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4th Wave of the Small Business Success Index Results Show U.S. Small Business Reaches Innovation Glass Ceiling

by Susan Wade on September 10, 2010

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This post is an executive overview of the of the fourth installment of the Network Solutions® Small Business Success Index™ study:

Small businesses have taken a beating during this economic downturn—and the strain is really starting to show. They’re losing their ability to innovate and devoting less attention to developing their employees, while continuing to have a tough time raising capital. What’s more, it’s all taken a toll on their overall ability to compete and grow.  

 Still, with expected improvements in their bottom lines for the rest of the year, they remain happy to be running their own show.   And a significant minority are experimenting with the use of social media to find new customers.  

 Those are the findings of the latest research from Network Solutions and the Center for Excellence in Service at the University of Maryland’s Robert H. Smith School of Business. In the fourth installment of a study first conducted in December 2008/January 2009, the research surveyed 500 small business owners to measure their business competitiveness. The conclusion: The overall health of small business has declined over the last six months to a C- from a C, the lowest rating since the survey began.  Only 18 percent of businesses are “highly competitive”, according to the survey, compared to 25 percent the year before.  For more infomation about the SBSI go to http://www.growsmartbusiness.com 

SBSI Wave 4 Report Card

Central to the research is the Network Solutions Small Business Success Index™, which rates how successful small companies are in meeting the goals critical to their short and long-term viability. Relying on six distinct dimensions—capital access, marketing and innovation, workforce, customer service, computer technology, and compliance—the index comes up with an overall grade for small business competitiveness. Due to drops in the two most important factors, capital access and marketing and innovation, the index fell to 73, down from 75.  

 At the same time, the index also revealed new insights into a handful of key issues, including the type of businesses that have adopted social media as a marketing and customer management tool and their reasons for doing so, the global ambitions of small businesses and the role of owners’ spouses in their success.  

 Specifically, the survey included the following findings:  

 Small Business Competitiveness Has Declined 

According to the research, 54 percent of small businesses are “marginally failing” or “failing” compared to 47 percent a year ago. The main culprits include:  

  •  A big drop in marketing innovation. That was especially true for the ability to find creative ways to bring in business. A mere 37 percent say they’re highly successful at “coming up with new ideas that increase revenue” compared to 47 percent a year ago. The clear implication: The relentless pressures of operating in the current economy are sapping the resourcefulness that’s usually the hallmark of small business.

In fact, those businesses that are still innovative are also more successful: They’re more competitive, more optimistic, use Internet technologies and make higher incomes. Thirty-seven percent of companies with high marks in innovation are “highly competitive” compared to 6 percent of others. Also, 73 percent are highly satisfied to be business owners vs. 59 percent of those struggling with innovation. Thirty-nine percent consider Internet solutions (e.g. websites) to be important to their business v.s. 30% of others.  They are more likely to use online advertising and have found the use of social media has exceeded their expectations –- 72% expect to make a profit in the next 12 month from using social media.  In addition, 43percent make $100,000 or more in household income compared to 31 percent of other firms.  

  

  •  Companies continue to struggle to find the capital they need. Only 36 percent have enough money to invest for the long-term compared to 39 percent in 2009. And 49 percent always have enough working capital vs. 46 percent a year ago. One brighter spot: a little more than half—55 percent–are able to get adequate financial advice.  Small companies seem to have a hard time finding good accountants and advisers, and cannot support full time CFO’s. 
  • Technology use and employee development have taken a hit. There also were notable declines in other areas, as well. Just 53 percent are using technology effectively, down from 60 percent a year ago. And, significantly, many more are finding it hard to train and develop employees successfully: 58 percent compared to 65 percent a year ago. Small businesses are also less successful in maximizing staff productivity and providing the right rewards.

Some areas only show a slight decline, however. It’s in the dimensions of customer service and compliance with laws and regulations that small businesses continue to hold their own. The vast majority say they’re highly successful in ensuring customers are satisfied and winning repeat business from current customers, both vital to revenue generation during a tough economy. And, despite often-cited claims that dealing with red tape poses an overwhelming burden, 91 percent report they have no trouble complying with laws and regulations. 

Social Media: A Minority Use It, But Successful Adopters Stand Out  

A dramatic increase in the adoption of social media at the beginning of the year has tapered off and holds steady at 24 percent. Most of those companies use Facebook® (82 percent), while a smaller percent use LinkedIn® (38 percent) and Twitter® (30 percent). 

  

 What’s changed over the past six months is why businesses are using social media. In fact, they seem to have adjusted their expectations for what it can do for them. For example, more expect social media to build awareness of their organization (77 percent) rather than the more-ambitious goal of attracting leads (71 percent), a reverse from the last survey wave. And they’re more likely to use social media to help them stay in touch with current customers (62 percent compared to 46 percent in December 2009).  

