Quick Stats

Broad Effects of COVID-19

Utilization of Digital Tools

Three Digital Strategies

The Digital Safety Net

Challenges to Digital Adoption

93% of U.S. SMBs were disrupted by COVID–19.

They experienced effects across the board: 43% reduced hours of operation, 30% saw reduced customer demand, 28% had disrupted supply chains, and 20% laid off employees.

Operating U.S. SMBs project an average 16% drop in annual revenue.

Not surprisingly, the most heavily impacted industries such as Travel, Entertainment, and Food Services project above-average 2020 revenue decreases of 20–25%.

Black, Latinx, and American Indian–led businesses are roughly half as likely as white–run businesses (24–28% vs. 49%) to have received aid through public loans like PPP.

Unfortunately, devastated sectors like Travel and Food Services are also disproportionately managed by minorities.

68% of SMBs found digital tools either essential to their business or used in an important supporting capacity pre-COVID-19.

Nevertheless, only 45% felt digitally prepared for the pandemic when it actually arrived.

COVID-19 expedited SMB digital momentum: nearly 3–in–4 increased their use of digital tools, particularly video conferencing (38% of all SMBs).

This was despite SMBs typically already using at least a basic set of digital tools (e.g., two–thirds have a business website and social media).

85% of SMBs say COVID–19 made them rethink their approach to digital tools.

For example, 54% of Arts, Education, and Entertainment SMBs increased video conferencing to deliver what are traditionally in–person services.

A majority (53%) of SMBs found digital tools more helpful to them during the COVID-19 than before it.

Most SMBs (53%) also plan to continue to use more digital tools in their business, even after the pandemic.

SMBs in some industries, such as Retail, showed relatively high digital preparedness for COVID-19.

Retail SMBs typically used digital payments (76%), websites (71%), and social media (72%) pre-COVID-19 and a majority (64%) increased use of these during COVID-19.

92% of SMBs are using one of three digital strategies.

“Drivers” (35%) view digital tools as essential and already used many pre-COVID-19, while “Maintainers” (24%) have a limited view of digital tools and typically only use a few basic ones. “Adopters” (33%) see the value but haven’t yet taken advantage.

Leaders of Digital Drivers were on average younger, more racially diverse, and significantly male–biased (71%).

Maintainers, on the other hand, tended to be older, less racially diverse, and slightly male–biased (57%).

These three strategies were not highly associated with urban, suburban, or rural location.

In other words, the micro-location of a business doesn’t determine the level of comfort with digital tools or how they are used.

Digital Driver SMBs anticipate 4X better revenue for 2020 compared to the less prepared Digital Maintainers.

While virtually all SMBs were disrupted by the pandemic, Drivers only anticipate a 7% revenue drop, vs. the 29% drop anticipated by Maintainers.

The Digital Safety Net is associated with better revenue outcomes during COVID-19.

The stronger a given SMB’s pre–COVID-19 digital preparation was, the more likely they were to lean into their tech infrastructure during the pandemic.

States with a high share of Digital Drivers show stronger overall SMB revenue vs. states with a high share of Digital Adopters or Maintainers.

There was a strong correlation between statewide SMB digital sophistication and revenue projections.

While COVID-19 created a greater urgency to adopt digital tools, there are two key barriers — information and cost.

Among other factors, 49% cite information and skills gaps, while 45% report cost and return on investment as challenges.

A majority of SMBs (52%) have had trouble accessing working capital during COVID–19.

Without capital, SMBs can’t innovate. And those without business savings or incoming revenue were hit particularly hard, with many turning to loans.

On average, larger SMBs are faring about 8X better financially than smaller ones during COVID-19.

That said, across all business sizes Digital Drivers anticipate better 2020 revenues. To some degree, it seems that use of digital tools can counterbalance disadvantages of an SMB being tiny.

Insights and Analysis

Understanding SMB Digital Use Before and During COVID-19

Measuring the Effects of COVID-19 on U.S. SMBs

Overview

In order to understand how and to what degree SMBs — those who have stayed operational during COVID-19 thus far — have leveraged digital tools to weather the storm, we must first understand exactly how their businesses were impacted, and how that impact has been distributed across industries and other groups.

Our research found that SMBs have been disrupted across all groups. Even among the better–faring ones, there are still many core business challenges to be dealt with. There are also noteworthy differences across industries, with some like Travel being hit particularly hard, and Manufacturing, whose SMBs have been doing relatively well. Our data also show disparities among racial groups, suggesting that some, however unfairly, have been hurt more than others by COVID-19.

Importance

These data form the foundation for understanding not only the results throughout the remainder of this report, but also for informing the recommendations to follow.

