6 strategies for SME survival

As SMEs continue to struggle through the pandemic, here are six vital strategies for directors to improve the resilience of their business through COVID-19 and beyond.

There is no doubt that off the back of the coronavirus lockdown many businesses are struggling. The small business sector, in particular, has been hit hard, suffering twice the impact with regard to job losses as big business, according to data released by accounting platform Xero. The Small Business Insights research, based on aggregated and anonymised data from the platform’s almost one million Australian users, examines a number of indicators, including employment and revenue.

Data released in June shows the number of casual jobs in the small business sector fell by a quarter over March and April, while the total number of jobs (including full and part-time) fell 13 per cent. The sectors worst affected were hospitality, which recorded a fall of 40 per cent in employment; and arts and recreation, with a 29 per cent fall. The most resilient sectors were construction (one per cent fall), transport (three per cent) and professional services (four per cent).

Analysis of revenue from March and April shows an 11 per cent decline in revenues year on year, with hospitality falling the most at 51 per cent, and arts and recreation down 49 per cent. Some businesses, though, are thriving.

Trent Innes MAICD, managing director of Xero in Australia and Asia, says the businesses that have continued to perform strongly and are well positioned for the future are the e-commerce, digitally-based businesses, and those that have reoriented their business model to access and engage new audiences outside of their traditional customer base. Businesses were already on the journey to digitisation, he says, but COVID-19 has accelerated this.

Innes says many boards and business leaders will be re-evaluating their business models to ensure they remain relevant and can support the next phase of the business. The organisations that will thrive are the ones that can find clarity in the uncertainty and successfully manage the factors they do have control over. He outlines what business leaders can do to improve the resilience of their business for the post-COVID world.

1. Invest in technology and tools

A recent Small Business Insights report, based on pre-COVID data, showed the impact of technology spending on small business outcomes, with businesses that adopt and invest in technology being 68 per cent more likely to see growth. However, only one per cent of small businesses were investing their turnover into tech.

Australia has enjoyed good times for a long time and the impetus to innovate and invest has not been there, says Innes. However, during the crisis, tech solutions have helped businesses stay in touch, pivot and access new customers and markets. He believes tech investment will increase and that small business is much better placed than big business to access and deploy new technology quickly.

While online conferencing tools such as Zoom have been a lifeline for businesses of all sizes, more small businesses are starting to appreciate available tools that can help them run their business more effectively. From managing cashflow, simplifying bill payments, enabling the digital signing of documents, automating approval processes, recovering debt, completing compliance work, onboarding new clients, and acquiring and engaging new customers, the implementation of the right technology can help small businesses increase revenues, lower costs, improve payments times, streamline processes, improve efficiency and meet the demands of a remote workforce. Xero’s platform also connects users to an app marketplace with more than 800 third-party apps. Machine learning is being used to suggest appropriate apps based on the information provided by the user.

We are heading towards a tipping point, says Innes. Where previously a lot of these things were a “nice-to-have”, they’re now becoming a “have-to-have”, where you really must be on a digital platform to interact with your customers, government agencies, your staff and the people who support your business. At a time when many businesses are considering de-prioritising technology projects as they deal with the more immediate threats of cashflow, cost management and business survival, those that do invest are more likely to set themselves up for future success.

2. Ensure clear oversight of your financial position

Businesses with clear insight into their financial position can make adjustments quickly, says Innes. When your revenues suddenly become unknown, you need to be able to manage your expense items and cashflow gap as best you can.

In the three years since Xero began tracking, data shows that on average, 50 per cent of businesses are cashflow-positive in any given month. In times of prosperity, it’s fine to operate month to month, says Innes, but in scenarios such as this pandemic, many businesses have come under a lot of pressure. With economic uncertainty looking set to continue, having accurate financial information available in real time makes it a lot easier for businesses to control their cash and recognise the levers available to them.

3. Prioritise values over culture

In a similar way to profit (or loss) being an output of the business’ activities, culture is an output of all the small moments of truth in an organisation, says Innes. “People try to manufacture culture, but culture is an output of purpose, behaviours and values. Values don’t need to be explicitly stated, but they do need to be explicitly demonstrated,” he says. The values of the business must be reflected in the behaviours of its leaders and its people.

Unlike rules and procedures, which may not scale and can damage employee engagement, values can scale as the business grows. “If you get employees engaged and believing in your values and living the values, they’ll make good values-based decisions about your customers, themselves and the business.”

Innes, who joined the company seven years ago when it had 30 staff and has overseen its growth to more than 700 employees, says if you look at the companies doing well, a disproportionate number have a great workplace culture. One of the key factors, he says, is hiring for the right fit in terms of attitude and values. He believes this also leads to a diverse and inclusive environment. But while it takes time to build a strong culture, this can be killed very quickly, and when a business starts running culture workshops, it can be a sign that it has lost its way. When the culture is not where it needs to be, leaders should reflect on whether the organisation’s values are being modelled and rewarded effectively.

4. Trust and empower your people

People have adjusted quickly to new ways of working and many won’t want to go back to the way things were. Where business leaders may have previously been doubtful their workforce could be productive and accountable working remotely, COVID-19 has proved it can be done. Given we are now better connected than ever before, this represents a significant opportunity to redefine the way we work. Innes is a strong believer that if you empower people, most will pay you back. The large majority of employees want to be productive and contribute. Those who don’t will get found out. Businesses looking to attract and retain good employees will need to trust employees and be flexible in their approach to the work environment.

5. Re-evaluate your strategy

No matter what size business you are, you need a clear and articulate strategy for the future.

“Strategy at the end of the day is about making choices,” says Innes, “about where you invest your capital, be that money or time. Then it comes down to whether you have the right people who can articulate what you want to achieve and execute on it. Strategy, people, execution.”

He says that while many businesses will not survive, it may be the case their business model wasn’t right and COVID-19 has exposed this more quickly. “It’s a great time to reflect and ask, ‘Is my business model suitable and sustainable for the environment we now find ourselves in?’ And to have an honest look at whether you need to pivot, not just for COVID times, but for the rest of time.”

Off the back of any period of uncertainty, it is critical for directors and business leaders to clarify what’s important and review how they want to take the business forward.

6. The next generation of small businesses

There will be a contraction in the sector. “The reality is that a lot of small businesses disappear each year anyway, and a lot get created, it’s a net/net effect,” says Innes. But the small business sector is resilient and Innes is confident we will see a huge wave of innovation off the back of the crisis.

Historically, after an economic downturn, there is a spike in business creation. In 2008, in the middle of the GFC, new business creation dropped to 10,000 businesses. The year after, it jumped to 65,000. Innes says that given we’ve never seen anything like the scale of this coronavirus pandemic, he expects to see a huge jump in business creation over the next 12 months and is fascinated to see the innovation that will be spawned.

“The quickest way back to economic prosperity in this country is going to be through small business. We need to get confidence back up and support [the sector] as best we can. Small business is where true innovation, the next generation of jobs and economic prosperity comes from — and it’s also [part of] the Australian culture deep down. We can play a massive part in helping with the recovery.”