The Covid-19 crisis exposed stark differences in the fortunes of different small and medium-sized businesses (SMBs). Well-capitalized startups have weathered the storm better than cash-poor community businesses; manufacturers of PPE equipment have experienced unprecedented demand while hospitality venues have been shuttered; and digitally enabled retailers have been able to shift delivery and customer services online, pivoting into entirely new business models. While the overall shock to SMBs has been serious, some have survived, and even thrived. It’s not too late for others to adopt the practices that made those SMBs successful in such a tumultuous environment.
In April, the OECD estimated that, across 32 countries, 70 to 80% of SMBs had experienced a drop in revenue of between 30 and 50%. Larger businesses have been slightly less hard-hit as a group, but the pandemic amplified a divergence between leading companies and the rest. In the U.S., the revenue of companies in the top decile by economic profit was flat between the third quarters of 2019 and 2020, while revenue for other companies declined by 11%.
Many of the actions taken by the most effective large companies are mirrored (albeit on a smaller scale) by higher-performing SMBs. Leading firms in both size categories had the financial resilience, organizational capabilities, and strategic focus to continue to invest and adapt throughout the crisis. Most notably, they accelerated digitization, including automation and shifts to online channels and remote or hybrid work; reorganized and reskilled for operational efficiency; and became more agile, increasing the pace of both product and business model innovation.
Such transformations could potentially produce a period of rapid economic progress once the crisis abates. Recent McKinsey Global Institute research found that productivity growth could be accelerated by 1% annually until 2024 in the U.S. and six large European economies. However, this upside can only be captured if demand growth is robust; the productivity-enhancing actions that leading firms take are replicated across the rest of the business population; and governments, companies, and individuals alike invest in their skills (in particular, skills for the future).
Whether due to future waves of the pandemic or other forces, there is likely to be some further economic turbulence ahead. Here are a few lessons leaders of small to medium-sized businesses can take from companies that have been successful during the crisis.
Deeper digital capability
The world of business has, of course, been moving online for a while. Pre-pandemic, more than 80% of SMBs in the U.S. and Europe had a company website, and more than two-thirds had some employees working via mobile devices, according to European Commission data and a 2019 survey by the National Small Business Association. Social distancing, lockdowns, and remote delivery during the pandemic catapulted many businesses much deeper into digital: Cloud-based solutions, video communications, and online sales have become commonplace.
The businesses that have leveraged digital the most are those that already had digital experience. One survey found that SMBs that had previously adopted software tools were nearly 30% more likely to have implemented new technology since the crisis began. These organizations already had the confidence and capability to go through the often challenging implementation journey. In particular, they had learned that digitization is not a magic wand — it’s powerful only when integrated with people and processes.
Consider Blue Bay Travel, an award-winning travel agency based in Stoke-On-Trent, England. By 2019, just a year after upgrading its digital and data infrastructure, the company’s sales had increased by 71%. While technology — in this case, a state-of-the-art reporting suite — was integral to its success, so were two other ingredients: a restructuring of its marketing organization and an entirely new set of skills to analyze and interpret data.
With the external push of the Covid-19 crisis, now is the ideal time for SMBs to regroup and identify the areas where digital technology could further boost their business. Basic as it sounds, it’s likely to set them apart from competition. Indeed, in an Enterprise Research Centre survey conducted in September and November 2020, most SMBs in the UK said they weren’t planning to make further technology investments in the near term. This is in stark contrast to our survey of executives from larger companies, where 75% reported that they would further accelerate technology investment in the next five years.
Balancing remote and real life
Working from home and interacting virtually with customers has been a mixed blessing for businesses. While plenty of research suggests that both practices can drive productivity gains on average, the results very much depend on the individual circumstances. For example, remote employees’ ability to work efficiently is determined not just by the appropriate space, tools, and environment, but also by the effectiveness and flexibility of work scheduling.
In principle, SMBs have an advantage here: With fewer layers between leadership and frontline workers and fewer corporate policies, it should be possible for managers to find tailored approaches for their teams. Indeed, 44% of SMBs in the UK that have some flexible working practices expect to increase this activity over the next 12 months. This, in turn, is likely to significantly increase engagement and satisfaction and subsequently business performance; up to 30% of office workers say that they would consider leaving their current job if not given the opportunity to work from home at least some of the time.
Online organic skincare school Formula Botanica has experienced these challenges and opportunities firsthand. Its business model has employees working in far-flung locations from Brazil to Slovakia. As the company has grown, it has had to work hard to maintain levels of energy and motivation among people working alone at home. In addition to recruiting people who are passionate about the business and its values, the company has put in place some basic but effective people practices to stay connected.
