by Granville Triumph
Small to midsized businesses (SMBs) are often hit the hardest during economic downturns. With unpredictable revenues, constrained cash flow and limited access to capital, SMBs naturally look for ways to curtail spending while riding out the storm. However, research shows they are increasingly reluctant to cut technology budgets. Most acknowledge that strategic tech investments are essential for building long-term business resilience.
According to a recent Verizon study, the vast majority of small businesses view technology as key to overcoming rising inflation, improving sales, supporting remote operations and resolving lingering supply chain issues. In the survey of 1,033 SMB decision-makers across 10 key U.S. markets, 77 percent reported they have been actively adding or upgrading technologies over the past two years.
Taking the Long View
While those results may seem surprising, they are actually right in line with historical trends. A 2020 study by Techaisle found that although small businesses tend to reduce overall spending during a financial crisis, they continue to prioritize technology spending. They tend to focus their investments on technologies that create immediate productivity benefits and put them in a position to bounce back quickly during a recovery.
In its review of spending data since 2007, Techaisle found that SMB technology investments during economic downturns rebounded faster than overall IT spending. Following the 2008-2010 global recession, the year-over-year growth of SMB IT spending was 1.5 times higher than the overall IT spending growth rate. Following a “mini-recession” in 2015-2016, SMB IT spending growth was 4X the overall growth rate.
Do those investments pay off? Although past performance doesn’t guarantee future results, new economic analysis from the U.S. Chamber of Commerce indicates that SMB tech investments generate significant bottom-line benefits. The study found that SMBs that fully embrace technology enhancements are outcompeting their peers that don’t, experiencing more growth in their sales, profits and employment since 2020.
Investment Projections
As a result, 83 percent of SMB owners reported that they plan to continue investing in IT systems and platforms over the next two years. Most are likely to reduce planned spending on PCs and commodity hardware, shifting some of those budget resources to security, collaboration, analytics and mobility solutions. However, the Chamber study found that 63 percent of SMBs are also exploring ways to use more advanced solutions such as artificial intelligence and virtual reality.
Cloud spending will remain among the most important investments for SMBs as they continue to move workloads off premises for increased agility and flexibility, as well as budget predictability. Flexera’s 2022 State of the Cloud Report predicts that 63 percent of all SMB workloads and 62 percent of SMB data will reside in a public cloud by next year. In addition to the strategic benefits, the cloud’s pay-as-you-go model helps SMBs relieve budget pressures by reducing capital expenditures.
SMBs represent 99 percent of all businesses in the U.S., employ nearly 60 million people and generate almost half of the country’s gross domestic product. However, they are vulnerable to deteriorating economic conditions. Historical trends confirm that strategic IT investments help small businesses survive periods of economic uncertainty through increased efficiency.