BROUGHT TO YOU BY

THE SME OF THE FUTURE

Insights from SmartCompany’s2017 SME Directions survey

2

The SME of the future: Insights from SmartCompany’s 2017 SME Directions survey

Contents

IntroductionThe flexible futureHead in the clouds? Not quite…Hail to the content kingAre we ready to put our money online?Business is bracing for artificial intelligenceSMEs are still keen on R&DThe one skill SmartCompany readers want most from their people…

3579

11131516

3

The SME of the future: Insights from SmartCompany’s 2017 SME Directions survey

IntroductionIf SmartCompany readers have anything to say about the future, it will be driven by data and artificial intelligence.

We will work flexibly, use cloud technology to thrive and push even more money into research and development to create new digital solutions. We will be leaders, not relying on computers for our interactivity, but using the personal touch to enhance our technological solutions.

All this is according to our latest SmartCompany SME Directions survey.

Five years ago, these issues would have been playing in the background. But business moves fast. These are now some of the biggest issues faced by businesses of all sizes – whether that business is run by one person or 100, or if they earn $500,000 or $10 million.

Our survey has revealed a treasure trove of information, including what businesses are most concerned about, and the types of investments they’ll be making in the next 12 months.

Technology, R&D and investments in content marketing are high on the agenda – and more businesses are keeping an eye on what the emergence of artificial intelligence could mean for them.

It’s easy to seem overwhelmed by these problems. Issues like the possibility of cyber attacks conducted through the internet of things, or how to best mine your own data so you can make intelligent business decisions, can seem out of reach if you’re a small business trying to do a lot of things with few resources.

That’s why we’ve put together this ebook. Based on findings from the survey, we’ve

4

The SME of the future: Insights from SmartCompany’s 2017 SME Directions survey

interviewed a panel of experts to comment and give advice on some of the top results – and speak to what SmartCompany readers are keen to hear about most.

Our survey was answered by a broad spread of small business leaders, with more than half of respondents operating in Victoria or New South Wales. Businesses are represented from every state and territory. The most represented age demographic is 45-49 at 15.88% of all respondents, however, 25% of respondents are under the age of 40.

Respondents work in a range of industries with the most popular in marketing and communications, manufacturing and logistics, consulting and professional services. IT and education are also popular industries.

Regardless of industry, age, or location – this ebook breaks down the biggest issues and decisions facing SmartCompany readers for the year ahead and beyond. The advice in this ebook will help you plan, action and ultimately help your business not just survive, but thrive.

THE #1 CLOUD ERPOVER 40,000 ORGANISATIONS RUN NETSUITE GLOBALLY.www.netsuite.com.au | 1800-638-784

5

The SME of the future: Insights from SmartCompany’s 2017 SME Directions survey

1. The flexible futureWhile flexible working arrangements may once have been thought of as a concept designed solely for mothers returning to work, more Australian businesses are coming around to the idea of a fully flexible, fluid workplace.

Certainly, spurred by Fair Work Australia’s requirement that employers do their best to provide flexibility if employees request it, more signs are emerging that flexibility is a massive, systemic change in Australian business.

Accounting and consultancy giant PwC has recently introduced flexible work for all its Australian employees, and ANZ has made similar arrangements. According to the Australian Bureau of Statistics, 30% of fathers now use flexible work to look after their children compared to 16% two decades ago.

A recent study of a Fortune 500 company found that flexible working decreased sick leave and, most importantly, increased employees’ positive feelings about their job.

The move towards flexibility is driven by ability: smartphones allow us to work from anywhere. But there is an underlying need for more flexible arrangements. If Australia is to thrive in the 21st century economy, employees need to be able to work quickly, nimbly, and make fast, informed decisions. They can’t do that stuck to a desk.

The SmartCompany survey reveals employers are on board with this trend.

When employers were asked what three aspects would contribute most to improving or maintaining workplace culture, flexible work arrangements were the most popular option. Additionally, more than 70% of respondents agreed with the statement that “a flexible working environment is good for my business”.

6

The SME of the future: Insights from SmartCompany’s 2017 SME Directions survey

70% of respondents agreed with the statement that “a flexible working environment is good for my business”.

Flexibility as defined by the survey included aspects such as flexible hours and the freedom to work remotely.

Notably, employers see flexible work as a benefit: when asked what benefits or services are offered to employees, more than 60% said “flexible work”.