Each staff member has a line manager who holds regular one-on-ones with employees. More importantly, there’s a culture of “checking in” to make sure employees are okay. The company operates a day-to-day channel on Slack, where everyone says good morning and farewell on their working days. This means that even if employees’ working hours overlap with others’ only slightly, they end up chatting and sharing pictures and birthday messages and connecting on a personal level.
Since Formula Botanica’s staff is primarily made up of working mothers, the company has also made flexibility a priority. Employees choose the hours they want to work, helping them feel in control of their work-life balance. And whenever someone needs more flexibility, even on short notice, management has an open door for those conversations. These ways of working have proven instrumental in maintaining high performance throughout the crisis. But they also confer a significant longer-term advantage: staff satisfaction, loyalty, and productivity.
Skills transitions and recruiting
SMBs have traditionally faced more challenges than large businesses in attracting the best and most diverse talent. This can be a drag on management capability, innovation, and growth. For example, research has found that a higher workforce share of science and engineering graduates is associated with more new-to-market products and greater external cooperation. Similarly, businesses with highly diverse leadership are 70% likelier to report that the firm captured a new market than their less-diverse counterparts.
Yet, by implementing the flexibility advantages described — and often a purpose-driven ethos — smaller companies need not be shy about competing for talent against larger enterprises. This is the recent experience of Lux Afrique, a luxury concierge business. Despite scarcity of IT staff in general, the company managed to attract top performers to support its digital transformation by making flexibility a core part of its employee value proposition. Many organizations remain vague about their post-pandemic remote work setup. In contrast, at Lux Afrique, remote work is fully integrated into the day-to-day experience. For example, all work is managed via a platform called Monday.com, which allows everyone — remote or not — to see what’s happening, schedule their work efficiently, and even automate repetitive tasks.
Of course, it’s not enough to recruit talented people: They also need training and development and attractive career paths. Smaller businesses have historically been less predisposed to focus on these practices, but as the experience of global luggage delivery service Send My Bag shows, people development brings real rewards. The company has three-year progression plans for staff that outline the levels they can work up to and the subsequent pay increases they’ll see. The approach has been so successful that only one person has left the organization in the past two years.
Finally, with the demands of the workplace continuing to shift, businesses of all sizes are likely to face skills shortages. Rather than just looking outside to recruit new people, many SMBs would benefit from upskilling their existing staff — McKinsey research finds that the benefits could outweigh the costs in three-quarters of cases. Jessica Keir, the Operations Director of Newcastle-based car finance broker Refused Car Finance, agrees: “Providing staff members with a training budget and allocated time to step away from their daily workload to learn something new does not only boost the feeling of value within your staff, but it also impacts profits. When our employees feel supported, they work more efficiently and to a higher standard, which all contributes to the success of our business.”
Agility and innovation
Agility has been key to success, or even survival, during the pandemic. But stability and resilience were the hallmarks of high-performing businesses in the previous major upheaval: the global financial crisis of 2008. How can small and medium-sized businesses achieve both?
If the past is any guide to the future, the answer is two-fold. First, plot your post-pandemic course with potential future crises in mind. Even if the volatility caused by Covid-19 caught you off guard, don’t let that happen the next time a shock arrives. For example, find an operating model that will allow you to quickly scale the business down and up again, or build optionality into your business plan to make such flexing feasible. And, if you don’t already have one in place, articulate and embed a purpose and values that can outlast a crisis.
In March 2020, and in each subsequent lockdown, up to 95% of Dunsters Farm’s customers — schools, restaurants, and catering facilities — closed overnight. To survive, it built an online food delivery business serving customers at home. As the UK emerges from Covid-19 restrictions, the company plans to continue its consumer business, with a specialized gift delivery service. In both its B2C and B2B offerings, it’s now better positioned to cater to customers who increasingly prefer locally sourced produce.
Second, expand the organization’s innovation capacity. Amid what economists call “creative destruction,” this really is a business’s only source of long-term advantage. In our survey, more than 60% of SMBs said that they were planning to increase the rate of product and business model innovation post-pandemic.
For SMBs, external collaborations are particularly important for building an innovation advantage. Staying close to customers’ experiences, engaging with suppliers, empowering staff, and joining local business networks are all powerful sources of new, practical ideas, as well as support. The participant feedback from Be the Business’ programs is clear: SMBs draw the most inspiration — and performance improvements — by interacting with and learning from their peers.
Despite unprecedented challenges, many SMBs around the world have shown remarkable resilience and capacity to reinvent themselves. Now is the time to take inspiration from businesses that have thrived and to build resilience for the future. SMBs that heed the lessons from this crisis are well positioned to weather the next one.
