Digital Transformation: Small businesses face obstacles, opportunities in using digital technologies in the wake of the pandemic

Executive summary

The coronavirus pandemic forever changed consumer behavior and accelerated business’ digital transformation. Tech giants and other large companies were able to capitalize on this seismic shift, leaving vulnerable small businesses behind, particularly those owned by women and entrepreneurs of color. 

Throughout the pandemic, Small Business Majority saw, heard from and helped many small businesses that were able to successfully make digital transformations or otherwise pivot their business model to meet their customers’ needs. However, we know that this transition has not been easy, nor has it been uniform across the small business ecosystem.  

To better understand small business’ digital transformation through the pandemic and into recovery, we launched a multifaceted study of key issues surrounding entrepreneurs’ technology adoption. The study included six surveys and five focus groups over the span of 18 months (for more details on the methodology, see Appendix).

Our research finds that nearly all small businesses are using at least some digital technology, including new tools adopted during the pandemic, but the types of tools adopted vary widely. Some businesses remain largely non-digital in how they work, using a few digital tools for specific tasks, while others conduct nearly all their business in a digital or online environment. While a digital transformation is underway in the small business ecosystem, not all business owners are fully participating, nor do they feel a need to adopt every technology available. 

As the world continues to digitize, small businesses must be nimble and adapt to keep pace. As emerging technologies like AI have the potential to revolutionize business, entrepreneurs who utilize it can stay abreast of current trends. This report underscores the progress that many have made in their digital transformation while also revealing that others lack the time, capacity and money to do so. There are significant gaps among businesses across a range of areas, especially for those that are still working to exceed the $100,000 mark in revenue. Customized business support and beneficial policies are needed to help those left behind fully achieve their digital transformation so they can remain competitive with larger corporations.

To gauge the levels at which different technologies are being used, we conducted surveys on several distinct categories: 

• General digital literacy and broadband access, to get a baseline understanding of business owners’ comfort with technology and their ability to access it.
• Online presence, looking at how small businesses create and maintain websites, their social media presence, and whether and how they engage in e-commerce. 
• Accounting, finance and point-of-sale technology, looking at how businesses leverage technology to better understand their profitability and cash flow. 
• Customer relationship management (CRM), exploring the different types of CRM tools and concepts and small business owners’ familiarity with them (email marketing, post-sale interaction, reputation management, appointment scheduling software, etc.) 
• Human resources, including technology for managing recruiting, onboarding, employee and benefits management, and scheduling. For self-employed respondents, we look at things they consider when deciding if they want to hire.   
• Cybersecurity, including how businesses manage and store customer data, their awareness of potential threats, and whether they have been a victim of a cyberattack.  
• Artificial intelligence, examining how they are using this emerging technology and what concerns they have around its prevalence. 

Overall key findings:

• About two-thirds (66%) of business owners use some type of financial accounting software for their business, and more than half (57%) use an electronic point-of-sale system.
• 63% have a cybersecurity plan in place for their business. More BIPOC (Black, Indigenous, and People of Color) businesses (65%) have a cybersecurity plan compared to white-owned businesses (54%).
• 69% currently use some kind of artificial intelligence (AI) technology for their business.
• Almost 8 in 10 (78%) businesses with more than $100,000 in revenue currently use artificial intelligence AI compared to half of businesses with less than $100,000 in revenue.
• About a third of business owners do not have a website for their business; instead of a website, the majority (76%) have a social media presence. Almost 1 in 10 (8%) businesses have no online presence at all.