For many small businesses, 2022 has been a challenging year as the aftermath of the COVID-19 pandemic is still being felt. Confidence toward starting a small business was high before the pandemic, and though it waned during it, there is still great interest.
The younger Millennial and Generation Z segments pivoted to creating a new business as they lost their jobs due to the crisis. Let’s look at the trends that shaped small businesses in 2022 and how they may affect 2023 and beyond.
Small Business Statistics to consider
Here are some eye-opening statistics about the impact of small businesses.
- 1 in 5 businesses fail in their first year – That’s 20% the first year, 30% in the second year, and 50% by year five
- Lack of market demand is the leading reason that businesses fail. 42% of small businesses fail due to poor product-market fit. There is also a gap in marketing efforts which results in a lack of awareness of the low-demand product or services.
- 99.9% of businesses in the U.S. are small businesses – Despite the big corporations getting the headlines in the news, it is the small businesses that make up the majority of the business sector
- Over half of small business owners are 55 or older
- Most small businesses don’t have any employees. Of the 33.2 million small businesses, 27.1 million have a single owner. That’s 8 out of 10 small businesses.
- 44% of the U.S. economic activity is generated by small businesses. The gross domestic product (GDP) measures the market value of goods and services that businesses produce. Although this figure has declined since 1998 (48%), small businesses remain important for driving growth.
- The medium income for self-employed individuals who have their own incorporated business was $55,858
- 55% of small business owners use social media to promote their businesses
- 60.9% of small business owners cite the reason they started their business was to become their boss
- The average small business loan amount (2021 numbers) was $52,158. The small business loan approval rate was 57%.
- The states with the most number of small businesses in the U.S. are California (4.2 million), Texas (3.1 million), Florida (3 million), New York (2.3 million), and Illinois and Georgia (1.2 million)
- Small businesses are present in every industry, but the following sectors have the largest small business presence: Food and Restaurants, Retail, Business Services, Health, Beauty, and Fitness, and Residential and Commercial services.
- Half of the small business owners operate their business from home. This number is for both employer and non-employer companies. Home-based employer firms are roughly 24%.
Small Business Trends in 2022
Small businesses are integral to a strong U.S. economy. Over the years, the landscape has changed significantly. Here are the big things that we witnessed in 2022 that happened in this space:
Inflation has caused Increases in Prices across the Board
According to the Bureau of Labor Statistics, the inflation rate as of Q4 2022 is 7.7% By comparison, it was 1.4% in 2020. Higher-priced inventory, rent, and other inputs have caused small business owners to focus on cost-cutting and reducing expense measures. Ultimately, small businesses were forced to increase the price of their goods and services to cover rising inflation prices.
E-Commerce continues its Growth
From Q2 2021 to Q2 2022, total e-commerce sales grew by 13.9% according to the U.S. Census Bureau. Adding an online shopping experience allows small business owners to increase sales, create an omnichannel presence, and grow their market. It’s imperative for entrepreneurs to continue to adapt and build their online presence. Customer expectations of the online shopping experience have also grown. Online shoppers expect great service and fast shipping times like they are receiving from big e-retailers like Amazon.
Personalized Services are Trending
Consumers are seeking more personal services than ever before. Cleaning, food delivery, and event planning are among the type of services that people are after. This has presented a huge opportunity for entrepreneurs who started their businesses in 2022. With hundreds of service-oriented businesses that can be started, many of them require as little as $500 in start-up capital.
Supply Chain Concerns
The supply chain is still reeling from the effects of COVID-19. Consequently, business owners had to pay particular attention to their flow of goods. Shortages of supply impacted multiple industries. Business owners who didn’t have backup measures in place had to deal with customer dissatisfaction, delays, and lower revenues/sales.
Independent Businesses
The majority of businesses in 2022 were independent, non-franchise businesses. This is according to a survey by Guidant Financial where 58.98% of business owners responded as owning this type of business. Around a third of respondents stated that they purchased an existing independent turnkey location. Around 41% of respondents owned a franchise with the majority of them favoring starting a new franchise location over buying an existing one.
Outsourcing Services
Accounting, HR, payroll, marketing, bookkeeping and other professional services are no longer activities that the small business owner choose to take on all themselves. A huge shift toward outsourcing these professional services happened in 2022. The fact is that these types of services are typically done better and at a reasonable cost. With issues such as inflation, regulations and shipping costs being the world that we must live in for now, business owners have much more important matters to handle.
Increased Wages for Employees
The Great Resignation was felt by small business owners who have employees working for them. Recruitment and retention were major challenges across all verticals and skill sets. The primary response to this issue was increasing compensation, and additional recruitment advertising, increasing benefits, and adding hiring bonuses.
Adapting for Survival
Small business owners were left to their own vice for the most part in 2022 to navigate through the volatile U.S. economy. Through supply shortages, employment challenges, and the continued effects of the COVID-19 pandemic, business owners had to adjust their business model to survive. Many of them identified new innovative approaches to operating their business. For example, due to staff shortages in restaurants, many business owners reduced their hours of operation or focused primarily on take-out, catering, and delivery services.