Recognizing that, for example, the business operations issues most top of mind for SMB leaders are retaining current customers and attracting new ones is relevant to understanding what digital tools they should deploy.

Understanding that underrepresented minorities are overrepresented in some of the hardest hit industries such as Travel and Food Services provides directionality on where public resources might help the most.

No major aspect of business operations was spared from the effects of the pandemic, with 93% of all SMBs reporting being disrupted in various ways, the largest being 43% experiencing reduced hours during COVID-19.

SMBs operational at the time of our survey predict an annual revenue reduction of 16% on average, but industry–specific effects vary 5X, with in-person and services related industries hit the hardest.

Business leaders of color running operational SMBs are overrepresented in several of the most impacted industries, including travel and food services.

From recovering from the damage already done to thinking about how to transform and innovate, SMBs need all the help they can get preparing for a “new normal” after COVID-19.

Use of Digital Tools During COVID-19

Overview

This section characterizes how SMB leaders have deployed digital tools during COVID-19, and how that may have differed from pre-COVID-19 attitudes and behaviors. After all, if digital tools weren’t important for SMB survival and success during this complicated time, one would expect no change in digital tools usage before and during COVID-19.

We found quite the opposite: 85% of SMBs rethought their approach to digital tools, and 72% increased their use of them during COVID-19. They also reported that digital tools helped more during COVID-19 than before it. Among other business functions, digital tools were reported to be most successful with employee connection and collaboration, with employee training, and with customer retention and acquisition.

Importance

These data provide an important baseline for understanding how SMBs approached using digital tools prior to COVID-19 and how and to what degree that has changed in the midst of it.

This section also sheds light on exactly how digital tools were used for specific business operations, merging what SMBs have identified as their biggest challenges with how digital tools have been deployed against them, and how SMB leaders judged how helpful they were.

This section provides a foundation for later sections of the report, which describe how different segments of SMBs used digital tools in very different ways, and to different degrees of success.

Large proportions of SMBs declared all aspects of business operations to be a challenge, with finding, keeping, and understanding customers a particular concern.

While a majority of SMBs recognized digital tools as important pre-COVID-19, less than half actually felt prepared when it began, leading to enhancements in their approach.

Most SMBs reexamined how they were using digital tools after COVID-19 hit, with three-quarters increasing use and about half using at least one new tool.

On average, SMB digital use increased across every kind of tool, with a 38% increase of video conferencing and 31% increase in social media at the top.

Generally, digital tools helped more during COVID-19 than before it, with two specific increases of note: a 10% increase in use for employee collaboration and a 6% increase for employee training.

While SMBs in all industries and across underrepresented populations broadly saw digital tools as helpful during COVID-19, some groups used them more, including SMB leaders of Asian, Black, and Latinx backgrounds.

Small Businesses Find a Digital Safety Net During COVID-19

SMB Digital Strategies During COVID-19

Overview

We found that 92% of surveyed SMBs fell into three groups (or segments) that exhibit distinct digital strategies.

  • Digital Drivers are the most digitally savvy, being early adopters and constantly deploying new technologies to drive their businesses forward.
  • Digital Adopters, while fully embracing digital tools as important, have not deployed them to nearly the degree that Drivers have.
  • Digital Maintainers are generally skeptical of digital transformation and use basic digital tools to maintain their current business.

This section of the report describes these three segments in detail, and additional information can be found in the Appendix.

Importance

These three segments provide a roadmap for SMBs that wish to become more Digitally Driven.

Maintainers are beginners with regard to digital tools. They are more traditional, more in–person, and smaller, on average. They have a basic set of tools, such as a business website or social media. But they are not transforming.

Adopters are in the middle of their transformational journey. They know where they need to go, but they haven’t overcome all of the obstacles to doing so, for a variety of reasons. In effect, these are SMBs in transition.

Drivers were using digital more pre-COVID-19, have invested more in digital during it, and currently use a more sophisticated array of tools to drive success.

Segmenting SMBs by attitudes about and actual use of digital tools shows both how they navigated COVID-19 in different ways, and inform how SMBs might better prepare for the future.

Digital Drivers not only spend 4-10X more on digital tools than Adopters and Maintainers,they also increased their spending on digital tools about $30,000/yr — far morethan other segments.

Not only do Drivers use every kind of digital tool more than Adopters and Maintainers, but their increased use of more sophisticated digital tools widens that gap even further.

We mapped where Drivers, Adopters, and Maintainers tend to be concentrated (or not), based on a “heat map” index. The most obvious pattern is that most types of SMBs can be found everywhere. In other words, geography is not determinative. That said, we note that states with the most digitally-driven SMBs (Drivers) were NV, AZ, CO, and AL. Those with the most Maintainers were GA, IL, MN, NE, and KS.

