Westpac has released the quarterly Westpac-Melbourne Institute SME Index (Index), which aims to provide information about the economic health of Australian small and medium-sized enterprises (SMEs). The Index shows SMEs are disappointed with current business conditions – the Q2 Index has fallen to 83.0, down 14.4% from Q1.
While the Index covers many more criteria, “It shows SMEs are working harder and are increasingly looking to technology to reduce the burden of administration. Industries such as professional services and businesses under five years old are embracing technology at a faster rate than those older than five years, with 98.7% and 91.1% of SMEs respectively managing admin through new online tools and digital solutions,” Westpac’s Julie Rynski, general manager SME, said.
Other highlights include:
- 31.4% of SMEs reported an increase in working hours over the past year;
- 17.3% spend over 40% of their time on administration; and
- 84.6% manage the majority of administration (e.g. bookkeeping, payroll) through software tools or apps;
Westpac senior economist Matthew Hassan said there were some contributors to the current subdued results in the Q2 2016 Index.
“The second quarter is typically a slower one for many Australian businesses, but these results suggest SMEs are coming under even more intense pressure than usual. The ongoing downturn in the mining sector, cooling housing markets, and still subdued consumer spending look to be combining with a notable increase in competition. The latter may be of particular concern for many SMEs as shown in this quarter’s survey while most SMEs are still seeing sales up on a year ago, a significantly larger majority are reporting lower profits. The implied contraction in margins is a clear sign of heightened competitive pressures,” he said.
Hassan explained what factors may affect confidence over the next quarter, “Fortunately there is some relief ahead. While competitive pressures are likely to remain fierce, the RBA’s May interest rate cut should give some support to demand. The federal budget also introduced a range of measures directly aimed at supporting SMEs, including a company tax cut from 1 July. With the RBA expected to cut interest rates again in coming months, SMEs should see at least some improvement in their bottom lines. Whether that is enough to tip the balance sentiment-wise remains to be seen.”
The Australian Bureau of Statistics has an interesting statistic – 97% of all businesses are small, employing under 19 staff. Of that 61.9% are sole traders (no staff), 25.3% are micro (1-4 staff) and 9.7% employ 5-19 staff. The medium sector (20-199 employees) is 2.9%, and the large sector (200+) is just .2%. SMEs are the backbone of Australia.
I see a lack of optimism in the SME area today, and it is not just about boring election campaigns. One universal thread is about the disruption being thrown at them from every angle.
- Restaurants are losing business to on-line delivery companies or suffering because they don’t have online booking systems.
- Cabbies (all self-employed contractors) and the impact of Uber/Go Catch.
- Retail clothing, shoe and accessory stores are losing big time to online stores with liberal return policies and the convenience of custom delivery times.
- Smaller accommodation operators are losing to AirBnB or being overlooked due to the might of booking engines.
- Local independent food stores (mainly IGA) are being gazumped by lower online delivery prices.
- Even the local dry cleaner has been affected by an online service.
I could go on – but suffice to say that SME is where the disruption first occurs before it goes mainstream.
The key is to meet these disruptors on a level playing field, and it is not as hard as you may think. In all the cases above movement to the cloud; adopting sharing economy tactics; using OPEX instead of CAPEX (capital expenditure) to match cash flow to expenses; and just taking some time out to think about how to embrace eBay or Facebook or the many other marketing or sales avenues.
One local small business I know of employing 11 full-time staff will, just by moving to cloud-based VoIP phone, Microsoft Exchange/Office 365, and MYOB, and having a mobile cloud ordering/delivery/payment app written, expects to save over 30% of its admin/process costs. It also expects to free up over 30% of its workforce and redirect them to sales and marketing – especially sales data analysis and data-driven campaigns. Where its costs and gross margin lines had intersected and crossed, it now feels it will have another few years before it has to reinvent the business again.
Prime Minister Malcolm Turnbull urged Australians to embrace disruption saying: “The Australia of the future has to be a nation that is agile, that is innovative, that is creative. We can’t be defensive; we can’t future-proof ourselves. We have to recognise that the disruption that we see driven by technology, the volatility in change, is our friend if we are agile and smart enough to take advantage of it.”
Regardless of politics, he is 100% correct – SMEs that don’t embrace digital disruption are an endangered species. At some point soon digital disruption will happen to your business and it is better to start the digital transformation now.
Digital transformation includes:
- A mobile strategy because that is where most of the sales will be made;
- A data-driven marketing strategy to find new customers;
- A new web strategy based on content and helpful "experiences" – not just an advertisement;
- A search strategy – clear definitions of what you do to get into the early results;
- A social strategy to build your community;
- A massive simplification of business process including throwing out legacy systems for cloud-based ones;
- A retraining strategy to focus staff on :what can be"; and
- Do what you do well – jettison what you don’t.