Note: All case studies quoted in this article are based on small or medium-sized businesses (SMBs) working with Be the Business, a charity based in the UK that enables SMB performance improvements through advocacy, mentoring, education, networks, and advice. One of the authors sits on the Be the Business Board of Trustees.
Don’t Let Employees Pick Their WFH Days
It’s clear that as the U.S. economy reopens after Covid precautions that many organizations will be pursuing a hybrid future in which employees work from the office some days and at home on other days. While some managers may be inclined to let employees choose their schedule, the author recommends not pursuing this approach for two reasons. First, is the challenge in managing a hybrid team, which can generate an office in-group and a home out-group. The second concern is the risk to diversity. Current surveys show that younger women with children at home are most likely to want to work from home permanently. The author’s previous research found that WFH employees had a 50% lower rate of promotion after 21 months compared to their office colleagues. The best solution is for managers to decide which days their team should WFH and which days everyone should be in the office.
As U.S. states and the federal government start to roll back Covid-19 restrictions, and companies and workers start to firm up their office return plans, one point is becoming clear: The future of working from home (WFH) is hybrid. In research with my colleagues Jose Maria Barrero and Steven J. Davis, as well as discussions with hundreds of managers across different industries, I’m finding that about 70% of firms, from tiny companies to massive multinationals like Google, Citi, and HSBC, plan to move to some form of hybrid working.
But another question is controversial: How much choice should workers have in the matter?
On the one hand, many managers are passionate that their employees should determine their own schedule. We’ve been surveying more than 30,000 Americans monthly since May 2020 and our research data shows that post-pandemic, 32% of employees say they never want to return to working in the office. These are often employees with young kids, who live in the suburbs, for whom the commute is painful and home can be rather pleasant. At the other extreme, 21% tell us they never want to spend another day working from home. These are often young single employees or empty nesters in city center apartments.
Given such radically different views it seems natural to let them choose. One manager told me “I treat my team like adults. They get to decide when and where they work, as long as they get their jobs done.”
But others raises two concerns — concerns, which after talking to hundreds of organizations over the last year, have led me to change my advice from supporting to being against employees’ choosing their own WFH days.
One concern is managing a hybrid team, where some people are at home and others are at the office. I hear endless anxiety about this generating an office in-group and a home out-group. For example, employees at home can see glances or whispering in the office conference room but can’t tell exactly what is going on. Even when firms try to avoid this by requiring office employees to take video calls from their desks, home employees have told me that they can still feel excluded. They know after the meeting ends the folks in the office may chat in the corridor or go grab a coffee together.
The second concern is the risk to diversity. It turns out that who wants to work from home after the pandemic is not random. In our research we find, for example, that among college graduates with young children women want to work from home full-time almost 50% more than men.
This is worrying given the evidence that working from home while your colleagues are in the office can be highly damaging to your career. In a 2014 study I ran in China in a large multinational we randomized 250 volunteers into a group that worked remotely for four days a week and another group that remained in the office full time. We found that WFH employees had a 50% lower rate of promotion after 21 months compared to their office colleagues. This huge WFH promotion penalty chimes with comments I’ve heard over the years from managers. They often confided that home-based employees in their teams get passed over on promotions because they are out of touch with the office.
Adding this up you can see how allowing employees to choose their WFH schedules could contribute to a diversity crisis. Single young men could all choose to come into the office five days a week and rocket up the firm, while employees with young children, particularly women, who choose to WFH for several days each week are held back. This would be both a diversity loss and a legal time bomb for companies.
So I have changed my mind and started advising firms that managers should decide which days their team should WFH. For example, if the manager picks WFH on Wednesday and Friday, everyone would come in on the other days. The only exceptions should be new hires, who should come in for an extra office day each week for their first year in order to bond with other new recruits.
Of course, firms that want to efficiently use their office space will need to centrally manage which teams come in on which days. Otherwise, the building will be empty on Monday and Friday — when everyone wants to WFH — and overcrowded mid-week. To encourage coordination, companies should also make sure that teams that often work together have at least two days of overlap in the office.
The pandemic has started a revolution in how we work, and our research shows this can make firms more productive and employees happier. But like all revolutions this is difficult to navigate, and firms need leadership from the top to ensure their work force remains diverse and truly inclusive.
