They are not alone
- Zoom went from 10 million daily users to 200 million.
- Netflix has announced 16 million new subscribers since the pandemic.
- Animal Crossing has just been named the biggest game launch on the Nintendo Switch, ever.
This fanfare raises a quiet question from the back of the room - how is the mid-market surviving?
In this article, I will discuss just that, as well as my predictions for what appears to be a continually bumpy road ahead.
The 2008 recession vs. 2020 recession
Back in 2008, the financial crash saw small businesses recover in six years, with larger enterprises faring slightly better with their recovery achieved in four years.
Some businesses were lost entirely, like Knight-Celotex, the world’s largest maker of fiberboard. In 2006, they took in “$115 million in revenue [with] 500 employees in four manufacturing locations.” But by 2008, they were sold in pieces in bankruptcy following the collapse of the construction industry.
McKinsey has published their predictions for the market following the crash of COVID-19, saying recovery could take five years or more - even for large businesses.
For small businesses, an ominous prediction awaits: "recovery is again likely to take even longer. Many may never reopen."
Smaller companies will now require adapted business models and enhanced technology solutions to survive, let alone recover to their previous level. These operating models will need to accelerate their adoptions of new technologies, relying on the economy to provide financing to improve their resilience in the short-term.
McKinsey continues to say that: "The most effective way for small businesses to meet new hygiene and safety expectations is to design effective contactless experiences," meaning independent businesses can hope to find effective technological solutions to help digitize their businesses.
It is not all doom and gloom - some businesses were famously made out of the 2008 recession, like Airbnb, whose Business Leader report is now valued at $40bn. Groupon holds another success story, whose discount deals helped other businesses prevail during the recession, in turn helping to carve Groupon into a household name, with a current valuation of $4.2bn.
There are many parallels to pull from the two recessions, the sharp downturn and the unknown recovery. But, while an exponentially spreading virus continues to halt operations, companies have to adapt and refine at breakneck speed to have any chance of survival.
What was predicted to happen in 2020?
Insight’s 2020 predictions for trends in IT for mid-market and small businesses stated that 50% of companies of between 10-1000 employees thought their technology was effective enough to let their employees work remotely.
With the pandemic bringing about an almost overnight switch as office doors closed, the entire cohort was funneled into remote working, whether they felt they were ready or not.
Something which will have worked in their favor will have been the majority's business foresight, as 95% were reported to have either implemented digital transformation initiatives in the last 12 months or have plans to initiate within the next 12 months.
A sentence which is eerily pertinent is Insight's prediction for “always-on” business models, stating that, “today, all businesses — from startups to enterprises — must be always on and available. With customers and employees alike expecting intuitive and seamless experiences, companies must adopt new ways of working to increase business agility and deliver greater value to end users.”
It seems that the world was primed for digital-first, but perhaps in 2019 none of us knew the extent to which the technological capabilities would be needed.
The impact of COVID-19 on the mid-market
In a study conducted by Proceedings of the National Academy of Sciences (PNAS) published in July 2020, it was reported that of the small businesses they approached, 43% were temporarily closed, with employment falling by 40%.
When asked about their future during the last week of March 2020, when lockdown measures were first imposed, 38% of businesses viewed it unlikely or only somewhat likely they would be open at the end of 2020.
Unlike their larger enterprise counterparts, the mid-market has struggled more so to keep up with the mounting costs associated with the required level of PPE for workforces. As Forbes reports, the huge demand for the protective equipment has washed the industry of cheap items, leaving only the most expensive in circulation - and at the quantities needed, it is simply not an option for the mid-market to procure as easily as the industry titans could.
According to data from the National Center for the Middle Market, 25% of mid-market businesses believe the pandemic will be catastrophic for their business, with one in six interviewed stating they do not think their business is up to the challenge of providing a good customer experience in light of the economic crisis.
It is a sobering statistic and outlook, proving just how much the mid-market has and will continue to suffer during the pandemic. Without the capital and investment to keep propped up like industry titans, most will fall victim to the economic downturn.
CARES Act relief package
Signed into law at the end of March 2020 was the Coronavirus Aid, Relief and Economic Security (CARES) Act, which provides direct and fast economic assistance for small businesses in America.
For mid-market businesses, in particular, support comes in the form of the small business paycheck protection program designed to provide funds to pay up to 8 weeks of payroll costs.
Although, Forbes reported in mid-April 2020 that of the $379 billion funding pledged, $0 remains, with the headline: ‘CARES Act Won’t Save Main Street From Coronavirus Shutdowns.’
Which leads us to our question:
Can the mid-market survive?
It is clear the mid-market has struggled and will continue to struggle as the pandemic wages on. Until we have a statistically significant portion of the world's population vaccinated, the travel, hospitality and entertainment sectors, in particular, are going to suffer.
These three sectors make up a high proportion of SMEs. As we are likely to see social distancing measures continue into the long-term, digital forms of payment and delivery must be necessitated to negate what would traditionally be brick and mortar activity.
We have seen this happen, and as my webinar from earlier in the year with Rapyd - a global fintech organization - cross-border digitization and payments have and will continue to be completed.
For the first six months of the virus being in circulation, more than 60 million Americans have filed for unemployment insurance - more than the number of claims filed during the 18-month Great Recession. In the transport industry, U.S. airlines furloughed tens of thousands of employees from the start of October 2020 as a direct result of the Trump administration not being able to come to an agreement on a coronavirus relief package.
In order to survive, SMEs need stimulus measures, like the government’s $7.4bn July jobs stimulus package, to continue throughout the crisis. They will require easy monetary policy from Central Banks and direct stimulus from the government to continue to accommodate for the current rate of 8-10% unemployment.
Here are three tangible actions mid-market businesses can take forward to survive - and potentially thrive - through the continued pandemic:
This is a continued trend that will live beyond the pandemic. If SMEs have not already adopted the digitalization of processes, now is the time. This will help to eradicate internal efficiencies that are holding the business back through archaic practices.
2. Business model shift
Especially in affected industries, business model shifts need to occur. Although government stimulus (cash or easy monetary policy) will provide short-term relief, businesses should not expect to return to 2019 business models.
3. Data-driven strategies are the way forward
Undoubtedly, data-driven strategies will provide the most efficient and sustainable changes for SMEs.
If the past six months have taught us anything, it is the power of resilience and adaptability to change. Although tough times now lay behind us, a vast unknown future lies ahead of us. To survive as a mid-market player, continued agility for change is needed alongside vital digitization of processes and accommodation for new-found social distancing operations.
Loqate’s Global Partner Program connects businesses to address verification software powered by the most accurate global location data available in the market. For more information on how Loqate can help your business deliver exceptional digital experiences to customers wherever they are located, contact the partner team today or connect with me on LinkedIn.