Why Small Firms Are Vital For Post-Lockdown Recovery

A new report from The Entrepreneurs Network and Xero highlights the need to support the post-Covid economic recovery by getting more small firms to use productivity enhancing technology.

Upgrade: Closing the digital gap and lifting productivity for SME draws on Enterprise Research Centre (ERC) data to show that if the 1.1m micro businesses (0-9 employees) in the U.K. doubled their uptake of key digital technologies, the U.K. economy would get a £16.6bn boost.

This equates to a £4,050 average productivity boost for the 4.09m workers employed by micro businesses, restoring four-fifths of lost productivity growth between the financial crisis and the lockdown, enabling businesses to bounce back faster post-lockdown.

The small business response to lockdown with shops switching to selling online and offices going remote shows that major digital transformation of this sort is achievable. As the economy reopens, the report makes the case for why it is vital that the switch to digital becomes permanent and more small businesses make the most use of the right digital tools. 

As Gary Turner, cofounder and the Managing Director of Xero in the U.K. states: “One of the achievements of so many small firms in recent months has been how they have been able to pivot their business models to operate differently. They are discovering new digital ways to achieve greater value, scale and resilience.”

Sam Dumitriu, the report’s author and Research Director at The Entrepreneurs Network, says: “Recent events have highlighted the importance of digital technology in enabling businesses to continue trading in the most difficult of circumstances. It is now time to take advantage of a massive opportunity to boost productivity by increasing the rate of digital adoption. Britain is a world-leader in innovation, but too often best practices are not spreading to all SMEs.”

The report finds that despite the UK being one of the world’s most innovative economies and home to many tech unicorns, including the likes of OakNorth, Deliveroo and Revolut, over a third (38%) of small businesses are not adopting tried-and-tested tech.

Over a third (38%) of U.K. SMEs have very low levels of digital adoption. According to the EU’s Digital Intensity Index, which measures the use of digital tech by businesses, many lack a website, social media presence, or fast broadband. By contrast, in Sweden and the Netherlands just over a fifth (23%) of firms have very low levels of digital adoption. In Finland, just one in ten (11%) have low levels of adoption.

The report calls for nine policy reforms, including widening the scope of the U.K.’s R&D tax credit to make it easier for SMEs to invest in innovation. It also calls for the backing of support for peer-to-peer learning initiatives so entrepreneurs can overcome knowledge barriers by learning from those in similar situations. And to tackle digital skill shortages, it proposes allowing tax relief for self-funded training and improving awareness of existing digital training programmes.

“As the economy reopens and small firms look to rebuild we must close the digital divide to help small firms bounce back more quickly,” explains Turner. “Hence, the lessons in this study on how we can encourage firms to make more use of the right technology are more important than ever.”