After a long economic winter with high inflation, flattening growth and persistent labor shortages, small businesses in the UK are looking forward to the rest of 2023 with a degree of optimism.
But – and this is quite a big but – the difficult trading conditions that have characterized the UK economy since the start of the Covid pandemic have left scars. Entrepreneurs may be looking forward to better times, but many are also struggling with trust issues. In practice, spending on marketing, recruiting and digital skills has been scaled back or suspended by some companies. And according to a new report published by Great Britain for Small Business in association with Pay clearly And Squarecould harm future growth.
The report is based on responses from around 1,000 small businesses in the UK. More than half are one-man bands and about 35% have 2-9 people on their payroll. Only a handful employ more than 40 people. In other words, the survey was designed to tap into the sentiment of those companies often described as the “backbone” of the UK economy while receiving relatively little attention.
At first glance, the outlook for these companies seems relatively positive, with just over 61 percent expecting to grow by 2023.
But the devil is in the details. For consumer-facing companies, Christmas is a crucial time of year. But for many, the 2022 holiday season – the first of the post-Covid era – has been a disappointment. Ten percent reported poor trading and more than 30 percent said it was not as good as usual. Companies that can increase sales in November and December are much better equipped to deal with difficult circumstances in the coming year. Poor Christmas sales take away an important cushion.
But the report’s authors are more concerned about a drop in investment. Nearly a third of companies have postponed marketing spend and 27 percent have reduced it. Hiring has also slowed down.
So are UK small businesses piling up trouble for the future? Small Business Britain was founded to be an advocate and voice for small businesses. I spoke with founder Michelle Ovens, CBE. first ask her how she would summarize the mood of the companies participating in the survey.
“There is a general consensus that the conditions are tough, but they will continue regardless,” she says. “Everyone feels how heavy it is, but there are signs of optimism.”
But Ovens says cutting back on marketing could be a goal of its own. “You can’t stop marketing,” she says.
True, but it’s perhaps understandable that some companies – quite a few, in fact – have looked at the trading conditions they face and have come to the conclusion that spending needs to be reduced, with marketing as an obvious contender. Unlike wages or other fixed costs, it’s something you can bend up and down.
That’s something Ovens acknowledges, but she’s urging small businesses with cash crunches to think about how marketing can be done more cost-effectively. “Companies can invest time instead of money,” she says.
One way to do that is to use digital technology – social media is a good example – to reach customers without spending huge amounts of money on advertising or traditional marketing campaigns.
But the study also found a decline in entrepreneurs’ willingness to invest in mastering digital tools. That’s not necessarily a problem if you’re already – say – a bit of a whiz when it comes to social media engagement or creating short films for Tik Tok – but not everyone is. Ovens says entrepreneurs need to brush up on their own digital skills: “Many entrepreneurs’ digital skills were frozen in time when they left their previous jobs to start a business.”
Ovens emphasizes that applying digital technologies – and not just in the field of marketing – does not have to be expensive. Cheap or free software and online courses are available. But it does take commitment and time.
And it’s not, as she acknowledges, a silver bullet. TikTok videos or a Facebook campaign won’t work for everyone. “But we would urge people to give it a try,” says Ovens. The results can be impressive.
A confidence deficit
Perhaps the bigger issue here is trust. When a business is bruised and battered by a combination of Covid, inflation and consumer tightening belts, owners can lose confidence in their own ability to sell or even make good decisions. Ovens says there’s a danger that when decisions are made, the driver tends to panic rather than have good strategic thinking.
And trust can be a fleeting thing. Hard won and easy lost in times of adversity. “I hear people say things like ‘I’ve lost my mojo,’ says Ovens. ‘But we’re talking about people and we all have our moments.”
What is there to do? Ovens recommends finding a mentor. Equally important, finding a “tribe” can also be helpful. Other entrepreneurs and advisors who can provide mutual support and trading information. More fundamentally, even taking a break can be helpful. Take a walk or take some time to think about the bigger picture.
The report also recommends taking steps to build resilience, with drawing up a new business plan as a good first step.
The optimism – albeit self-proclaimed – among small businesses is good news, but as trading conditions continue to be difficult, many will focus more on day-to-day survival than planning for long-term growth. That can cause problems later on.