Small Businesses, Big Challenges

Despite driving nearly 30 per cent of India’s GDP, many MSMEs still struggle with the basics of workforce management.

Micro, Small and Medium Enterprises (MSMEs) are the backbone of the Indian economy, contributing nearly 30 per cent to the GDP and employing over 110 million people across sectors. They remain the foundation of India’s industrial growth, supporting both local and export markets. Yet, despite their scale and significance, many MSMEs continue to struggle with effective workforce management.

Several factors act as roadblocks for MSMEs in managing their workforce effectively. These challenges can be understood more clearly when examined one by one:

1. Employer/Owner Mindset: Leadership plays a pivotal role in any company. In many MSMEs, founders take on multiple responsibilities, leaving little time for people management or business development. Most decisions rest solely with the founder. While this approach may work in the early stages, it becomes increasingly unsustainable as the organisation grows. Employees often feel constrained by such micromanagement, as they must seek the owner’s approval for even routine matters, eventually prompting many of them to leave.

Another reality is that, because owners shoulder multiple roles, they often feel overburdened and admit that they rarely find the time to think about broader business strategies.

2. Attracting the right talent: Attracting the right talent is a persistent challenge for many MSMEs, as larger organisations offer better salaries, benefits, and growth opportunities. Younger professionals, in particular, tend to prefer the stability and recognition associated with big brands.

In many MSMEs, recruitment is driven by referrals rather than a well-defined process. At times, budget constraints lead employers to compromise on candidates’ qualifications and experience. However, without the capacity to provide adequate training or feedback, the mismatch in skills only widens. This ultimately creates frustration for both the employer and the employee.

3. Retaining the right people: Once an employee is hired, retaining them becomes another challenge. Without a clear job description, employees are often expected to handle multiple tasks without proper feedback, leading to role confusion. This lack of clarity, coupled with limited motivation, recognition, or a defined career path, frequently results in burnout and, ultimately, resignation.

In the absence of structured policies and processes, owners tend to focus heavily on operations, delivery, and customer satisfaction, leaving little room for people development, feedback, or recognition.

4. Lack of Performance Appraisal: In the absence of proper job descriptions, the performance appraisal process is often poorly defined. Assessments tend to rely on subjective impressions rather than objective data. As a result, employees may feel they are not being fairly rewarded for the work and effort they put in. This dissatisfaction frequently prompts them to resign in search of better opportunities and recognition.

Some owners also acknowledge that they are not fully aware of the contributions their employees make, which further complicates the appraisal process.

5. Lack of Training or Skill Upgrade: Although training is an investment, some companies view it merely as an expense. Owing to limited budgets and time constraints, they often avoid providing training to their employees. Another challenge is the absence of a fully fledged HR department, and many MSMEs are also unaware of government-sponsored training schemes available to the sector.

What employees really want

According to a survey conducted by Randstad in March 2025, employees want:

• Work–life balance – Employees prioritise flexibility and a healthy balance between their personal and professional lives.

• Training and growth – Opportunities for career development, training, and upskilling are highly valued.

• Purpose and values – Employees seek roles that align with their personal values and life goals.

• Salary – This ranks as the fourth priority.

Improving the existing system does not require a large budget. Clearly defining job responsibilities, providing timely feedback, and communicating expectations to employees can significantly enhance overall performance. By doing so, owners can free up their time to focus on business strategy and scale their operations more effectively.

(The writer has experience of over three decades in HR from diverse industries. He helps MSME and SME organisations to scale up their business.)