How Small and Medium Sized Businesses Can Remain Resilient
Despite unprecedented challenges, many small and medium-sized businesses (SMBs) around the world have demonstrated remarkable resilience and adaptability.
The Covid-19 crisis exposed significant disparities in the fortunes of various small and medium-sized businesses (SMBs). Well-capitalised startups have fared better than cash-strapped community businesses; manufacturers of personal protective equipment have seen unprecedented demand, while hospitality venues have closed; and digitally enabled retailers have been able to shift delivery and customer service online, pivoting into entirely new business models. While the overall shock has been severe for SMBs, some have survived and even thrived. It is not too late for others to adopt the practises that enabled those SMBs to thrive in such a volatile environment.
In April, the OECD estimated that 70 to 80 percent of SMBs in 32 countries had seen a drop in revenue of 30 to 50 percent. Larger companies have been slightly less hard hit as a group, but the pandemic has amplified the gap between the leaders and the rest. In the United States, revenue for companies in the top decile by economic profit remained constant between the third quarters of 2019 and 2020, while revenue for other companies fell by 11%.
Many of the actions taken by the most effective large corporations are replicated (albeit on a smaller scale) by high-performing SMBs. Leading firms in both size categories had the financial fortitude, organisational capabilities, and strategic focus to invest and adapt throughout the crisis. They accelerated digitisation, including automation and shifts to online channels and remote or hybrid work; reorganised and re-skilled for operational efficiency; and became more agile, accelerating both product and business model innovation.
Such shifts may result in a period of rapid economic growth once the crisis has passed. According to recent McKinsey Global Institute research, productivity growth in the United States and six large European economies could be accelerated by 1% per year until 2024. However, this benefit can only be realised if demand growth is strong, leading firms’ productivity-boosting actions are replicated across the business population, and governments, businesses, and individuals all invest in their skills (in particular, skills for the future).
There is likely to be more economic turbulence ahead, whether as a result of future pandemic waves or other factors. Here are a few lessons that small and medium-sized business leaders can learn from companies that were successful during the crisis.
Enhanced digital capability
Of course, the business world has been moving online for some time. According to European Commission data and a 2019 survey by the National Small Business Association, more than 80% of SMBs in the United States and Europe had a company website prior to the pandemic, and more than two-thirds had some employees working via mobile devices. During the pandemic, social isolation, lockdowns, and remote delivery catapulted many businesses much deeper into digital: cloud-based solutions, video communications, and online sales have become commonplace.
Businesses which already had digital experience have benefited the most from digital. According to one survey, SMBs that had previously used software tools were nearly 30% more likely to have implemented new technology since the crisis began. These organisations already had the capacity and competence to navigate the frequently difficult implementation journey. They had learned, in particular, that digitisation is not a magic button; it is only useful when combined with people and processes.
Keeping the remote and real life in sync
Working from home and communicating with customers virtually has proven to be a mixed bag for businesses. While plenty of research indicates that both practises can boost productivity on average, the outcomes are highly dependent on the individual circumstances. The ability of remote employees to work efficiently, for example, is determined not only by the appropriate space, tools, and conditions, but also from the effectiveness and flexibility of work scheduling.
In theory, SMBs have an advantage here: Managers should be able to find tailored approaches for their teams with fewer layers between leadership and frontline workers and fewer corporate policies. Indeed, 44 percent of UK SMBs with some flexible working practises expect to increase this activity in the coming year. This, in turn, is likely to significantly increase engagement and satisfaction, and thus business performance; up to 30% of office workers say they would consider leaving their current job if they were not given the option to work from home at least some of the time.
Organic skincare school online Formula Botanica has firsthand knowledge of these challenges and opportunities. Employees work in locations ranging from Brazil to Slovakia as part of its business model. As the company has grown, it has had to work hard to keep people’s energy and motivation high when they work alone at home. In addition to hiring people who are enthusiastic about the company and its values, the company has implemented some simple but effective people practises to stay connected.
Each employee has a line manager who meets with them on a regular basis. More importantly, there is a culture of “checking in” to ensure that employees are doing well. On Slack, the company has a daily channel where everyone says good morning and goodbye on their working days. This means that even if employees’ working hours are only slightly overlapped with those of others, they end up chatting, sharing pictures and birthday messages, and connecting on a personal level.
