Why SMEs need to double down on data and digitalisation
The coronavirus pandemic has sent shockwaves through the global economy. Businesses of all sizes are reeling from a crunch on both supply and demand. Staff members off sick or having to look after small children, disruption to supply chains, a significant drop in revenue due to lockdowns and a reduction in consumer spending have presented challenge after challenge.
Whilst most big corporations can swallow a relatively short period of inactivity, research 'OECD Coronavirus (COVID-19): SME policy responses' suggested that as of April, over half of UK SMEs had three months of cash reserve or less.
The same report details a ‘low level of digitisation and difficulties in accessing and adopting technologies’ within the SME sector. In the UK however, we have seen thousands of agile SMEs pivoting, creating new business models and embracing digital channels in order to keep their businesses afloat.
But what does ‘embracing digital’ mean for an SME and what more can small business owners do as the uncertainty rumbles on with a potential second lockdown on the horizon?
The new normal
The pandemic has made us even more reliant on technology. With almost half the working population operating from home offices in April (virtually all of which was due to COVID-19). Remote working tools such as Microsoft Teams and Zoom have seen a huge spike in users.
The UK Government called for workers to return to offices from the 3rd of August, but initial figures suggest that this is not happening. Many of you do not expect to see your staff return to the office until 2021. This means that for many businesses, particularly those at the end of a commuter route, working virtual is here to stay.
The value of data
At the centre of our digital economy is the data we use. Traditionally, data has mainly been used by big corporations such as supermarkets, using loyalty cards and big data analytics to generate customer insights. The value of these initiatives is something I saw first-hand whilst working for Nectar, helping to develop and incubate new propositions, such as Local Loyalty.
The Fintech Alliance recently hosted a fireside chat where Virgin CEO, David Duffy gave a great example of leveraging data. When a consumer takes out a mortgage with Virgin, you will automatically be connected to a removal company with a preferential rate and then offered a discount at the Virgin gym next to your new house. Using data, Virgin has extended its 'Virgin family' to the customer by offering an efficient service and good value.
However, it's not just the larger corporations that should be taking advantage of consumer data. In a physical environment, the customer relationship is cut short when they leave your shop or restaurant ‘after the transaction’. With an online purchase and by creating online customer communities however, businesses of all sizes can start a long term direct relationship with the customer and data building can begin.
As well as using data to build a better relationship with a customer, there is still a huge opportunity for small businesses to use data insights. The technology is there to give businesses better understanding of their employees, sales trends, supply chains and customer service for example.
Business development decisions in big business are always insight-driven and there is now no reason smaller companies shouldn’t adopt a similar approach. In uncertain markets particularly, data means knowledge and knowledge means better decisions.
The speed of digitisation
The speed at which some businesses had to get online was one of the greatest challenges many faced at the start of the pandemic - despite e-commerce growth over the last 20 years. Weekly online retail transactions made in the home and leisure categories have seen a 200% increase since the start of the year.
In the first two months of lockdown, there was a 300% increase in online searches for the term ‘contactless payments’.
A number of the new innovations available in the market for both consumers and small businesses have been enabled due to ‘open banking’ legislation. This legislation has brought competition to the finance market and means that banks can share customer information such as transaction data via Application Programming Interfaces (APIs). There are hundreds of use cases for open banking technology.
At Pollinate, we used the open banking infrastructure to create Payit for NatWest, which helps businesses collect and settle e-commerce payments in close to real time, without the use of a debit or credit card. For businesses, cash flow is at the forefront of their minds, now more than ever, which is why products like this are vital in helping streamline the cash collection process for businesses during the current crisis.
For restaurants, pubs and cafes adhering to social distancing guidelines, they had to quickly turn on online order management for their customers. We created Pollinate Orders in response, which was developed and deployed in five weeks by a team working 100% remotely, helping businesses easily adopt online channels.
It offers the rapid upload of menus, workflow management tools, pick-up and delivery options - a vital service that ensures businesses retain customers, even if they are spending and interacting in a different way.
Real businesses like yours contribute hugely to communities across the UK. After the financial crash in 2008, there was no dip in the number of small businesses despite the increase in administrations. Entrepreneurs like you know how to adapt and pivot in order to benefit from the shift in demand. What’s different this time round, is that many businesses that launched to meet demand after 2008 were still effectively serving the demand of a high street.
With COVID-19, that community is now online. While a restaurant may not wish to operate purely via Deliveroo, and personal trainers are unlikely to remain entirely committed to their webcam, as lockdown eases it seems likely that some changes will stick. An added benefit to moving online is that through social media and digital platforms such as Zoom and by moving to e-commerce and home deliveries, small businesses have been able to expand their immediate geographic location to a national or even global scale.
The pandemic forced the hand of thousands of you to digitise. For those that have survived or even thrived since March, the battle is not over. With a looming recession and a significant change to our normal day to day lives for the foreseeable future, you need a medium to long term game plan beyond meeting the monthly payroll.
Recessions often bring about a 360° review of business efficiency - a closer look at costs and staff effectiveness for example. I would urge you to also look at your providers and service partners - don’t settle for ‘making do’ - particularly when it comes to banking partners, which should act as a vital part of your business ‘team’ in good times and bad.
The small business market is potentially hugely lucrative for banks and there are large gaps between those that do it well and those that don't. In times like these, SMEs will be actively looking at the innovative products and services available in the market - and there is much more to a business bank relationship than just a current account.