Small Business Trends

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Why Tech Is Our Best Bet to Spur U.S. Small Business Growth

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I live in a small town in Connecticut. I’m talking really small… We have a total of 12 businesses in the entire town. All of them are small businesses, so to say that we are dependent on small businesses is quite the understatement. We may be on the extreme end, but this dependency is not at all unusual.

Small businesses are the backbone of our towns and communities. They’re our favorite places to eat, meet up with friends and take our children to grow and play. They’re run by our friends and neighbors. They add unique character to our communities and are a major factor in our everyday quality of life. They are the foundation of our social and economic lives.

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Yet despite its importance, the U.S. small business sector is struggling. It’s been declining over the past several decades, and small businesses are struggling to compete with larger chains and technology-based giants.

Of the many challenges small businesses face today, keeping up with information technology (IT) is a big one. And it is critical, because IT change is a root cause of many other challenges.

At the same time, IT is also the single best opportunity for small businesses to overcome these challenges and accelerate growth. This duality means that small businesses must capitalize on the rapid pace of technology change—or else this change shifts from an opportunity to a threat.

The U.S. small business sector is struggling to grow

To better understand the challenges small businesses face, let’s look at the numbers. The U.S. Census Bureau’s Business Dynamics Statistics data shows a lot of volatility in small business net job creation between 1977 and 2014, with an overall downward trend:

U.S. Small Business Net-new Jobs, 1977 – 2014

Unfortunately, the number of new businesses starting every year in the U.S. has been flat since the financial crisis (which hit in 2009) through 2014. And looking back 20 years, new starts are down by about 20%:

Annual U.S. Small Businesses Started From 1994 – 2014

According to this same data set, only about half of small businesses survive through their fifth year. Those that survive lose between 3% and 9% of jobs per year from startup through year five:

Survival Rates for U.S. Small Businesses

Annual Employment Growth for Small Businesses Started After 2005

These statistics don’t paint a very happy picture. But awareness of the challenge is always the first step to conquering it. So in the spirit of understanding the problem, we surveyed 699 U.S. businesses under $100 million in annual revenue or under 500 employees to identify their biggest challenges to growth.

Note: We classified small businesses as under $50 million, and midsize businesses as $50 million to $100 million.

Small business leaders often say that their business depends on having great people. Our data backs this claim: Finding and keeping the right people were named as top challenges in our survey results. Using the right technologies, managing increasing operating costs and remaining competitive were also top constraints to growth:

Primary Challenges to Small Business Growth

Small Businesses = 499, Midsize Businesses= 200

Question: Thinking about the next 1-2 years, what constraints do you anticipate your organization might face in striving to achieve its business goals?

Technology is the best opportunity to grow the small business sector

IT is now pervasive, impacting all functions of every business in any industry. Every company is a technology company. No other factor impacts business success as broadly and deeply as IT—which means it has huge potential to drive the start and growth of new small businesses.

Technology innovation is the primary driver of new, competitive business ideas.

Technology is changing so quickly, and in so many different aspects of life, that new business ideas constantly arise. For example, 3D-printing technology is driving a ton of groundbreaking new business start-ups—from restaurants that 3D-print food to machines that you can use to print everything from jewelry to toys in your own home.

And that’s just scratching the surface… The Internet of Things, robotics, advanced analytics, artificial intelligence, augmented reality, and the “gig economy” are other examples where technology is driving new types of businesses, or new takes on existing businesses.

Now, if you’re a small business owner, you might think this is all too big, technical, or “edgy” for you. But here’s the kicker: Small businesses don’t have to create these new technologies, and they don’t need to start an entirely new kind of business. Technology has already created opportunities to disrupt the status quo of existing, long-standing businesses.

For small businesses to capitalize on these opportunities, it’s about applying these technologies in ways that enhance their customers’ lives.

There are numerous examples of this that we now take for granted. WiFi turned coffee shops into remote offices. E-commerce has transformed customer expectations and the shopping experience—even when it comes to making big ticket purchases such as cars, boats, and homes. And emerging technology trends like digital wallets, computing everywhere, webrooming, and social commerce continue to redefine the buying experience.

Technology is just as important for small businesses as big ones

To compete, all small business leaders must keep up with the critical technologies that are changing the very nature of their businesses. No business is exempt. Technology is now a strategic concern for small business leaders.

