Despite unprecedented challenges, many small to medium-sized businesses (SMBs) around the world have shown remarkable resilience and capacity to reinvent themselves. Many of the actions taken by the most effective large companies are mirrored (albeit on a smaller scale) by higher-performing SMBs. Leading firms in both size categories had the financial resilience, organizational capabilities, and strategic focus to continue to invest and adapt throughout the crisis. Most notably, they accelerated digitization, reorganized and reskilled for operational efficiency, and became more agile. Now is the time to take inspiration from companies that have thrived and to build resilience for the future. Small and midsize businesses that heed the lessons from this crisis are well positioned to weather the next one.
The Covid-19 crisis exposed stark differences in the fortunes of different small and medium-sized businesses (SMBs). Well-capitalized startups have weathered the storm better than cash-poor community businesses; manufacturers of PPE equipment have experienced unprecedented demand while hospitality venues have been shuttered; and digitally enabled retailers have been able to shift delivery and customer services online, pivoting into entirely new Business models. While the overall shock to SMBs has been serious, some have survived, and even thrived. It’s not too late for others to adopt the practices that made those SMBs successful in such a tumultuous environment.
In April, the OECD estimated that, across 32 countries, 70 to 80% of SMBs had experienced a drop in revenue of between 30 and 50%. Larger businesses have been slightly less hard-hit as a group, but the pandemic amplified a divergence between leading companies and the rest. In the U.S., the revenue of companies in the top decile by economic profit was flat between the third quarters of 2019 and 2020, while revenue for other companies declined by 11%.
Many of the actions taken by the most effective large companies are mirrored (albeit on a smaller scale) by higher-performing SMBs. Leading firms in both size categories had the financial resilience, organizational capabilities, and strategic focus to continue to invest and adapt throughout the crisis. Most notably, they accelerated digitization, including automation and shifts to online channels and remote or hybrid work; reorganized and reskilled for operational efficiency; and became more agile, increasing the pace of both product and Business model innovation.
Such transformations could potentially produce a period of rapid economic progress once the crisis abates. Recent McKinsey Global Institute research found that productivity growth could be accelerated by 1% annually until 2024 in the U.S. and six large European economies. However, this upside can only be captured if demand growth is robust; the productivity-enhancing actions that leading firms take are replicated across the rest of the business population; and governments, companies, and individuals alike invest in their skills (in particular, skills for the future).
Whether due to future waves of the pandemic or other forces, there is likely to be some further economic turbulence ahead. Here are a few lessons leaders of small to medium-sized businesses can take from companies that have been successful during the crisis.
The world of business has, of course, been moving online for a while. Pre-pandemic, more than 80% of SMBs in the U.S. and Europe had a company website, and more than two-thirds had some employees working via mobile devices, according to European Commission data and a 2019 survey by the National Small Business Association. Social distancing, lockdowns, and remote delivery during the pandemic catapulted many businesses much deeper into digital: Cloud-based solutions, video communications, and online sales have become commonplace.
The businesses that have leveraged digital the most are those that already had digital experience.