Because the majority of Formula Botanica’s employees are working mothers, the company has prioritised flexibility. Employees can work the hours they want, giving them a sense of control over their work-life balance. And, whenever someone requires more flexibility, even on short notice, management is available for those discussions. These methods of operation have been critical in maintaining high performance throughout the crisis. However, they also provide a significant long-term advantage in terms of employee satisfaction, loyalty, and productivity.
Skills transitions and recruiting
Small and medium-sized businesses (SMBs) have traditionally faced more challenges than large corporations in attracting the best and most diverse talent. This can have a negative effect on organisational capability, innovation, and growth. According to one study, a higher proportion of science and engineering graduates in the workforce is associated with more new-to-market products and greater external cooperation. Similarly, companies with highly diverse leadership are 70% more likely than their less diverse counterparts to report that they have entered a new market.
However, by implementing the flexibility benefits described — and often a purpose-driven ethos — smaller businesses need not be afraid to compete for talent with larger enterprises. Lux Afrique, a luxury concierge company, recently had this experience. Despite a general shortage of IT staff, the company was able to attract top performers to support its digital transformation by making flexibility a key component of its employee value proposition. Many businesses are still unsure about their post-pandemic remote work setup. In contrast, remote work is fully integrated into the day-to-day experience at Lux Afrique. For example, all work is managed through a platform called Monday.com, which allows everyone — remote or not — to see what’s going on, efficiently schedule their work, and even automate repetitive tasks.
Of course, just finding talented people isn’t enough: they also require training and development, as well as appealing career paths. Smaller businesses have historically been less inclined to prioritise these practises, but as the experience of global luggage delivery service Send My Bag demonstrates, investing in people yields real results. Staff have three-year progression plans that outline the levels they can work up to and the subsequent pay increases they will receive. The strategy has been so successful that only one employee has left the company in the last two years.
Ultimately, as workplace demands continue to shift, companies of all sizes are likely to encounter skill shortages. Rather than simply looking for new employees, many SMBs would benefit from upskilling their current employees — McKinsey research finds that the benefits could outweigh the costs in three-quarters of cases. Jessica Keir, Operations Director at car finance broker Refused Car Finance in Newcastle, concurs: “Providing staff members with a training budget and allocated time to step away from their daily workload to learn something new does not only boost the feeling of value within your staff, but it also impacts profits. When our employees feel supported, they work more efficiently and to a higher standard, which all contributes to the success of our business.”
Agility and innovation
During the pandemic, agility was critical to success, if not survival. However, in the previous major upheaval, the global financial crisis of 2008, high-performing businesses exhibited stability and resilience. How can small and medium-sized businesses accomplish both goals?
If past is any indication of the future, the answer is due to two factors. First, plan your post-pandemic strategy with future crises in mind. Even if Covid-19’s volatility caught you off guard, to not let it happen again the next time a shock hits. Find an operating model that allows you to quickly scale the business down and up again, or build flexibility into your business plan to allow for such flexing. And, if you don’t already have one, articulate and embed a purpose and values that will last beyond a crisis.
Up to 95 percent of Dunsters Farm’s customers — schools, restaurants, and catering facilities — closed overnight in March 2020, and each subsequent lockdown. To stay afloat, it established an online food delivery service that served customers at their homes. As the United Kingdom exits the Covid-19 restrictions, the company intends to continue its consumer business, including a specialised gift delivery service. It is now better positioned to cater to customers who prefer locally sourced produce in both its B2C and B2B offerings.
Second, increase the organization’s capacity for innovation. In the midst of what economists call “creative destruction,” this is a company’s only source of long-term advantage. According to our survey, more than 60% of SMBs intend to increase the rate of product and business model innovation following the pandemic.
External collaborations are especially important for SMBs in developing an innovation advantage. Staying close to the experiences of customers, engaging with suppliers, empowering employees, and joining local business networks are all powerful sources of new, practical ideas and support. Participant feedback from Be the Business programmes is unequivocal: SMBs gain the most inspiration — and improve their performance — by interacting with and learning from their peers.
Amidst unique challenges, many SMBs all around world have demonstrated remarkable resilience and adaptability. Now is the time to learn from successful companies and build resilience for the future. SMBs that learn from this crisis will be well-positioned to weather the next one.