The UK’s smallest businesses (0-9 employees) have a distinct set of pressures. Unlike their larger cousins, they lack the financial resources to hire specialist staff in areas like finance, IT and HR. This creates an environment where owners are constantly juggling the growth of the core businesses with additional tasks in wider business functions.
Despite this, they are often grouped together with businesses that can be nearly 30 times larger, all under the term ‘SME’. Governments, industry bodies and suppliers often treat them as one homogenous group, prescribing support, products and regulation which may benefit firms with up to 250 employees, but don’t factor in the specific needs of smaller businesses.
This mismatch – something we call the ‘SME fallacy’ – costs the UK’s smallest firms an average of £61,000 a year. This is because they are unable to start work on their core business until 2:36pm on Wednesday since they are juggling so many non-core roles.
This is also widening the digital divide for these businesses. As evidenced in our ‘Digital Drag’ research, if all small businesses digitised at the same rate as the top 20% of tech adopters, it could add £77 billion to the UK economy. However, for these gains to be realised, it is crucial the UK recognises the impact of the SME fallacy and finds ways to support its smallest firms.
A widening divide
Our research found leaders of the UK’s smallest businesses and sole traders spend less than half (46%) of the working week on their core jobs. As a result, owners of almost half (46%) of the UK’s smallest businesses say they have experienced burnout and stress by taking on too many roles at work. On top of this, almost one-third (32%) say they can’t take on new staff to grow their business because they are too distracted by operational duties.
While these issues are not exclusive to small businesses, their larger counterparts have the resources to solve them, often by employing specialist staff or digital technologies in ancillary business functions.
For example, 93% of medium and large SMEs (50-250 employees) employ a finance or accounting specialist, compared to 37% of the smallest businesses. Similarly, 84% of medium and large SMEs use finance and accounting software, compared with 58% of small businesses. This lack of in-house talent costs our smallest businesses nearly double the productivity gains of larger SMEs – 12.5% extra turnover annually – simply due to the fact it takes untrained workers longer to do tasks when compared to a specially trained employee.
Unfortunately, in the limited time small business owners have to address these problems, nearly half (44%) find it difficult to find specific guidance for a business their size. This means many small business owners don’t get the support they need. Only four in ten (42%) believe their industry, trade or professional body understands the pressures they face. This drops when it comes to governments and policy makers (20%), and the tech firms selling solutions to their challenges (33%). In contrast, larger SMEs feel much more supported; 54% think governments and policy makers, and 69% think tech firms understand their needs.
The outcome of this one-size-fits-all approach to SME support, and the comparative lack of internal resources, is a slower adoption of the very technology which could help the smallest firms.
Can we fix the problem?
Eliminating the SME fallacy requires a mindset shift from governments, tech providers and regulators. When bringing in new legislation, policymakers should specifically consider its effect on the very smallest businesses and ensure this is included as part of any wider impact assessment. Similarly, advice coming from industry stakeholders needs to be tailored so owners feel heard.
But it’s not all down to legislators. Technology providers – those claiming to understand the audiences they serve – must start speaking to small businesses in their own language. An overreliance on marketing jargon and technical terminology is holding everyone back. In fact, 40% of small business owners fail to see the relevance of new technologies. Without this understanding, they can’t hope to see the benefits materialise.
The SME fallacy is entrenched by a range of factors. While government legislation will only evolve so quickly, those providing ‘SMEs’ with products or support must understand how the challenges and needs vary significantly within that homogenous group. The UK economy, business productivity and the wellbeing of business owners all stand to benefit.
