Business

Small Businesses Need Big Help

A waiter looks out of a doorway of a restaurant, New York City, November 13, 2020. (Andrew Kelly/Reuters)
Entrepreneurs don’t want to be lectured by McKinsey consultants about why AI can help their cupcake company.

Nearly every business suffered during the pandemic. Major retailers including J.C. Penny went bankrupt, and nationwide chains such as AMC Theaters may never fully return. However, perhaps no sector was hurt more than small businesses, which struggled to retain customers and keep costs low during the pandemic. Fortunately, we are seeing that small businesses are better positioned to rebound from the recent crisis than J.C. Penny or AMC. But they can do even better if politicians enact sensible policies that facilitate a strong economy.

The pandemic was a boon for some major corporations, especially tech companies, which could capitalize on e-commerce and Internet ad revenue. Economic growth is not a zero-sum game, but it’s still unclear how much of this growth came at the expense of local businesses. The Wall Street Journal reported that “only” 200,000 mom-and-pop firms closed in the last year. That would be a closure rate of around 8.5 percent. However, that number runs counter to a 2021 April survey that found that 22 percent of small businesses were closed, which is virtually identical to the number of businesses closed at the height of the pandemic.

This discrepancy likely arises from two measurement problems. For one, small-business closings aren’t easy to measure, because they rely on survey data and may be obscured by normal business cycles. Second, rates of small-business closure vary significantly between states. This is hardly surprising given that states responded differently to the crisis. There seems to be a correlation between harsh lockdown measures and small-business closures, with anecdotal evidence to that effect, but the trend is hardly linear.

The fact that this is all a bit confusing and muddled is precisely the point. Small businesses are a diverse group of firms; successful stimulus policies won’t come from a one-size-fits-all bill. But while we have only a muddy picture of our current situation, the way forward is quite clear: Small- and medium-sized firms are hurting, and the U.S. needs policies that help support individualized responses.

The connection between technological access and profitability has been a consistent theme in the research conducted on the relationship between small businesses and pandemic outcomes. Deloitte found that the vast majority of small businesses are not integrating technology enough to maximize profits. A similar study from the U.K. reported that the “limited adoption of productivity-enhancing digital technologies and capabilities” was observed “in particular amongst small and medium-sized enterprises.”

Again, not all small businesses use technology at the same rates or for the same purposes. A new report from the Connected Commerce Council, a nonprofit based in Washington, D.C., found that the difference between firms that integrated technology and those that didn’t increased during the pandemic. Furthermore, they found that “digitally uncertain” companies were three to four times less likely to use important features such as e-commerce or online hiring.

The integration of technology and business is a permanent shift in the brave new world of social media, near-ubiquitous Internet access, and on-demand service. Luckily, this new frontier gives small businesses a competitive advantage. As the Harvard Business Review points out, smaller firms are more flexible and can target customers without bureaucratic burdens.

Entrepreneurs don’t want to be lectured by McKinsey consultants about how “Big Data” can help their cupcake company. However, small-business owners are interested in learning about tech, especially if private companies will provide in-person tutorials. Research suggests that giving self-employed entrepreneurs the training and tools to integrate even one technological aspect will help them perform better.

In all, the supposed conflict between small business and big business isn’t genuine. Firms rely on one another for intermediate and finished goods each and every day. Small businesses need big companies to survive in the digital world, just as big companies need small businesses to buy ads on their sites. Everyone should celebrate that so many new small shops are opening.

In the wake of small-business closures, some have announced that there is a war on small businesses. This is simply untrue; policy-makers want to help small businesses. However, dumping stimulus money on firms is not a sustainable way of helping entrepreneurs. Instead, the U.S. must prioritize making technology and training more readily available to support the diverse landscape of local innovators. Redirecting stimulus funds into grants that help businesses expand the way they use technology would be a great start. Recent news on small businesses has been dire, but the future of local American innovation is bright.

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