Small businesses with growing revenue and those with revenues over $150,000 are more likely to adopt innovation strategies for growth. Meanwhile, businesses with fewer resources, such as those with declining revenue and those with revenues under $150,000, are more likely to implement cost-cutting measures as a growth strategy. Overall, small businesses view marketing as their most important strategy. Of those that have implemented at least one growth strategy, 23% say that enhanced marketing is most important to growth. Many of these companies are integrating artificial intelligence (AI) into their business. Nearly all of them believe that AI is effective in achieving their growth goals.
these are”Innovators and Cost Cutters: Growth Strategies for Small and Medium-Sized Enterprises“, PYMNTS Intelligence The report examines the growth strategies that small and medium-sized businesses have implemented over the past year and is based on findings from a survey of 517 small and medium-sized businesses conducted between April 5 and April 26.
What is at stake?
Small and medium-sized enterprises artificial intelligence It has proven to be an effective tool among those who have tried it.
Small businesses remain focused on growth, even in the midst of a rough economy. Last year, we found that 91% of small businesses adopted at least one strategy aimed at growth. Most businesses have implemented strategies aimed at innovation and expansion. However, struggling businesses are focused on implementing cost-cutting strategies to grow. Whether a small business adopts a cost-cutting or innovation strategy, there is one strategy that is widely available to all small businesses: AI. Of the small businesses that have tried AI tools, 96% see AI as an effective tool to streamline tasks and innovation. Businesses that are at highest risk and have adopted cost-cutting strategies have benefited the most from AI, which improves menial tasks through automation.
Key findings
Nearly every small business used at least one strategy aimed at growth last year.
Conducted by small and medium-sized enterprises that have been in business for less than five years At least one growth strategy last year.
SMBs are constantly adapting to external pressures and doing their best to keep their business growing. Last year, 91% of SMBs implemented at least one strategy to grow their business. This was true for 97% of SMBs that were in business for five years or less. These young SMBs face the dual challenge of developing new business and finding a way to do things that work for them.
What exactly are these companies doing to grow? Small businesses are most likely to increase marketing, expand their products or services, and raise prices. Overall, these companies view marketing as their most important growth lever. In fact, 23% of small businesses that implemented at least one growth strategy said marketing was their most important growth strategy. Building out more products or services was the most important strategy, compared with 18%. For a similar percentage of businesses, raising the prices of some products and services was key.
Rising prices indicate that these companies are struggling to ensure their processes are cost-effective. The data suggests that these companies are taking a strategic step to compete for growth in an environment of economic pressures such as high inflation and commodity prices.
Small businesses with more resources are more likely to utilize innovation strategies for growth.
PYMNTS research categorizes the types of growth strategies implemented by SMBs into innovation and cost-cutting strategies. Companies pursuing innovation strategies aim to expand their offerings or customer base, while companies pursuing cost-cutting strategies aim to reduce the cost burden for SMBs. Data shows that SMBs want to focus on innovation strategies, but can only do so when economic conditions are stable.
Used primarily by small and medium-sized businesses experiencing declining revenue Cost Reduction Strategies last year.
Small businesses with growing revenue are more likely to adopt innovation growth strategies. Small businesses with fewer resources and declining revenue are more likely to adopt cost reduction strategies. For example, 80% of businesses with growing revenue implemented an innovation strategy last year compared to 61% of businesses with declining revenue.
Small businesses with declining revenues prefer cost-cutting strategies. In fact, 48% of small businesses with declining revenues are primarily implementing cost-cutting strategies. Only 27% of small businesses with growing revenues did the same. However, a focus on cost-cutting strategies can stifle innovation in resource-poor small businesses. As a result, these small businesses have fewer opportunities to invest in product and service expansions and marketing.
Overall, resource-rich SMEs are more likely to undertake innovation strategies, while resource-poor SMEs must focus on revenue before embarking on more fruitful but costly strategies.