Drivers Index

134+

103-133

94-102

75-93

74 or less

Adopters Index

134+

103-133

94-102

75-93

74 or less

Maintainers Index

134+

103-133

94-102

75-93

74 or less

SMBs in the Drivers segment found digital tools twice as helpful for running their business during COVID-19 compared to Maintainers and 14% more than Adopters.

How the Digital Safety Net Supports SMBs

Overview

We found a strong direct relationship between the level of SMB digital sophistication and the ability of SMBs to maintain “normal” levels of revenue during COVID-19 (measured as projected 2020 revenue reduction, as virtually all SMBs estimate losses relative to 2019). This is also closely related to the degree to which SMBs conduct business online, particularly using e–commerce tools and services.

We additionally found that the prevalence of Drivers in individual U.S. states was highly correlated with the economic success of those states this year — put simply, states with more Drivers have SMBs projecting they will perform better financially this year. This has implications for state economies and for federal efforts to empower SMBs nationwide.

Importance

Digital tools can be used to help with the issues all small businesses face: driving sales and revenue, collaborating as a team, managing customer relationships, and other key metrics of traditional business success that any SMB leader can understand and use as part of a comprehensive business strategy and plan.

The data bears this out. Even though all SMBs have been hurt by COVID-19, Maintainers’ revenue has been hurt four times worse than that of Drivers. In addition, while larger SMBs do have some inherent resilience over smaller ones, at every SMB size Drivers have better revenue expectations than Adopters, that in turn have better expectations than Maintainers.

SMB digital strategy segments were directly correlated with increased sales and revenue, with Drivers faring 4X better than Maintainers, with the latter anticipating the worst —a 29% drop.

While Drivers are more common amongst SMBs with more employees, for any given SMB size, Drivers report the most optimistic projections, followed by Adopters and finally Maintainers.

Revenue reduction of segments is highly correlated with online business, especially during COVID-19; much can be accounted for specifically by e–commerce use.

SMBs that were using e-commerce before COVID-19 estimate their revenue and sales for 2020 to be twice as good as SMBs that weren’t using e-commerce.

SMBs in the Drivers segment shifted full–time employees (FTEs) to remote work roughly twice as much as SMBs in the Maintainer segment, likely stabilizing or increasing productivity.

While Drivers, Adopters, and Maintainers that conduct international business all saw a small decrease, Drivers conduct substantially more of it even during COVID-19(about 3X Maintainers)

Paths to Recovery and Enhancing Digital Preparedness

Barriers to Digital Tool Adoption

Overview

Despite virtually all SMBs using basic digital tools and some more advanced ones, there is still considerable discomfort with digital tools amongst SMBs in general. Across all SMB leaders, only 35% described themselves as “very comfortable” with digital tools, and this topped out at 49% with leaders of Driver businesses. At best, half of SMB leaders have some discomfort to overcome.

That said, a majority of SMB leaders want to learn more about digital tools for their businesses, and plan to use more in the future. However, they have a range of concerns, including cost, return on investment, and taking on new kinds of risks specifically associated with digital tools, such as data privacy concerns.

Importance

Digital transformation has been a relatively slow affair amongst SMBs during the last decade, but COVID-19 has made it more urgent, particularly for smaller, more vulnerable businesses. As the U.S. and its millions–strong small business community continues to navigate COVID–19 and eventually emerge from it, empowering them to be more digitally driven and successful will be incredibly important.

However, SMB leaders have real concerns about how to educate themselves and their employees about these new tools, how much they will cost, and how they will measure success. All of these are entry points for both the public and private sector to help SMBs in specific ways moving forward.

Only 35% of all SMBs state that they are very comfortable with digital tools, and even among digitally-savvy Drivers, only half reported they were very comfortable with them.

Major barriers are cost of digital tools, assessments of return on investment in tools, and a lack of information about tools, with the last a particularly high barrier forMaintainer businesses.

While almost 40% of SMBs led by men were Drivers, SMBs led by women were more frequently Adaptors who recognize the value of digital tools but did not access their full benefit, which appears to have resulted in less revenue during COVID-19 and other negative business outcomes.

Although Driver SMBs lead the way, all SMB segments plan to learn more about digital tools for their businesses and to deploy more tools post–COVID-19.

Broadly, all SMBs and segments prefer self–learning over assisted or guided learning programs; however, access to some form of assisted support is important to roughly 25%of SMB owners.

Broadly, all SMBs and segments prefer self–learning over assisted or guided learning programs; however, access to some form of assisted support is important to roughly 25% of SMB owners.

