2019 ended with an optimistic outlook. Small to medium enterprises all around the world realized they have a lot of challenges to overcome, but they were confident about their growth prospects. After all, with a force making up 95% of the companies all around the world and accounting for 60% of the global employment manpower, SMEs are nothing short of being the backbone of the global economy. Unfortunately, 2020 had its own challenges in store for us.
"We haven't anticipated the magnitude of the Covid-19 outbreak. Just like many business owners... To get over the shock, we have decided to focus on solutions and came up with our pandemic plan to address the situation", says Gevorg Hambardzumyan, CEO of Front Signs, a US-based sign manufacturing company. In face of these sudden developments, SMEs were forced to make all kinds of changes in their efforts to survive. While some were forced to close, either temporarily or permanently, others had to go out and beyond to maintain the operations of their businesses.
Here, we go into an overview of the challenges, mitigation measures, and developments that SMEs had gone through during the life-changing year of 2020.
Challenges
It started as a health crisis that had everyone panicking about their health and the health of their loved ones. What was supposed to be a two-week lockdown had soon extended to months of being stuck at home. Businesses were put on hold until further notice, the service industry came to a halt, and the global financial and economic situation had never been worse. Financial experts all around the globe shared their insights about how this recession may very well turn into a full-blown depression, the likes of which we hadn't witnessed since the great recession back in 2008.
These experts pointed out 5 main challenges that SMEs would especially face during that period:
- Shortage of operational cash flow, where up to 50% of SMEs had less than a month of cash reserves for operations.
- Reduction in demands as a result of the economic slowdown.
- Businesses being forced to close in compliance with the lockdown policies.
- Inability to target new clients and customers due to reduced opportunities
- Having a business model that's not working anymore.
Government Mitigation and Relief Response
Governments across the 7 continents were fast to react. They started enacting mitigation measures in place, mainly aimed at providing financial relief for SMEs and the self-employed. Some of the most common mitigation measures included the following:
- Tax Deferment on income, property, and other payments to release some of the liquidity constraints that SMEs had usually faced.
- Increasing the available credit for SMEs by providing more lending options, reducing interest rates, and offering more flexible repayment plans.
- Providing partial coverage to wages and income for surviving SMEs and laid-off employees.
- Launching support programs to encourage SMEs to pivot their business models into a more adaptable and profitable model.
Moreover, governments enacted workplace regulations and policies for businesses everywhere to follow in preparation for the lockdown release. These measures helped businesses of all sizes implement the necessary safety measures for a safe return-to-work experience.
The Development of SMEs Throughout 2020
The SME development that 2020 has faced is, to say the least, incredible. Despite all odds, or perhaps due to the pressure that the odds had placed on SME owners, we were able to witness the revival of the entrepreneurial spirit in all of its glory. Here are the 4 most significant ways in which the entrepreneurial spirit had shown its capabilities:
1. Assessment and Security of Financial Situation
SMEs were forced to re-evaluate every aspect of their businesses, and the first place to start was their financial security. It felt like they started from ground level all over again, sitting down with financial advisors and understanding deficits, potential fund inflow versus expenses, possible liabilities, and everything else a financial plan includes. They had to reconstruct a 6-month to a year action plan that takes into account all possible government relief opportunities, fintech alternatives, as well as future prospects. They were also forced to make difficult decisions regarding their workforce, after which only 60% of the SMEs had retained their full employment force.
2. Pivoting Business Plans and Models
In order to implement a realistic financial plan, some integral changes had to be made in the original business model. Many SMEs realized that their current business model failed to generate the expected revenue, while others failed to make any profits at all. That forced business owners to revisit their business models and devise a new one that can still deliver the main goals. Many businesses started new tracks using their available resources; alcohol distillers switched to making hand sanitizers, digital fabrication labs started 3D-printing face masks, factories directed their engineers to start making ventilators.
3. Shifting Toward the Digital Ecosystem
Perhaps the most obvious development can be seen in how the digital scene has welcomed a myriad of new services. When searching for a way to keep conducting business despite the physical restrictions of the lockdown, switching to the internet for connection seemed the like most obvious solution.
Following that, communication platforms for all purposes exploded with new users. SMEs also realized how they can pivot their business models to be more digitized, after which many of them launched websites and mobile apps to deliver new services and products. This digital shift removed the need for physical operations altogether for many SMEs.
4. Adopting the Fourth Revolution
The fourth revolution had long been on its way, but 2020 expedited the process. It was understandable how many SMEs were skeptical about adopting the fourth revolution at first. After all, would it really make sense to invest in such technology with the financial situation strained as it had been? However, that didn't stop many SMEs from adopting automation, IoT, CRM, and state-of-art driven technological strategies.
Perhaps the strongest lesson that 2020 has taught all SMEs is to devise a strong crisis management plan and have it ready at their disposal. After suffering from such a huge hit at the beginning of what was expected to be a year full of growth, we're ending 2020 with more development rather than growth. These lessons will surely shape up the world of business as we'd all known, and, as usual, SMEs were the first to show us the magic.
Image source: Pexels
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