Small Business Success Index (SBSI) January 2010 Results
The SBSI was established in December of 2008 and is an ongoing measurement (every 6 months) of small business competitiveness. Network Solutions and the University of Maryland’s Robert H. Smith School of Business have released the index’s third wave of results of telephone interviews with 500 small business owners during the month of December 2009.
Snapshot of the 3rd Wave Findings include:
Creativity as a Strategy for Success
Overall a Static Technology Environmentpan>
The Economy: A Silver Lining in a Dark Cloud
Download a copy of the full report click here.
Creativity as a Strategy for Success. Small business owners perceive themselves at a disadvantage in marketing and innovation. Common marketing methods for reaching potential customers include print advertising (37 percent), email marketing (24 percent), social media marketing (19 percent), telephone sales (18 percent), direct mail (17 percent) and broadcast advertising (14 percent).
Small businesses are highly successful in getting referrals from existing customers, but struggle to be creative and differentiate themselves. The major ways that small businesses differentiate themselves from competitors are:
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Superior customer service (78 percent)
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Higher quality products and services (76 percent)
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Creative ideas to address customers’ needs (65 percent)
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Lower prices (44 percent)
Among these four areas of differentiation, superior service and creativity are correlated with competitive success, while quality and low prices make little difference to small business success. Perhaps everyone claims to have high quality, making it a marginal strategy for differentiation, while cutting prices is not sustainable for small enterprises that lack the economies of scale to keep costs low.
Being creative is a success strategy for differentiation, but where do small businesses get new ideas for how to grow? The most common source is customers (68 percent). Other popular sources include:
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Newsletters and trade journals (52 percent)
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Competitors (50 percent)
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Employees (45 percent)
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Suppliers (41 percent)
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Conferences (38 percent)
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Books (37 percent)
Almost one out of five small business owners actively uses social media for a part of their business. The main types of social media uses include:
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A company page on a social networking site (75 percent)
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Posting status updates or articles of interest on social media sites (69 percent)
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Building a network through a site like LinkedIn (57 percent)
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Monitoring feedback about the business (54 percent)
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Maintaining a blog (39 percent)
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Tweeting about areas of expertise (26 percent)
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Using Twitter as a service channel (16 percent)
Does social media pay?
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58% small business owners who use social media feel the medium has so far “met expectations.”
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Another 12% feel it has “exceeded expectations”
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26%, feel it has “fallen short of expectations.”
The major accomplishments of social media: so far are related to marketing and service, and include:
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61% identifying and attracting new customers
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52% developing higher awareness of the business in its target market
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46% Staying engaged with current customers
Social media is not without problems for small Business Owners:
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50% of users feel it has used up more time than expected
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Only 17 percent feel social media has resulted in allowing people to criticize their business
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Only 6 percent feel social media has hurt the business image through negative comments more than helped it
How has social media affected the bottom line of small business?
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Looking at the past 12 months, only 22 percent believe social media use has been profitable; 19 percent believe it lost money, and 53 percent believe it just paid for itself.
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The future is brighter as small business owners learn to master the medium. Almost half (45 percent) expect social media to be profitable in the next twelve months.
Overall a Static Technology Environment. Many small businesses rely on various internet business solutions for marketing and operations. With the exception of social media, the prevalence of most of these solutions has not changed much in the past year, and a few have even dropped slightly. For example, web site ownership dropped slightly (4 percentage points) and is now at 46 percent. This static growth or decline in some applications is most likely due to the poor economy, with businesses cutting back or undergoing changes such as moving from an outside office to a home. Other solutions, such as online ads in directories, increased a few percentage points. There is a good chance that adoption of these technologies will accelerate if the economy recovers because a substantial share of small businesses plan to get new technologies like websites, online customer service and social media in the next two years.
