SBSI Wave-5
Introduction
The competitive health of America’s small businesses is as low as it has been since the Small Business Success Survey began tracking at the onset of the recession. There continues to be a struggle to provide capital and find new customers, while there is an unprecedented lack of confidence in competing with big business. Yet, small businesses are starting to grow and return to the black. After reaching a low point in the summer, technology investment is on the rise and social media adoption continues to grow. Despite poor competitive health now, owners are becoming increasingly optimistic about the economy and their future business success. Over a quarter plan to add staff in 2011, and if they carry out their plans, will create 3.8 million jobs.
Because of the importance of the small business sector, which has traditionally accounted for over one out of every three jobs in the U.S., Network Solutions, LLC and the Center for Excellence at the University of Maryland’s Smith School of Business have partnered to track the competitive health of small businesses over time. The survey is conducted by telephone every six months, and five waves of the survey have been conducted to date:
(The methodology is discussed in greater detail in the last section of this report, About the Small Business Success Survey.)
Figure 1
A central focus of the Small Business Success Survey is competitiveness, which is defined here as the level of success a small business achieves in conducting the organizational activities critical to its short and long term viability. The more competitive a small business is, the more likely it is to meet the personal and business goals of its owners and show positive financial results. The Small Business Success Index (SBSI) is composed of 6 distinct dimensions that capture competitiveness, as shown in the report card in Figure 1.
The SBSI ranges from 0 to 100, and is currently 73, which can be viewed as a “C-”. This level is unchanged from June 2010, but remains at a low point since tracking began in December 2008 when it was 75. For the past two years, small businesses have consistently suffered from weaknesses in the critical areas of Capital Access and Marketing, while downward shifts have occurred on selective indicators of success within the index. Compared to approximately a year ago (December 2009), small businesses have experienced a significant drop in the critical area of Marketing and Innovation, particularly in their ability to identify new customers and to position themselves effectively against bigger competitors. Small businesses have also experienced a decline in the past year in the Workforce Competitiveness dimension, with less success in training employees and maximizing productivity. Coupled with a perceived disadvantage in hiring good people, this could pose a problem in the coming year as businesses try to expand.
This wave of the Small Business Success Survey also provides depth on issues and opportunities for small businesses, including the deployment of technology, the continuing rise of social media, awareness and use of mobile technology, hiring outlook, and an in-depth look at who is best suited to work in a small enterprise.
Executive Summary
Competitiveness slips. As stated in the Introduction, the overall health of small business is unchanged since June 2010, and remains a “C-”, compared to a solid “C” just over a year ago. More businesses than ever are now classified as “failing” in competitive health based on their individual index score – the share of failing small businesses is now 28%, compared to 19% two years ago just at the onset of the recession.
Marketing and Innovation, one of the most important dimensions contributing to competitiveness, experienced a significant drop in performance. This area slipped from a “C-” a year ago to a solid “D” by June, and remains at this level as of January. A key challenge faced by small businesses now is positioning their enterprises as having the same capabilities as their larger competitors. Only a third (33 percent) feel they are successful competing with the big companies, compared to almost half (47 percent) a year ago.
The Workforce dimension is another area where small businesses experienced a significant drop in competitiveness in the past year. This area slipped from a “C+” last year to a solid “C” in June, and remains at this level. Compared to a year ago, small businesses face greater problems with training and developing staff, and maximizing staff productivity.
A positive financial outlook. Despite competitiveness hitting a low in the summer and remaining there throughout 2010, small businesses are starting to experience tangible improvement in their financial situation. In 2010, 38 percent experienced a gain in sales over the previous year, compared to only 15 percent who experienced a decline; in comparison, more businesses experienced a decline rather than a gain in 2009. In 2009, a quarter (26 percent) of small businesses lost money, while only a sixth (16 percent) lost money in 2010.
Optimism for the future is at an all-time high. For the first time in two years, more small business owners think the economic climate is “improving” rather than “worsening” (35 percent compared to 19 percent). A year ago, more thought it was worsening than improving. Small businesses are also more optimistic about the outlook for the economy in the next 12 months than a year ago, with only 15 percent believing the economy will decline compared to 26 percent who believed this a year ago. The percent who feel they were impacted by the recession hit a peak last year and is starting to decline.
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