The next chapter for small business
Consumers significantly reduced, or even stopped spending their money with small businesses altogether, since COVID-19 hit. But, they do expect to pick this up again once the situation improves.
Although they are spending less overall, consumers have actually increased their spending through digital channels. Digital spending during COVID-19 has increased significantly across all product categories that were surveyed, including goods we don’t usually buy online, such as groceries.
And consumers aren’t just buying more from these digital channels, they’re also more interested in using virtual communities to engage with small businesses.
The small business response to changed consumer behaviours
So, the overall spend is down, but the digital spend is up and consumers are feeling more engaged than ever with their virtual communities. How have small businesses responded to this change in consumer behaviour? Well, it appears that they’re mostly aligning their practices with these new consumer behaviours.
One of the most significant findings from the study is that small businesses have really increased the speed at which they’ve adopted digital at the front end (consumer facing, such as online stores) as well as the back end (business operations, such as cloud hosting).
Perhaps not surprisingly, the businesses that are more proactive in using digital technologies report earning a much higher proportion of revenue online, as opposed to through physical stores. And perhaps even less surprisingly, the businesses that are thriving through this period are the ones that started their digital journey before the pandemic hit – they were more prepared and resilient than the businesses that shifted to digital because of the pandemic. However, it is clear that it’s not too late for others to catch up. What’s more, the research suggests those that rely on their support network of advisors – be it accountants, bookkeepers, financial advisors and/or technology advisors – are more likely to perform in a changing environment.
A shift in mindset towards digital
There’s no doubt that the pandemic has accelerated the speed and frequency at which businesses have embraced digital technologies. The types of tech investments or adoption that used to take years, now only take a couple of months – even a couple of weeks in some instances.
Before COVID-19 hit, 32% of the 1,000+ small businesses that Forrester Consulting surveyed reported using cloud solutions. Merely six months later, that number had increased to 49%. That’s an increase of 17% – a rousing endorsement that small business owners believe that embracing the cloud leads to better outcomes.
And small businesses are adapting their practises beyond just accepting digital payments. They’re taking it a step or two further. They’re investing more in online marketing and ad spending, and using more digital services to improve their operation and increase their agility to be more resilient in their operations.
They’ve started creating e-invoices and embracing value-added services like spending analytics to understand where they are spending, how much they are spending, and how they can better manage their expenses going forward. Many are also recording and submitting their tax digitally.
It’s clear that the trend towards cloud technology has accelerated, and this acceleration is going to continue post-COVID. Small businesses that are open to change, are embracing this trend, and are supporting their customers’ buying preferences through this disruption, are the ones that are thriving.
If you’d like to learn more about how COVID-19 has impacted small businesses, head over to our website. There, we list five key recommendations to help small businesses recover, and practical advice for business continuity, resilience and success. Or read the full study to learn more about its recommendations, top actions to take, and to dive into the details.
5 Key recommendations
1. Make financial information digital
Using digital tools is no longer an admin task, it’s business critical and has a direct impact on whether a business will survive.
During COVID-19 74% of small business owners used government funding to stay afloat. Cash flow is the biggest issue for small businesses. In order to access government support businesses needed to have financial statements showing revenue, cash flow and payroll.
2. Create emotional connections with customers
Creating meaningful connections with customers strengthens relationships.
The study found 93% of consumers said that if businesses demonstrate empathy they trust them, buy from them more and recommend them more.
3. Use the power of your ecosystem
Small businesses need to be resourceful. Developing partnerships within the ecosystem can help meet customers’ changing needs.
According to the study, thriving businesses were most likely to get help from their ecosystem partners.
4. Use cloud-based tools to increase efficiency
Manual, paper-based systems are time-consuming, environmentally unfriendly and labour-intensive.
Businesses that thrived during the pandemic showed a higher percentage of online revenue as well as cloud adoption.
5. Use data to predict and plan for the future
47% of businesses make decisions based on customer feedback while 34% use their own instinct.
Typically small businesses are unprepared to deal with supply chain disruptions, but using data to make informed decisions can help businesses plan for the future.