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.
By Steve Waters
Founder / CEO, SMB Intelligence
May 11, 2018
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.
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.
1. Haque, Naumi. “Small Business Owners Never Switch Suppliers”, CEB, October 28, 2012. Available online
2. Small Business Administration. “Small Business FAQ”, August 2017. Available online
3. 81% of employers have revenues over $100k, vs 90% of nonemployers have revenues under $50k. Calculations by author based on data from US Census, 2012 Survey of Business Owners, and Nonemployer Statistics by Receipt Size Class for the US: 2014.
4. 52% of employers used more than $25k to startup vs 12% of nonemployers. Small Business Administration. “Small Business Finance FAQ”, 2016. Available online
5. Small Business Administration. “Small Business FAQ”, August 2017. Available online
6. Calculations by author based on data from US Census, 2012 Survey of Business Owners
7. Home-based firms have an average of 2 paid employees, firms with a commercial location have an average of 21 employees. Calculations by author based on data from US Census, 2012 Survey of Business Owners.
8,9. Only 24% of owners report wanting their firm to be “as large as possible”, and more than 50% of owners cite lifestyle benefits such as “flexibility over schedule” or “be my own boss” as a primary reason for starting their firm. Pugsley, Benjamin Wild and Erik Hurst. “What Do Small Businesses Do?”, Brookings Papers On Economic Activity, Fall 2011. Available online. Only 33% of owners say their primary goal is to grow. The Hartford. “2015 Small Business Success Study”, 2015. Available online. 50% of owners started their business for non-financial reasons like wanting to be their own boss, tired of working for others, wanting to set their own hours, and the desire to pursue a passion. Only 12% of owners want to grow to staff larger than 50 people. Infusionsoft. “Defining and Achieving Small Business Success”, 2016. Available online. While 88% of owners report “increasing revenues” as their key business goal over the next three years, only 24% report wanting to add an establishment. Shopkeep. “2018 Shopkeep Small Business Pulse”, May 2018. Available online.
10. Calculations by author based on data from SBA and US Bureau of Labor Statistics. Headd, Brian. “Young Businesses are Small, But Small Businesses aren’t Necessarily Young”, Small Business Administration, December 2014 Available online. Richard Clayton, Akbar Sadeghi, David Talan, and James Speltzer. “High-employment-growth firms: defining and counting them”, Monthly Labor Review, US Bureau of Labor Statistics, June 2013 Available online.
11, 12, 13. Collins, George and John O’Mahony and Sara Ma. “Connected Small Business US”, Deloitte, 2017. Available online
14. Headd, Brian. “Young Businesses are Small, But Small Businesses aren’t Necessarily Young”, Small Business Administration, December 2014. Available online.
15. Stu Richards. “Selling to SMB’s: One Size Does Not Fit All”, Bredin, March 29, 2016. Available online.
16. Babson College. “The State of Small Business in America 2016”, March 2016. Available online.
17. Stu Richards. “Selling to SMB’s: One Size Does Not Fit All”, Bredin, March 29, 2016. Available online.
18. Small Business Administration. “Firm Size Data”, 2014. Available online.
19. Stu Richards. “Selling to SMB’s: One Size Does Not Fit All”, Bredin, March 29, 2016. Available online.
20. Waters, Steve. “Growth-based Classification vs. Traditional Small Business Segmentation”, SMB Intelligence, May 2018. Available online.