Small businesses with declining revenues prioritize cost cutting over innovation.
SMB resource levels influence the number of strategies they implement: Companies with over $1 million in revenue and growing revenue implement an average of 1.7 innovation strategies, while companies with less than $150,000 in revenue implement 1.1 innovation strategies. Companies with declining revenue implement only one innovation strategy.
Average number Innovation Strategy Small and medium-sized enterprises conducted the survey last year.
Only SMEs with declining revenues engage, on average, in cost-cutting strategies (such as cutting staff, reducing production costs, and raising prices) rather than innovation strategies. Companies with declining revenues engage, on average, in 1.2 cost-cutting strategies.
On average, 37% of small businesses use AI, but 51% of businesses with growing revenue are using AI.
AI can be a useful innovation tool for these businesses, from automating tasks to improving operations and services. Businesses with growing revenue and those with revenues over $1 million are twice as likely to use AI than those with declining revenue or stable revenue. Of businesses with growing revenue, 51% say they are currently using AI. The difference between these businesses and those using only cost-cutting strategies is stark: only 19% of businesses cutting costs say they are currently using AI.
Small and medium-sized enterprises Loss of income They said they had never considered using AI.
Small businesses with fewer resources are less likely to understand the benefits of using AI, with 69% of small businesses with declining revenue saying they have never considered using AI, and conversely, only 36% of small businesses with growing revenue saying they have never considered using AI in their business.
But how exactly are SMBs adopting AI using it? Automating routine tasks and improving the quality and reliability of business processes are common uses among these companies: 60% are using AI to automate tasks, and 52% are using AI to improve the quality and reliability of processes.
Data shows that AI can have a greater impact on the growth of resource-rich companies. Companies with growing revenue and those with over $1 million in revenue are more likely to use AI to improve the quality and reliability of their processes. Meanwhile, companies with fewer resources are more likely to use AI for automation, suggesting that the resources they spend on AI are focused on improving routine operations.
The small businesses that are most satisfied with AI are those that use it for tasks that go beyond automation.
Businesses using AI agree, with 96% saying AI is at least somewhat effective. This broad agreement means that these companies' adoption of AI adds value regardless of economic conditions. In fact, struggling companies find AI nearly as effective as non-struggling companies. More than 84% of cost-saving SMBs using AI find it very effective. The same is true for companies unlikely to survive in the next two years, with 89% finding AI effective. This data suggests that the SMBs whose businesses need the most help are the ones seeing the most immediate value from AI.
Nearly all SMBs that use AI believe it is at least somewhat effective, but those that use AI for reasons other than automation are the most likely to say AI is very effective. SMBs that use AI to improve the quality and reliability of their products or services are two times more likely to say AI is very effective compared to somewhat effective, suggesting that AI can be especially useful for these businesses when it is used to generate ideas and insights.
Conclusion
SMBs execute the growth strategies they see best for their company. For some companies, this leads to innovation and new products, while others are resource-strapped and need to cut costs. But cost-cutters and innovators use AI to increase efficiency. Of SMBs that have already started using AI, nearly all believe it is effective in meeting their needs. 96% report that AI is effective. Companies at highest risk find the most solace in AI's potential to even improve menial tasks through automation. SMBs that have yet to harness the benefits of AI may simply not realize what they're missing out on.
methodology
“Innovators and Cost Cutters: Growth Strategies for Small and Medium-Sized Enterprises“, PYMNTS Intelligence The report is based on a survey of 517 small businesses conducted between April 5 and April 26. The report examines the strategies these businesses are implementing to grow. The sample included small businesses of various sizes and industries, with 27% having revenues of more than $1 million and 36% having revenues of less than $150,000. These businesses included retail (17%), construction (18%), hospitality (9%) and professional services (11%).
PYMNTS Intelligence April 2024 SMB Growth Monitor ReportMain Street small business revenues growing faster than GDP,” for many.
