Small Business Ecosystem Dynamics

Understanding the concept of small business receptivity

Why the vast majority of small businesses are not receptive to implementing new solutions.

Background

Small business receptivity refers to the current mindset of an owner towards implementing any new product, service, process or way of thinking into their firm, including all of the risk, expense, discomfort and time involved in doing so. The more likely an owner is to implement new solutions in general, the more receptive they are considered.
 
Receptivity is largely determined by current development stage, employer status, and firm location, while firm age, owner age, revenues and firm size also play a lesser role.
 
Which firms are currently the most likely to be receptive continually changes as firms enter & exit the sector, mature, and move through development stages.
 

Receptivity vs. “interest”

It is important to differentiate between receptivity and “interest”. Owners can show “interest” in a specific solution at a given time. Receptivity is the underlying mindset that determines their current willingness, or lack thereof, to actually implement new solutions in general.
 

Why this matters

The vast majority of small businesses are unreceptive to implementing new solutions – a study by CEB found that in a given year only 7% of owners reported switching a solution for a given category, and nearly 70% of owners reported never switching from their initial solution¹.
 
Owners want to source a solution once and then focus on operating – even if a better solution exists, for most owners “it’s fine”. Most will only replace an existing solution if it stops functioning or becomes too painful to continue using (a “breaking point” mindset).
 

The big question

Why are the vast majority of small businesses unreceptive to new solutions?
 

80% of small businesses are nonemployers²

But employers are more likely to be receptive. Nonemployer firms (they have no employees, it is just the owner) are less complex, have lower average revenues³, and access less startup capital⁴ than employer firms.
 
Nonemployers generally have fewer business challenges to solve and less financial resources with which to acquire and implement new solutions. As they have no employees, the mental bandwidth of the owner is more likely to be focused on survival and day-to-day operations, rather than improvement or growth.
 

50% of small businesses are home-based⁵

But firms with a commercial location are more likely to be receptive. Home-based firms are less complex, have ten times lower average revenues⁶ and 10 times less employees on average⁷ than firms with a commercial location.
 
Home-based firms generally have fewer business challenges to solve and less financial resources with which to acquire and implement new solutions. As they usually have fewer employees to support the owner, the mental bandwidth of the owner is more likely to be focused on survival and day-to-day operations, rather than improvement or growth.
 

Most small businesses are not growth-motivated⁸

But growth-motivated firms are more likely to be receptive. Most owners start their businesses for lifestyle reasons (to be their own boss, control their own schedule etc.), they aren’t motivated by growth – they do not expect or even want to experience substantial growth⁹.
 
Firms that aren’t growth-motivated are less likely to be employers, to have a commercial location, and to be at an expansion development stage. They are also less likely to focus mental bandwidth on improvement or growth.
 

Only 6% of small businesses are currently at a seed or expansion development stage¹⁰

But seed and expansion stage are when firms are most likely to be receptive – it is when owners are most likely to be in a “sourcing” mindset, as opposed to an “operating” mindset.
 
Owners in a sourcing mindset have allotted mental bandwidth to sourcing and implementing new solutions, and have usually allocated funds: startup expenses for seed stage firms and expansion expenses for expansion stage firms. Owners in an “operating” mindset are focused on day-to-day operations with their existing solutions, not on finding new ones.
 

Only 20% of small businesses have an advanced level of digital engagement¹¹

But firms that are highly digitally engaged are more likely to be receptive than those with a basic level. Small businesses with an advanced level of digital engagement have nearly 4 times the revenue growth¹² and are nearly 3 times as likely to create new jobs¹³ as those with a basic level.
 
Highly digitally engaged firms are more likely to be motivated by growth, to have the financial resources to acquire and implement new solutions, and to have enough employees to allow the owner the mental bandwidth to focus on improvement or growth, not just day-to-day operations and survival.
 

Also worth noting:

92% of firms are over one year old¹⁴

But new firms at their seed stage are the most likely to be receptive. Receptivity continually declines as the firm launches and matures, becomes more established, and solutions become more entrenched.¹⁵.
 

84% of owners are over 34 years old¹⁶

But younger owners are generally more receptive. Similar to company age, receptivity continually declines as an owner ages¹⁷, becomes entrenched in their way of doing things, and is less likely to change.
 

89% of small businesses have less than 20 employees¹⁸

But it’s firms with more than 20 employees that are more likely to be receptive¹⁹. The fewer employees the firm has, the more likely the owner is to be focused on day to day operations & survival, not improvement and growth.
 

Firms with higher revenues are generally more receptive.

As they have more financial resource with which to acquire and implement new solutions and will often have more employees, allowing the owner to focus mental bandwidth on improvement and growth, not just survival and day-to-day operations.
 

However,

These traditional firmographics of firm age, owner age, employee count and revenues are secondary to development stage as indicators of current receptivity²⁰. Learn why here.