Kate Boorer, performance expert and founder of Young Professional Women Australia, says employers need to think of flexibility as something all employees should enjoy, not just parents.

“Flexibility is really about freedom of the frame of work where I can work how I want, when I want, and that it can fit into my life in a way that suits me more.”

“Is it good for business? I know a lot of people who won’t leave a business because of the level of flexibility they have access to.”

While some businesses may be concerned about the lack of oversight, with employees not visibly in the office, Boorer says the trend simply comes down to good hiring.

“A lot of organisations are not clear in their hiring, and in my experience it’s because they’re not clear about expectations, which is where the flexibility comes in.”

Overall, Boorer says, flexibility isn’t just a benefit. It’s necessary.

“We’ll start to see our approach to work shift in an economy where it’s easier to go out and freelance. The nature of work will change, and with that will come the whole piece around part-time and flexible work.”

70%

7

The SME of the future: Insights from SmartCompany’s 2017 SME Directions survey

2. Head in the clouds? Not quite…The past decade has seen a slow and steady move from Australian businesses to the cloud, but many are still hesitant: according to 2015 statistics from the ABS, only one in five Australian businesses use a paid cloud service.

However, the SmartCompany survey reveals small businesses are increasingly taking on cloud services, even if they are hesitant about fully moving their entire infrastructure to outsourced IT solutions.

The survey found 50% of businesses either use all or some of their business management software in the cloud. Of the 40% who don’t (10% said they aren’t sure), the main reasons for not using the cloud were: on premise software is easier to use, security concerns and government regulation stopping cloud use in certain industries.

50% of businesses either use all or some of their business management software in the cloud.

However, when asked which technology has had the biggest impact or increased efficiency in the past five years, cloud technology came second only to smartphones.

Graeme Burt, Senior Director, Growth and Emerging Business – Japan and Asia Pacific at Oracle Netsuite says, “Small businesses often see the limitations of IT systems as a barrier to expansion.”

However, Burt explains, the paradigm is rapidly changing due to the development and wider adoption of cloud computing. Today, cloud computing provides small businesses with low-cost, flexible and highly scalable IT solutions that supports growth and expansion. This enables them to develop new products and services, enter new markets and adapt to changing business conditions efficiently and quickly.

“The use of cloud computing can significantly reduce risk exposure and costs associated with growth,” Burt continues. “Those using cloud are twice as likely to be internationalised as non-cloud users as it is much easier to facilitate overseas expansion.”

50%

OVER 40,000 ORGANISATIONS RUN NETSUITE GLOBALLY.

THE #1 CLOUD ERP

www.netsuite.com.au | 1800-638-784

8

9

The SME of the future: Insights from SmartCompany’s 2017 SME Directions survey

3. Hail to the content kingDespite multiple technological challenges facing Australian business, the SmartCompany survey reveals the most pressing need isn’t the rise of the cloud, or even cybersecurity.

It’s sales and marketing.

When asked in which areas SMEs will invest over the next year, the clear majority listed sales and marketing, and it wasn’t even close – technology solutions came second, by nearly 10 percentage points.

When asked in which areas SMEs will invest over the next year, the clear majority listed sales and marketing.

Most businesses said they had invested in digital marketing over the past year, (ahead of leadership skills, in second). When asked in what areas businesses had invested for staff development, sales and lead

generation and digital marketing were the two most popular answers.

Marketing techniques listed by businesses weren’t particularly unusual: most use email marketing, content marketing, search engine optimisation and social media (TV and outdoor advertising were the least popular options).

Nearly 60% of businesses said they will invest more in marketing this year, and here’s the kicker: the biggest area of focus will be content marketing. Articles, blogs and any video content come under this area, and it’s clear why it’s so popular: those companies using content marketing receive nearly eight times more traffic than others.

Nearly 60% of businesses said they will invest more in marketing this year.

When every business has access to the same cheap software and resources, the

$

60%

10

The SME of the future: Insights from SmartCompany’s 2017 SME Directions survey

quality of the content put out by yours is the big differentiator. However, nearly half of respondents said they don’t have a dedicated marketing resource.

Marketing Angels managing director Michelle Gamble says this isn’t a surprise: “Businesses struggle to prioritise it”.

“We see so many businesses outsource content marketing, and they’re almost scared to sign off on it. There’s almost a fear around it.”

