A couple of months ago, Xero introduced a study that we commissioned through Forrester Consulting – The next chapter for small business: How to thrive in a changed world. The study explores the impact of COVID-19 on small businesses, and identifies some strategies that have proven successful in helping small businesses survive and even thrive.
Today, using the insights we’ve gained from this study, we want to take a closer look at how small businesses have weathered the storm brought about by the pandemic and how the behaviours of consumers have played a role in their response.
Consumer spending behaviours before, during and post COVID-19
Forrester Consulting asked more than 1,000 consumers about their spending behaviours before, during, and post COVID-19, and uncovered three key findings:
- Consumers significantly reduced, or even stopped spending their money with small businesses altogether, since COVID-19 hit. But, they do expect to pick this up again once the situation improves.
- Although they are spending less overall, consumers have actually increased their spending through digital channels. Digital spending during COVID-19 has increased significantly across all product categories that were surveyed, including goods we don’t usually buy online, such as groceries.
- And consumers aren’t just buying more from these digital channels, they’re also more interested in using virtual communities to engage with small businesses.
The small business response to changed consumer behaviours
So, the overall spend is down, but the digital spend is up and consumers are feeling more engaged than ever with their virtual communities. How have small businesses responded to this change in consumer behaviour? Well, it appears that they’re mostly aligning their practices with these new consumer behaviours.
One of the most significant findings from the study is that small businesses have really increased the speed at which they’ve adopted digital at the front end (consumer facing, such as online stores) as well as the back end (business operations, such as cloud hosting).
Perhaps not surprisingly, the businesses that are more proactive in using digital technologies report earning a much higher proportion of revenue online, as opposed to through physical stores. And perhaps even less surprisingly, the businesses that are thriving through this period are the ones that started their digital journey before the pandemic hit – they were more prepared and resilient than the businesses that shifted to digital because of the pandemic. However, it is clear that it’s not too late for others to catch up. What’s more, the research suggests those that rely on their support network of advisors – be it accountants, bookkeepers, financial advisors and/or technology advisors – are more likely to perform in a changing environment.
A shift in mindset towards digital
There’s no doubt that the pandemic has accelerated the speed and frequency at which businesses have embraced digital technologies. The types of tech investments or adoption that used to take years, now only take a couple of months – even a couple of weeks in some instances.
Before COVID-19 hit, 32% of the 1,000+ small businesses that Forrester Consulting surveyed reported using cloud solutions. Merely six months later, that number had increased to 49%. That’s an increase of 17% – a rousing endorsement that small business owners believe that embracing the cloud leads to better outcomes.
And small businesses are adapting their practises beyond just accepting digital payments. They’re taking it a step or two further. They’re investing more in online marketing and ad spending, and using more digital services to improve their operation and increase their agility to be more resilient in their operations.
They’ve started creating e-invoices and embracing value-added services like spending analytics to understand where they are spending, how much they are spending, and how they can better manage their expenses going forward. Many are also recording and submitting their tax digitally.
It’s clear that the trend towards cloud technology has accelerated, and this acceleration is going to continue post-COVID. Small businesses that are open to change, are embracing this trend, and are supporting their customers’ buying preferences through this disruption, are the ones that are thriving.
If you’d like to learn more about how COVID-19 has impacted small businesses, head over to our website. There, we list five key recommendations to help small businesses recover, and practical advice for business continuity, resilience and success. Or read the full study to learn more about its recommendations, top actions to take, and to dive into the details.