Working Remotely
Since COVID-19, employers have realized that it’s possible to hire anyone from anywhere. Remote working has boosted productivity and helped attract and retain employees. Since many industries face hiring issues, a point of differentiation has been allowing workers to work at home.
Popularity of Artificial Intelligence
More companies are moving toward using artificial intelligence (AI) to use for various purposes. Small businesses are no exception. From chatbots, task automation, to predictive analytics, the growing user base for AI will likely continue into the next several years. Many business owners believe that using this technology will lower operating costs and boost productivity.
Challenges Faced by Small Businesses
As new entrepreneurs start their own business and existing owners look to maintain, grow, or pivot theirs, there are many challenges they face in 2023. Here are some of the headwinds that entrepreneurs must curtail in the year to come.
Reacting to Economic Trends
The Federal Reserve has pushed interest rates up to 4.50% as of December 2022. A 2021 survey by Business.org reveals that 82% of businesses raised the price of their goods and services due to inflation. Some businesses made modifications to their inventory such as buying the bare minimum of items they can store as a cost-cutting measure.
Supply chain disruptions will continue this next year, leading to empty grocery shelves and delayed packages. The economic trends of supply chain issues, labor shortages, rising energy costs and inflation mean that small business owners must understand what’s driving them and find ways to effectively manage their businesses.
Undoubtedly, business owners will have to raise their prices to keep afloat and continue to run. Having honest communication with their customers will be the best way to handle these big challenges. Business owners should let their customers know that price increases are coming as a way to gain trust and continued patronage.
Hiring and Retaining the Right Workforce
No one felt the hiring crisis more than small business owners in the years since the pandemic. Lack of childcare, low wages, long commutes, and changing priorities have resulted in employees leaving their jobs for “greener pastures”. Among the biggest challenge that small business owners face is hiring the talent and then motivating and retaining them.
To attract the right talent, small businesses must increase wages and salaries to stay competitive. Some small businesses may opt to use employment agencies and online recruitment to find potential employees.
Launching Effective Marketing Campaigns
A strong brand awareness is essential for every business. Its particularly vital for new small businesses to build its customer base. Consumers tend to pay more for brands they trust. For small business owners, the biggest tool to building brand awareness is using their website.
An effective SEO strategy that brings traffic to a small business’s website can help with scalability. Using a professional, customized logo design to help with brand recognition is also essential. Businesses that are in certain industries must use content marketing strategies to show their brand’s expertise. This could be in the form of blogs, podcasts, or sharing infographics or other social media visuals.
Capital and Cash Flow problems
The lifeline of a business is its capital and cash flow. Small businesses need financial support to grow, expand, and evolve. Other the last few years, business owners have faced great uncertainty with cash flow and lack of capital.
There are many ways for small businesses to gain funding in these post-pandemic times. Small Business Administration (SBA) loans, private bank loans, investors, venture capital, crowdfunding, or working with a business partner are options. Ultimately, business owners must be keen to understand what the ins and outs of these capital sources are and be prepared to seek them out in a timely manner.
Cash flow management involves maintaining an up-to-date and accurate book of records. Business owners should learn or hire a third party to efficiently handle the day-to-day operations to ensure they have enough cash reserves to cover expenses, while remaining profitable.
Attracting new Customers
Big companies like Coca Cola, Disney, and Facebook have such high brand awareness that they are household names. For small businesses, they must find ways to acquire customers without this advantage. New customer acquisition is costly and small businesses don’t have the luxury of budgets with several 0s to find them.
Business owners must adopt unique strategies to attract new customers. They must position themselves as an expert in their industry. Publishing free, useful content through mediums like a blog is one approach. An SEO strategy that optimizes a small business website will help increase traffic and conversions.
Avoiding Burnout
Workers in all industries and positions have felt additional stress, depression, and burnout in the last several years. Owning a small business is rewarding to many business owners. The top reason that business owners cite for starting their own business is to become their own boss. Despite finding business ownership to be rewarding, it’s also emotionally draining.
Business owners are “always working” on business development and day-to-day management. Coped with the challenging economic trends of inflation, supply chain issues, and employment, the threat of burnout looms. To combat this, business owners should be aware of signs of burnout, such as exhaustion, mental distance from their job, and reduced professional efficacy.
To deal with the ongoing stress, business owners should consider investing in third-party help to delegate tasks like accounting or website marketing, look for the latest technology trends that may streamline operations, and even take a break and “close the shop” to recharge.
The Future is still Bright
Despite all the challenges that small businesses must face, particularly in the last few years, the future remains hopeful. The lifeblood of the U.S. is small businesses. Business owners have learned to innovate and adapt to hardships. The use of digital tools for business activities has been vital. Small business entrepreneurs are resilient individuals who look for growth opportunities. From 2023 and beyond, the trajectory for small businesses remain as optimistic as ever.