   

At the same time, small businesses feel they’ve been able to achieve these modified goals. Sixty-five percent say they’ve successfully used social media to stay engaged with current customers, up from 46 percent in December. And 64 percent have developed a greater awareness of their company compared to 52 percent last year. And while they don’t report a big return on their investment, most businesses are breaking even. They’re also more optimistic about the prognosis for the next 12 months. More than half (57 percent) predict they’ll make a profit from their efforts during that time.  

 As you might expect, successful social media users differ in some significant ways from other small businesses. They’re less likely to be one-person operations and more likely to be in professional services. And they’re more successful in using internet technology in general and in employing social media to find new customers. For example, 69 percent say they’re highly successful at making technology work effectively in the business compared to 49 percent of non social-media users. And 47 percent are effective at using technology to convert marketing leads into buyers vs. 33 percent of other small businesses. Also, their businesses are more likely to be start-ups or early growth and they’re generally younger, with less industry experience and more education than non social-media users.  

Still, using social media is filled with stumbling blocks for many companies. Forty-three percent feel it takes up more of their time to manage than they expected. And 29 percent say it opens up another can of worms, giving people a chance to criticize the company in a public forum.  

   

 Plans for Other Technologies are Mixed 

The number of small businesses using a host of other technologies dropped. Online advertising declined from 25 percent a year ago to 20 percent today. Usage of search engine optimization (SEO) also declined, from 26 percent to 20 percent. And 50 percent have a website, a 3 percent drop from June 2009.  

On the whole, there’s little evidence of plans to step that up over the next few years. The notable exception: websites. For example, 17 percent don’t have a site but plan to introduce one vs. 11 percent a year ago. And 67 percent have or are likely to have a site in two years.  

Why do small businesses have an online presence at all? The main reason for one-third of companies is to provide customer service. Two in ten use online technology to get customer leads. Secondarily, 30 percent are trying to build their business’ reputation.  

   

 The Role of Spouses in Small Business

The participation of a spouse doesn’t make much of a difference to business success during the startup phase. But after the company is up and running, it’s a different story. Companies that have spouses/significant others in a full-time role in the business are either highly or marginally competitive (54 percent) compared to firms where the spouse plays no role (46 percent) or acts as a silent partner (41 percent).  

 How do results differ when the owner is a man or a woman? For the 68 businesses where both owner and spouse work full-time, husbands tend to take care of technology matters (47 percent), wives attend to accounting and finance (45 percent) and both handle customer service (44 percent).  For the 109 companies where a spouse works either part-time or full-time, the break-down is similar: Fifty-three percent of husbands handle technology and 39 percent of wives are responsible for accounting and finance. The big difference: Only 33 percent share customer service.

Global Business Has Changed

Only 7 percent of firms get most of their business from selling globally, similar to six months ago. On the other hand, how they conduct business has changed. More companies are buying supplies from outside the country (18 percent in June 2010, up from 11 percent six months ago). And fewer companies (14 percent) are selling products and services globally compared to December 2009 (19 percent).  

Many small businesses doing business globally (44 percent) believe the Internet has provided a significant boost to their ability to sell to international customers.  Also, social media users are more likely to do business globally than other companies. For example, 13 percent get the bulk of their business from multiple countries vs. 5 percent of non-social media users. And 24 percent sell to customers outside the U.S. compared to 12 percent of other companies. 

  

Growth—and Expectations—Are Up

 Six months ago, more small businesses expected 2009 revenues to come in lower than the previous fiscal year (a negative 9 percent gap), but as of June, more expected 2010 to be a growth year than a decline from last year (a positive 8 percent gap).  Seventy-five percent expect the fiscal year to gain in revenue or see no change vs. 65 percent in December. As a result, more businesses expect to make a profit this year—58 percent, up from 47 percent six months ago. And fewer companies (14 percent) expect to show a loss in 2010, the lowest level over the past year. While most businesses say they’ve been highly impacted or somewhat impacted by the recession, the percentage hasn’t particularly changed over the past six months.  

Ultimately, owners remain happy to be running their own show. Small-business owner satisfaction has been steady over the past year, with 65 percent highly satisfied and 28 percent somewhat satisfied. Just 6 percent are dissatisfied. The bottom line: Small business owners like what they’re doing—and want to stay at it, despite the difficulties and challenges posed by this economy. 

You can download the full SBSI Wave 4 report here: Network Solutions State of Small Business Report June 2010 Wave 4

For more information about the previous research waves and reports, check out www.GrowSmartBusiness.com

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