Small Business Success Index Highlights

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 outloo. 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.

Technology investments on the rise. One way that small businesses responded to improving sales last year was to return to investing in technology. The perceived importance of internet business solutions (IBS) such as websites grew in the past six months; 42 percent consider IBS’ highly important to their success, compared to only 33 percent back in June. The adoption of internet business solutions hit a low point in June, likely a result of recession-related cost cutting, but they surged back the second half of 2010. Over half of small businesses (56 percent) now have websites, up from 46 percent a year ago. Social media is now used by almost a third of small businesses (31 percent), up from 24 percent a year ago and 12 percent two years ago.

Over a quarter (27 percent) of small businesses have a Search Engine Optimization (SEO) plan, up from 19 percent a year ago. The only internet business solution in the survey that dropped is the purchase of online advertising in directories, a category that may be affected by the ability to use SEO and social media to find customers without spending. However, many small businesses plan to add online directory ads in the future.

The role of having an online presence in a small business has changed over time. The online channel is more important than a year ago as a way of generating leads for new customers, playing a primary role in this activity for 30 percent of businesses and a secondary role for another 16 percent. While websites are critical for small businesses, 55 percent update their sites less frequently than once a month, and 26 percent update them no more than once a year.

Small business continues to embrace social media. There is almost universal awareness among small business owners of Facebook and Twitter, while half are aware of LinkedIn. The most commonly used social media sites are Facebook (used by 27 percent of all small businesses) and LinkedIn (18 percent). The growth in social media is not cutting into investments in company websites, and is actually contributing to their expansion; 62 percent of social media users feel their use of this medium has no effect on their web investments, while 27 percent believe it will result in greater spending (only 9 percent would spend less or forgo their website).

Small businesses are still grappling with how to get the most out of social media, not surprising because so many users are “newbies.” Owners more often feel that their use of social media has fallen short of expectations (36 percent) than exceeded their expectations (9 percent), and this gap has increased over past survey waves. The main accomplishments from using social media include: staying engaged with customers, developing higher awareness of the company, and identifying and attracting new customers. When asked about their experiences to date with this medium, 63 percent of owners feel it has helped make their customers more loyal, but 56 percent feel it has taken up more time than they expected. Summing up the bottom-line, 25 percent of small business owners estimate that their investment in social media has made a profit while 15 percent estimate they have lost money; the remainder (46 percent) feel they broke even.

Owners are learning to deploy social media in a mobile context. Of those who use social media already, 47 percent use social media to send text messages to customers, while the same share (47 percent) use their mobile devices to respond to other people’s comments on social media sites.

Mobile marketing is still cutting-edge. Despite their use of mobile devices for routine interactions with social media, small businesses are skeptical that a broader use of mobile marketing can provide tangible value to their businesses right now. Most owners consider mobile marketing to be “ahead of its time” (24 percent) for small business or “cutting edge” (36 percent). Only 15 percent of small business owners believe that mobile marketing would be “extremely” or “very valuable” to their enterprise, and another 20 percent feel it would be “somewhat” valuable. This attitude is largely unchanged after owners hear more about detailed uses of mobile marketing.

Mobile marketing consists of a range of activities like texting information on promotions to customers, listing a business on a location based website, creating a mobile site, creating a mobile application, and advertising on mobile sites. The majority of owners are aware of each of these activities, but few use them or consider them valuable. The most relevant mobile marketing activity is listing a business on a location-based website. Almost half (48 percent) of owners consider this to be at least somewhat valuable to their business; 19 percent have already done this while 33 percent will have done so in two years if owners carry out their plans.
The future is hiring special people. While small businesses invested in technology in the second half of last year, hiring will become more important for 2011 to meet the growing demands of an improved economy. Many small businesses – 28 percent of the total – are planning on adding staff in 2011, while only 2 percent are considering reductions. The main reason for adding staff is to expand the business (73 percent), while 32 percent are trying to decrease the workload of existing staff who are struggling to keep up with the turnaround. If small businesses carry out their hiring plans, they will add a total of 3.8 million jobs to the U.S. economy in 2011.

Hiring may be a challenge, as less than half (46 percent) of small businesses believe they are successful in competing with other companies for good employees. Not everyone should work for a small business. According to owners, the types of employees who are best suited for a small business environment rather than a large business environment possess the following qualities: experience working in other small businesses, flexible mindset, and a broad skill set. Workers who like structure are advised to consider bigger firms for employment.

2011: A Year of Renewal. The past waves of the Small Business Success Survey highlighted the struggles of small businesses throughout the recession. One constant is that most owners are satisfied with their vocation – 61 percent are highly satisfied with being a business owner, while only 7 percent are dissatisfied. This level has remained relatively high over past waves despite the trials of the economy. Owners hit a low in terms of their perceived competitive health and ability to vie against big business, but they have started to make money and are optimistic about the coming year. Technology has and will continue to play a critical role in their success, while challenges may turn from finding customers to rebuilding staff.