, of course, but Karnes believes many potential bidders are happy to bide their time, to wait for the market to settle down and for the winners and losers to separate themselves.

“I do think we’ll see a resurgence of M&A activity in 2010, particularly as we get into the second half of the year,” says Karnes. “Most of the action should continue to involve SMEs. However, unlike the last twenty years, when much of the acquisition activity in the industry was driven by large players attempting to grow their global footprint by targeting strong independent SMEs in specific geographic markets, most of the activity going forward will likely be driven by strategic interest in SMEs possessing leading-edge technologies, methodologies and intellectual capital.”