SME Mythbusters

In the last 12 months, we have conducted qualitative research with over 250 small and medium sized businesses, across a range of product areas (accounting, payments, lending) on behalf of both challenger fintechs and incumbents.

We’ve uncovered needs, friction points and opportunity spaces, many of which have helped inform a new breed of financial products and services for the historically underserved SME segment. Many of our observations contravene commonly accepted hypotheses within the industry.

Here we’ve applied insights from hundreds of hours of 1:1 research to bust some of the myths and false assumptions about SMEs.

Myth #1: SMEs think in £££s

Reality: They think in months.

Small business owners don’t look at their business like an accountant or investor would. Cashflow is of course front of mind, but business owners are constantly judging how long a runway this incoming cash gives them. With the real question being, ‘how long can we survive if we don’t make a single pound's worth of revenue?’ To their detriment, they often envisage the worst case scenario, ‘how long can we freefall for before we hit the ground?’. They err on the side of caution and in their eyes, employees are seen as dependents and this puts a lot of pressure on them to run a stable business that can operate (and feed families) even in periods of extreme business famine.This fearful disposition is almost universal across small businesses of all sectors and regions.

“When you are facing a wage bill that you can’t pay it’s the most horrific feeling, it’s scary, people are depending on you! We had a difficult year and we got through it but it leaves an element of fear.”

So what?

Framing is incredibly important when engaging small business owners - there is a particularly thin line between being empathetic and patronising. The “we get you” narrative is increasingly prevalent in marketing propositions to this segment, which is along the right lines. They are often overwhelmed, time-poor, and, frankly, negative - so effective messaging tends to relieve anxiety on some level. Similarly, on a functionality level, adopting the “worst case is likely case” mindset can help to design a more complete service.

Myth #2: Turnover is a reasonable way to segment businesses

Reality: Business shape works a lot better

Often B2B businesses will segment their market by turnover; >100k, >500k, >£1 million etc. This is the equivalent of demographics, and by now we know that not all people within demographic cohorts react the same - attitudes and needs work a lot better. The business equivalent that works for us is what we call ‘business shape’. In fairly simple terms, this is a revenue-in, cost-out, cash consumed profile. How lumpy is cash consumption? Is it a seasonal business? Or a subscription business? Do they have cash tied up in stock? We find that companies with similar cashflow shapes tend to have a more consistent set of needs, than those with similar revenues for example.

So what?

Just as, when designing consumer products, a more detailed understanding of underlying needs and behaviours can help to design products that build more value, the same should be true for businesses. Business shape can help to provide a basis for these need-based insights in a way that arbitrary commercially-based segmentations can’t. Some of the most profound product insights that we’ve found are within this texture, because the more segment-specific the need, the less likely it is to be satiated by currently available solutions.

Myth #3: Small business owners are rational and financially literate‍

Reality: They follow the herd!

As a commercially literate practitioner with no skin in the game, it is easy to look upon a small business with cold eyes. There is a preconception that small business owners and operators all have the same level of understanding and motivation to optimise their gains - they don’t. Very few small business owners are in it for purely financial reasons, fewer still have a technical understanding of financial management. Most start up because they spot an opportunity, or because it’s what they love to do - they often (rightly) care a lot more about their “product” than their business model design or financial choices.

“To be honest with you, at the start, I didn't really have a clue what I was doing... I think now five years on I have a much better idea what creating a forecast would be in a way that would actually carry some weight... because you are always learning”

So what?

When it comes to making a decision that is outside of their core craft, small business owners usually just look at what everyone else is doing. They are not going to compare options or go through things analytically, they are more likely to shout up the stairwell to someone in their building (or a Covid-friendly equivalent). There is a need to subtly educate and inform these business owners on the topics that sit outside of their core competency (most usually finance) without undermining them or mansplaining. It’s another fine line and one we tend to use the “trusted advisor” framework to navigate - be credible, reliable and understanding of their needs, but don’t ruin it by being self-oriented.

Myth #4: Access to capital is the biggest constraint

Reality: Limiting beliefs are!

Partly because of the BCR stimulus, partly because of the explosion of fintechs realising that lending is the only real path to viability, there has been an explosion of providers offering lending solutions to SMEs, but we’re seeing a lot of attitudinal blockers to small businesses opting to borrow. There is a big disparity between how lending (/debt) is viewed in big businesses and small businesses. Whilst venture-backed companies (the miniscule minority), wear their fundraising amounts as a badge of honour, the vast majority of ‘normal’ small businesses view any form of external capital (even advances against revenue) as debt. And debt is not popular - it is failure or weakness. We’ve observed that most small business owners don’t have a mental model for lending - they view it as personally as they would a personal loan, but find the lack of control over the payback even more overwhelming.

“We would generally use our own cash, because George doesn’t like to use borrowed money”

So what?

There is a big difference between structural industry challenges and unmet customer demand. Whilst digital lending solutions can increase acceptance, promote competition and reduce the cost of lending to small businesses, there is still a lot of work to do in framing these products properly to get people using them. Our experience of the space is that too many providers are focusing on the “how”, fewer on the “what”, and fewer still on the “why”.

Myth #5: Every small business wants to grow

Reality: Many are passive and not interested

We often see a hypothesis that all businesses have a growth mindset. Not true. Some do, but there are plenty of other business owners that are just in it because they are doing it as a hobby, doing it as a side hustle - many other reasons. That doesn’t mean that they are less deserving or demanding of financial services, but it does mean that growth-focused messaging and functionality doesn’t always resonate.

So what?

Mapping out missions and mindsets in a more considered way can stop unnecessary corner cutting when designing products and the messages that sell them. As well as the functional and financial jobs that small businesses need to do, there are a lot of emotional jobs that need full consideration too. Comfort and control can be equally as attractive as growth, if not more.


Myth #6: It’s hard to get SMEs to participate in research

Reality: They f*****g love it!

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