Increasingly, Gamble says, it will be too difficult for businesses to compete with the flood of content online. Thus, she says businesses need to start investing in their own original content creation, including their own research – and especially video with the rise of Snapchat and Instagram stories.

“That short video content on Snapchat or Instagram is going to become more important. Live video content is also going to be a big trend – you can use Facebook Live without the need for fancy software.”

The goal, Gamble says, is to create content that your employees would feel willing to share with their own networks – not because they’re asked to by management.

“The clients I see succeeding are the ones who invest the most, and they’re starting to invest in market research, events, and prioritising their content overall.”

“We see so many businesses outsource content marketing, and they’re almost scared to sign off on it. There’s almost a fear around it.”

11

The SME of the future: Insights from SmartCompany’s 2017 SME Directions survey

4. Are we ready to put our money online?SMEs aren’t fans of the big four banks. In 2016, the East & Partners Business Banking Index revealed 25.4% of SMEs were dissatisfied with their bank.

It’s therefore no surprise that the SmartCompany survey shows more SMEs turning to alternative lending solutions to find the answer to their woes – although not all at once.

The survey shows just over 40% are planning to make a strategic financial investment in the next 12 months. And while 50% say they don’t need a loan, 17% say they will be seeking one in the next year – and another 7% say they will do so in the year after.

40% are planning to make a strategic financial investment in the next 12 months.

The main purpose of seeking a loan is to help ensure cashflow and a line of credit, followed by making capital improvements, according to the survey. Though 50% say they will approach a big four bank, half of respondents said they would consider an online lender but the biggest thing stopping them is lack of information about the industry.

Half of respondents said they would consider an online lender but the biggest thing stopping them is lack of information about the industry.

Kim Heras, founder of startup community 25fifteen and member of the ASIC Digital Advisory Committee, says the fact most businesses aren’t aware of the industry lines up with what he’s seeing.

“That’s not something that’s specific to the fintech space – it’s a broader marketing and distribution challenge that all startups face.”

40%

$

12

The SME of the future: Insights from SmartCompany’s 2017 SME Directions survey

However, Kim says there is a misunderstanding about the industry. While the SmartCompany survey shows access to a bank manager and personal support are important, he argues that “I’m not sure a personal touch is what people want”.

“I think that’s how they’re expressing wanting a personalised service that can give them the information they want in a timely fashion. I think that the AI behind chatbots is fast approaching that type of experience, which gives fintech startups looking to leverage them a definite cost advantage.”

In the future, Heras says, fintech operators will be able to craft a more natural, personal

digital experience due to improvements in tech – not necessarily a reliance on human interactions.

Looking forward, Kim says businesses will benefit from fintech development as dissatisfaction with traditional banks continues to grow.

“Fintech startups don’t have that legacy infrastructure – for want of a better description – to deal with. Of course, they’re still subject to the same underlying regulation, but they can start from a perspective of, for instance, “if banking was invented today, what would it look like?”.

THE #1 CLOUD ERPOVER 40,000 ORGANISATIONS RUN NETSUITE GLOBALLY.www.netsuite.com.au | 1800-638-784

13

The SME of the future: Insights from SmartCompany’s 2017 SME Directions survey

5. Business is bracing for artificial intelligenceBy far, the technological development most businesses are concerned with is artificial intelligence and machine learning: the idea that everything we now do can be cognitively replicated by computers.

The technological development most businesses are concerned with is artificial intelligence and machine learning.

At the same time, those machine learning algorithms have access to some of the biggest repositories of data and information. This has huge employment ramifications. According to a Federal Government forecast, nearly half of Australian jobs are at risk of some type of automation.

That concern is reflected among SmartCompany readers.

When asked what technology advancements will be most likely to disrupt business in the next 10 years, businesses said the internet of things, high speed internet, but also: big data and the advancement of artificial intelligence.

This is an appropriate concern. According to IDC, big data and business analytics worldwide revenues will move from $122 billion in 2015 to $187 billion in 2019. Businesses not ready to exploit the growth of that data will be left behind.

Startup venture fund Y Combinator recently announced its own track for AI startups.

Toby Walsh, professor of artificial intelligence at the University of New South Wales, says while it is right for businesses to be concerned about the potential disruption caused by AI, we shouldn’t get too far ahead of ourselves.