The Economy: A Silver Lining in a Dark Cloud. The recession has had some positive effects on small businesses, including leading them to:
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72% find more efficient ways to operate
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47% find new products and services to meet customer needs
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43% become a better team
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31% reduce inefficient or unnecessary staff
However, the prolonged recession is also starting to have a demoralizing effect on small businesses. To illustrate:
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52 percent have discounted their products and services in response to the recession, compared to 40 percent who indicated they did so six months ago – this growing behavior correlates with failure (vis-à-vis the SBSI) and may be unwise because it saps margins and hurts quality perceptions
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43 percent have experienced lower staff morale, compared to 30 percent six months ago
As a result of the recession, many small businesses have also been required to do the following:
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Accept a lower standard of living (42 percent)
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Make pay cuts (35 percent)
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Reduce employee benefits (29 percent)
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Shorten the work week (25 percent)
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Make reductions in valuable staff (23 percent)
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Implement furloughs (13 percent)
Has the economy hit bottom? The economy is a major factor holding back the success of small businesses. The economic outlook deteriorated in the first half of the year, and has not improved between June and December.
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Half of small businesses – 50 percent – have been highly impacted by the downturn in the last 12 months, compared to only 36 percent a year ago. In the past six months, the recession has touched more small businesses. In June, one out of four small businesses (25 percent) had been minimally impacted by the recession, but by December, less than a fifth (19 percent) had been minimally impacted.
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There is more pessimism than optimism about the economy, and sentiment has not yet turned. Looking to the next 12 months, 36 percent of small business owners believe the economy will improve while 26 percent expect it decline. While more optimistic than a year ago, this sentiment is largely unchanged since June.
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A third of small businesses (33 percent) lost revenue between 2008 and 2009, while only a fourth (24 percent) gained.
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In June, 56 percent of small businesses had made a profit for their most recent fiscal year, but as the year closes, only 47 percent expect to make a profit in 2009. A fourth (26 percent) of small businesses expect to lose money in 2009.
Vanishing finances. One of the major challenges for small businesses during the recession has been access to capital, which is the most important factor driving their success but the area with the worst performance (D+). The sources of funding relied on by small businesses has changed markedly in the past 6 months as cash reserves and traditional funding sources have disappeared. The following are steps taken in the past two years and how this has changed since the last survey wave in June:
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Almost half of small businesses (46 percent) have met their capital needs by cutting their own pay; just six months ago, only a third (33 percent) had resorted to this step
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42 percent have had to take a loan from owner savings, compared with only 32 percent six months ago
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39 percent have relied on credit cards (compared to 33 percent in June)
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33 percent used a business line of credit (compared to 31 percent in June)
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21 percent used a bank loan (20 percent in June)
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14 percent took out a home equity loan (10 percent in June).
Few have relied on outside investors (5 percent) or SBA loans (4 percent), and only a fifth report having relied on no special funding sources in the past two years. Bank loans have become increasingly scarce. A fifth (18 percent) of all businesses indicate the source has gotten scarcer in the past year, compared with just 13 percent noting this in June; among those who took out bank loans, 43 percent believe the source is getting scarcer.
Striving for a dream. A full 60 percent of small business owners are highly satisfied with their profession, rating satisfaction 8, 9 or 10 on a scale of 0 to 10. Satisfaction levels have trended downward, though not significantly, since June of this year. Small business owners are most successful in minimizing costs. They are not highly successful in growing their businesses or building wealth. Success in meeting goals has not changed much in the past year, and the prolonged recession is certainly not helping.
Most small business owners started their business. The most common reason for doing so is to be one’s own boss (42 percent). Other less common reasons include a desire to own a company (27 percent), capitalizing on a business idea (27 percent) and a desire to build wealth (25 percent). Only 6 percent started their company because they could not find employment.
Global players. A final note on the story of small businesses in America is the surprising degree to which they operate globally. While globalization among big business is often associated with sending jobs overseas, small businesses are more likely to export goods and services outside the country than to import them.
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19 percent of small businesses sell goods or services to customers in other countries, and 9 percent consider the bulk of their business coming from outside the U.S.
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11 percent procure goods or services directly from suppliers in other countries
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Only 2 percent have employees in other countries.
The following discussion presents more detail on the SBSI, what this research is showing about the drivers of small business success, and the latest findings and trends on views on the economy, capital access, innovation and technology.