It used to be that only larger companies could afford to play in high tech. But now, some of those heavy technology investments by big companies are cost and innovation liabilities, rather than barriers to entry. Which means…

Technology can make small businesses enviably agile and competitive.

The combination of cloud, data, social, and mobile—what Gartner calls the “Nexus of Forces”—gives small businesses the chance to invest in powerful technology that can be implemented quickly, with little to no capital outlay.

And the software “freemium” movement allows small businesses to use cloud-based software for free as they build and grow their businesses. When they grow to the point where they need more sophisticated capabilities, they can upgrade to paid versions.

If this technology is used properly, small businesses can build a customer experience and a business agility that is difficult for larger companies to replicate. But knowing how to capitalize on available technology—and more importantly, the willingness to try—is critical.

Technology creates an attractive employee experience

The best companies have the best people, but we all know that great people are always hard to find. We often hear how consumer-facing businesses need to improve their customer experience. But as competition continues to heat up in finding talent, concern over the employee experience is growing rapidly.

Today, it’s just not possible to deliver an attractive employee experience with non-existent or outdated business technology. For small business leaders, technology is a reflection of their company culture and aspirations. Those that don’t invest intelligently in technology will struggle to attract and retain talent.

The first step in applying technology to enhance the employee experience is to automate the mundane tasks that few employees, if any, want to do. This will improve employee morale, free up time for higher value work, and drive down overall operating costs. Rapidly accelerating technologies such as artificial intelligence, autonomous vehicles, and the Internet of Things will provide more and more opportunities to automate mundane (and even dangerous) work.

Granite Construction company is a strong example of using unmanned aerial vehicles to more effectively and safely inventory stockpiles of raw materials. Another example is Textio, an AI tool that helps companies write more effective job postings.

The best people want to work in a cutting edge environment so they can develop the skills that will take them into the future. A technologically advanced workplace can greatly improve their job satisfaction and engagement, and make them more employable.

But this doesn’t mean buying “shiny object” technology to impress candidates. It does mean, at the very least, keeping up with the de facto standards for most business functions. It also means looking for additional functions where investing in technology can benefit your bottom line while providing a compelling employment opportunity.

Another compelling area where technology can improve employee experience is remote work. Yes, there are jobs where being physically present is mandatory. But there are many roles that can be done effectively from home, a coffee shop, or even a local park.

Some managers are more comfortable if they can literally see an employee working, rather than trust that they are getting the job done. But today’s technology allows many tasks to be assigned, tracked, completed (even collaboratively), and measured remotely. Gartner states that by 2020, about 50% of the workforce could be contingent workers.

Of course, there are pros and cons to remote work. But all small business leaders should be asking the question of whether remote work will allow them to more easily attract and retain high quality talent who may desire—or even require—a more flexible work environment.

What’s the next step for small businesses?

In the U.S., businesses with under 500 employees employ almost 100 million people. They’re critical to the U.S. economy and society, so we must actively work to foster their growth. Better use of technology is not the only approach, but is the single best one to work towards this goal.

To that end, small business leaders should:

  • Explicitly factor technology trends into their business strategy and look for emerging strengths, weaknesses, opportunities, and threats.
  • Directly examine how information technology can improve the agility and effectiveness of their operations.
  • Prioritize the evolution of technology as a driver for continuously improving the workplace experience to attract and retain great talent.

Fostering small business success through technology is the mission of the Capterra research team. Towards this goal, we strive to create a powerful body of research and advice. To dive a little deeper into some of the topics in this article, check out the following: “The Savvy Small Business Guide to Machine Learning vs. Artificial Intelligence,” “How the Internet of Things Will Impact Customer Support,” and “5 Things You Must Know About Augmented Reality in Construction.”

We’re about to launch a new set of research on overcoming the top small business challenges and tracking the top small business technology trends. So, stay tuned! Help us conduct the research you need to succeed as a small business leader. Tell us: What are your biggest challenges? Biggest successes? Technology plans and experiences? We welcome your feedback.

Information on Gartner’s Top Technology Trends Survey

Gartner conducted this survey in April-May 2017 among 699 US-based SMBs with more than 10 employees and annual revenue of less than $100 million. The survey excluded not-for-profit organizations. The qualified respondents are decision makers, or have significant influence on the decisions related to purchasing technologies for their organization.

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About the Author

Anthony Bradley

Anthony Bradley is a Group Vice President at Gartner responsible for content marketing across its digital markets businesses.

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