14

The SME of the future: Insights from SmartCompany’s 2017 SME Directions survey

“Even if you look at something like autonomous vehicles, we’re talking more than a decade away. It’s going to take a while to build scale.”

The more likely scenario than immediate displacement due to automation, Walsh says, is that businesses hiring analysts and data scientists begin to experiment and create products with their customers’ data – even SMEs. But he warns that as they do this, businesses need to put in place the proper infrastructure and the strategy to make these products safe.

There is a difference, Walsh argues, in businesses using data to make more informed decisions than those creating data-based products that use customers’ information. While the former may be easier, doing the latter in a customer-centric way will require a much more stringent and comprehensive understanding of the intersection of data and privacy.

For this, he says, businesses will need to spend time learning, investing and creating a culture that respects data, collects it, analyses it and then puts it to use – which is where SMEs can find value.

Businesses will need to spend time learning, investing and creating a culture that respects data, collects it, analyses it and then puts it to use

“We’re going to see lots more companies make these mistakes,” he says. “You need to treat people’s privacy and data with appropriate respect.”

15

The SME of the future: Insights from SmartCompany’s 2017 SME Directions survey

6. SMEs are still keen on R&DWe live in an agile environment in which small businesses have more chance than ever of toppling a leading market player, purely through good ideas: cheap access to powerful software and hardware makes this dream easier than ever.

But those ideas don’t come without work. According to the SmartCompany survey, businesses are more than ready to put that work in.

The survey shows that R&D spending will be the third largest investment in the year ahead, behind marketing and technology solutions. And among those businesses applying for government grants in the year ahead, R&D is by far the most popular.

R&D spending will be the third largest investment in the year ahead.

This R&D spending will be more needed as we transition from a mining economy to a services-based economy. According to Brendan White, partnerships and operations head at PwC’s Nifty, a service simplifying the

R&D grant application process, this is exactly what he’s seeing on the ground.

“I do see a trend of services businesses productising and automating, more in common digital agencies. We’re definitely seeing a lot more of that, and that comes from the tech side.”

White says there are still many SMEs who are eligible but don’t know they are. Given the challenges described in the previous chapter with the possible disruption of artificial intelligence and data analysis, White says now is the time to be investing in R&D processes.

It comes down to this question: is your business likely to be disrupted in the next five years? If the answer is yes, White says R&D may be necessary to look for new ways of doing business.

It comes down to this question: is your business likely to be disrupted in the next five years?

“I personally think it’s hugely important to take these sorts of risks in a new business and the more that can be done to encourage that the better.”

16

The SME of the future: Insights from SmartCompany’s 2017 SME Directions survey

7. The one skill SmartCompany readers want most from their people…The Australian and global economies are in a state of dramatic transition.

Older skills will make way for new ones: data analysis, coding and a working knowledge of machine learning are some of the most sought after traits of employers in this new economy.

Despite this, when SmartCompany readers were asked what skill-areas businesses will invest in, marketing came first – but leadership skills came a close second. Most businesses say they are suffering from a skills shortage.

When it came to choosing areas for personal and professional development of staff, businesses said sales and lead generation was first, with leadership skills following closely behind.

This seems unintuitive. But according to business futurist and consultant, Morris Miselowski, this is the smartest move businesses could make.

Most businesses say they are suffering from a skills shortage.

As artificial intelligence and machine learning begin to take employment opportunities and create new ones – a fear expressed in the previous chapter – the nature of interaction with business will change.

Miselowski says businesses investing in these soft skills will be well placed to combine those with technology in the future, offering a robust product that doesn’t ignore the basic human need for interaction.

“This is the first time in our evolution we will outsource our critical thinking,” he says.

While training for AI and data analysis is crucial, Miselowski says businesses hoping to

17

The SME of the future: Insights from SmartCompany’s 2017 SME Directions survey

make the most of the new economy will be better suited in training for leadership.

“My bias is we don’t enough train for attitude. Skills shortages, like sales and marketing and leadership, all of them require a technological savvy. But at the end of the day I don’t think we’re training enough for attitude or aptitude, and that’s where we’re headed in tomorrow’s world.”

Miselowski says this issue is simply about being aware of where tech is headed, and anticipating shortages: as we become dependent on tech, humanitarian skills will be in demand. As a result, SmartCompany readers putting their money into training for sales and leadership may be a move that works out in the long run.

“Sales and marketing is a social interaction. You need someone to have a conversation with.”