Analysis and Discussion

SMBs still operational during COVID-19 were hit hard, and many sought out public loans, including those designed for this emergency (e.g., the Paycheck Protection Program or PPP). Interestingly, while accessing less funding from this resource, Black–led SMBs maintained revenue far more than any other racial group. While understanding this observation requires more research, we hypothesize:

Black–led SMBs have been successful in maintaining more revenue in part because of the use of digital tools to be more agile during COVID-19. That revenue partly makes up for reduced access to public loan funds.

In line with this, we also observed that Black–led SMBs were somewhat more likely to have higher comfort level with digital tools, change business models to generate more revenue, change products/services during COVID-19, become more focused on long–term business goals as a result of COVID-19.

Latinx–led SMBs on the other hand, despite their higher than average digital preparedness, are disproportionately concentrated in industries where digital tools have been less applicable during COVID-19.

Recommendations for Enhancing the Digital Safety Net

Overview

The findings from this report suggest numerous recommendations, both broad and narrow. Here, we provide a number of broad recommendations for the three key stakeholders for this research: SMB leaders, technology companies, and policymakers. Generally, these focus on overcoming the barriers to digital adoption outlined above, which center on education and cost.

Because the technology companies that create digital tools are necessarily partners with SMBs that use them, we also provide a number of more specific recommendations for them. These focus on the differing needs of the three SMB segments we identified and described above, that are at different parts of their digitally driven journeys: Maintainers, Adopters, and Drivers.

Importance

Understanding the ways in which SMBs have been disrupted by COVID-19 and how digital tools have, in some cases, been a major help to them, is very important. More important, however, is beginning to transform these learnings into action in order to lower barriers to entry and empower SMBs to be more digitally driven and successful. That is the ultimate goal of this report.

The following recommendations are aimed at starting conversations in the public and private sectors about enhancing the Digital Safety Net for SMBs. From new kinds of content and educational programs directed at SMBs in different stages of digital tool use, to innovative approaches to closing funding gaps and creating better environments for individual and peer-to-peer learning, we believe this report is the start of a more resilient and digitally-driven future for America’s SMBs.

For Small Businesses

Identify gaps and opportunities based on your unique needs.

Every business has different needs, objectives, and long–term goals. Thus they need different solutions to problems, and that includes digital. Deploy digital tools to maximize efficiency and agility, while scaling in a way that works for you.

Calls to action:

  • Learn more about digital tools
  • Consider new business models
  • Explore new markets/channels
  • Automate repetitive tasks/jobs
For Technology Companies

Help busy SMB leaders assess the digital tools they actually need.

Even if an SMB understands its future goals, it might not know how to best deploy digital tools for that journey. Helping them assess their needs in detail and matching those with free tools, trial periods, and trainings will be a huge service.

Calls to action:

  • Help empower SMB leaders
  • Create online assessment tools
  • Include SMBs in company planning
  • Leverage key nonprofit partners
For Policymakers

Scale public–private partnerships that address barriers to success.

Policymakers should prioritize the creation of, and incentivize SMB participation in, a new era of public–private partnerships focused on scaling solutions to the digital access and education barriers that many SMBs face.

Calls to action:

  • Fund research on Digital Safety Net
  • Support for SMB “accelerators”
  • Create new grants/awards
  • Incentivize learning programs
For Digital Maintainers

Share diverse case studies of digitally driven SMB success. Maintainers likely know about digital tools, but may not have the right role models or peer companies around them to learn from. Inspirational stories can help leaders of Maintainer SMBs to connect abstract tools to real applications and successes.

Make learning about digital tools more widely accessible. Technology has terminology, which is intimidating. Create a definitive glossary written in accessible language that assumes a low level of knowledge. In addition, offer more intimate help with digital tools, like live 1:1 support through chat or video.

For Digital Adopters

Educate them on the broad range of digital tools and how they help SMBs. Provide content that makes the case of how new investment in digital tools can create returns for their SMB. In addition, this content should help overcome past negative experiences or misinformation that set them down thewrong path.

Provide more personalized advice along with digital trends. Adopters want to connect digital tools with business goals, so their questions will be tailored to industry, customer, or other data. In addition, they are most in need of content about how digital tools are evolving and how that helps them.

For Digital Drivers

Provide accelerated digital learning based on their high level of knowledge. For the most part, Drivers don’t need to learn what tools are available and what they mean for SMBs. However, what they can apply to their business are more advanced lessons on maximizing the value of their investments insuch tools.

Introduce them to advanced digital tools that help them continue to drive. Drivers are familiar with and use many of the digital tools discussed in this report. What they can still learn about and use, however, are more advanced tools like artificial intelligence (AI) and their specific and relevant business applications.

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