SMBs are the foundation of the European economy, representing 99.8% of companies in Western Europe and employing two out of every three full-time employees. The COVID-19 crisis has already had a profound impact on the way businesses operate. The shock to supply and demand for small businesses means that a crisis of this magnitude could lead to the demise of many. Some industries and verticals have been more severely impacted than others. For all businesses, the safety of their employees is key, as is cash preservation. The smaller the business, the more severe the impact could be.
What Does SMBs Stand For?
In Europe, IDC defines small and medium-sized businesses (SMBs) as companies with fewer than 500 employees. The segment includes established SMBs as well as many digital-native start-ups and scale-ups.
Challenges Faced by Small Businesses
SMBs face unprecedented challenges to the entire value chain of their business. The economic precariousness brought on by the pandemic has lessened the demand for products and services produced by SMBs in some industries, with the OECD identifying transport, manufacturing, construction, wholesale, retail, air transport, accommodation, food services, real estate, and professional services as the worst affected.
This challenge is further intensified by the disruption of business networks and supply chains across Europe, which can be particularly damaging for small businesses more likely to rely on a limited number of suppliers. Cash is the most pressing issue for SMBs, which are making increasingly difficult decisions around staff redundancies, furloughing of staff, or closing their businesses until the crisis subsides. Remote work has become the norm for those of us not on the front line and though enterprise has in-built basic structures for teleworking, this is not always the case for SMBs. Companies have had to establish technical infrastructure in haste while upholding security best practice as best they can.
IT Spending Behavior and Customer Sentiment
IDC is running a buyer sentiment survey every two weeks to capture IT spending behavior and customer sentiment during and in the aftermath of the COVID-19 pandemic. When asked as part of the Wave 3 Survey (run from April 20 to 27), 84% of European SMBs said they expect their company revenue to decrease in 2020.
There is, however, some resiliency in terms of IT spend, with only 38% of SMB respondents believing they will be spending less on IT compared with their previously allocated budget pre-COVID-19 and 22% expecting to increase IT spend.
For many SMBs, digital transformation is no longer a matter of choice — it is an existential necessity.
The race to innovate has intensified and SMBs that use this time to transform their business models, engendering trust with their customers and elevating their presence digitally, will come out of the crisis stronger. Over the past couple of years, many SMBs were on the path to becoming what IDC terms “future SMBs” — data-driven, customer-centric, and highly automated. The economic ramifications of COVID-19 will only expedite this process for many SMBs that may come out of this stronger.
Financial Support for SMBs During the Coronavirus Crisis
There has been a wealth of SMB governmental support across Europe: an indication of the importance of this segment for the economic recovery post-crisis. Support has included temporary layoffs and sick leave, direct lending, deferral tax, affordable loans, and furlough schemes. Germany, for example, has set up a state fund (Wirtschaftstabilisierungsfonds) worth €400 billion to guarantee bonds, loan notes, and liabilities of companies. Similarly, France has set up a Solidarity Fund with financial aid of €1,500 to business owners who make less than €1 million in turnover and are forced to close or have experienced a loss of more than 70% in March 2020 compared with March 2019. Twenty-six countries in Europe are offering wage subsidies. On May 4, the U.K. announced “bounce back” loans of up to £50,000 to help small businesses with fewer than 10 employees and sole traders after the Coronavirus Business Interruption Loan Scheme (CBILS) did not do enough for small companies in need.
Immediate relief by compensating SMBs for loss of revenue has so far been the main aim, but structural measures are needed to fuel innovation and enhance entrepreneurship for SMBs in the wake of the crisis. So far, support schemes focus on short-term immediate relief, but there is a pressing need to establish plans to ensure that the SMBs that survive the crisis can thrive in the new normal. There are a few examples of this so far. Slovenia is offering aid for internationalization and measures to diversify export and import markets, and France, Slovenia, and Spain are offering support to SMBs adopting teleworking.
Vendors and Partners Have a Part to Play
SMBs will continue to struggle after the crisis subsides and vendors have a significant role to play in lifting small businesses up. The same survey reveals that 39% of SMB respondents believe they have received no support from vendors during this time. Some SMBs have received free subscriptions, free support, and flexibility with existing contracts. We need to see vendors understanding that the way they treat SMB customers during this time will be greatly rewarded in the future. Helping small businesses become future SMBs through marketing, cloud credits, and remote support will elevate a loyal base of SMB customers after government support runs out. Partners play an important role here too, as most vendors support this segment through partners, many of which are SMBs themselves. While most vendors are offering immediate support packages to their partners, it’s important to ensure partners are in a position to support their SMB customers’ transformation efforts in the longer term.
SMBs have been forced to adapt to the future of work and digitally transform at a rate that would not have seemed possible before the crisis. Once lockdowns loosen and government support runs out, the SMBs that survived the crisis will have transformed the way they operate on a permanent basis.