When an Iconic Founder Overshadows the Family Business
It’s not uncommon to see family businesses in which the founder or leader plays such a public role that they become “iconic.” Often, the lasting effects of an iconic founder can stretch beyond his or her impact on the family to thwart the growth of the business going forward. An icon can cultivate and leave behind a “workforce of the past,” with loyal long-term employees defaulting to the icon’s preferred ways of managing at the expense of fresh ideas. They can nurture a culture of “yes” people rather than independent thinkers, and drive creative next-generation family members away from the business into their own endeavors where they have more control. When family members recognize the complexities of having a truly iconic founder, they can feel trapped. But there are steps they can take to prevent an iconic founder from overshadowing the next generation’s chance to grow and develop.
Sometimes a founder’s image is so publicly associated with his or her company, one rarely stops to ask, “Who is that person?” A few, such as Colonel Sanders of Kentucky Fried Chicken, Henry Ford, and Ralph Lauren become something even more than that; they become “iconic.”
For many family businesses, having an iconic founder has enormous benefits. Building the brand of the person simultaneously builds the brand of the company. As the company has more success, the iconic founder gets more famous and more idealized by their employees and their family. What could be wrong with that?
It turns out that having a full-fledged iconic founder (or leader) is not always a good thing for the sustained health of the business. Though it might be beneficial to have an iconic founder at the helm of a business for years, it can also cause family leadership beyond the founder to be much more challenging. After all, who can live up to the image of a truly “iconic” founder who has become a kind of exaggerated character — a two-dimensional representation of the business without any visible human imperfections?
When founders become larger-than-life icons synonymous with the business itself, they begin to overshadow everyone and everything around them. Worse still, iconic founders can start to believe their own hype and hold next-generation leaders to impossible standards. They can create a “loyal” workforce that is resistant to new leadership, and potentially even cause family members to walk away from the business. Ironically, a wildly successful iconic founder can unintentionally set his beloved business up for failure in future generations.
But being part of a business with an iconic founder doesn’t have to derail the next generation if the family can find a balance between honoring what the “icon” has built and putting their own stamp on the business to help ensure that it will continue to thrive.
Where Iconic Founders Go Wrong
It’s not uncommon to see family businesses in which the founder (or a later-generation family leader) plays such a public role that they become “iconic” — their individual characteristics are submerged under an image that is “preserved” as wise, kind, heroic, generous, spiritual and/or many other idealized traits. The image that is projected out to a wider public — often even beyond the business’s customers — is carefully maintained and protected by employees and by family members. This process of protecting the “brand” can have significant downsides. The more powerful the public persona, the more pressure is felt by the family and the company to keep the founder on a pedestal.
Sometimes the individual entrepreneur is in fact as wise and kind as the image portrays him to be. But more often, that real person is all too human. Successful business leaders, iconic or not, make mistakes in business and in their personal lives. Worse still, we have seen iconic founders who begin to believe their own publicity and consistently choose to grow their image over helping others to shine. Sometimes, they hold their children up to such high standards — standards that they think reflect their “perfect image” — that the next generation feel (rightly so) they can’t possibly meet them.
Iconic founders often lack empathy for the sacrifices others (family, employees) are making. They often see the world through one lens, which leads them to push for business growth and celebrity at the expense of all other priorities. As family members seek the iconic founder’s approval, he or she just pushes harder to promote a super-human image. Those closest to the founder find it hard to challenge him or her in any setting, business or family, for risk of being disregarded by the icon — better to agree and stay in good graces than confront and be shut out.
We have seen difficult dynamics evolve in the families of an iconic founder. When the icon makes irrational demands or unkind judgements, everyone snaps to order — no one disagrees. Family members’ (and often employees’ and colleagues’) unpleasant experiences with the icon get buried: to discuss their pain or to criticize is to be disloyal. The iconic founder’s flaws — some of them grave — stay invisible.
Finally, the lasting effects of an iconic founder can stretch beyond his or her impact on the family to thwart the growth of the business going forward. The icon can cultivate and leave behind a “workforce of the past,” with loyal long-term employees defaulting to the icon’s preferred ways of managing at the expense of fresh ideas. They can nurture a culture of “yes” people rather than independent thinkers, and drive creative next generation family members away from the business into their own endeavors where they have more control.
One “Icon” and His Family
We know one such iconic founder who started as a talkative and charismatic pitchman for small kitchen appliances. Dale (a pseudonym) developed his own line of specialized cooking gadgets, which he grew into a national brand with a high-quality reputation. He became well-known on TV, appearing not just in ads for his products, but also on popular cooking shows. He often socialized with celebrity chefs, and he was invited to the White House several times.
Home, though, was a less comfortable environment. His wife resented what she saw as his manic focus on the company and his image; he was absent from the family outside of work most of the time. His relationship with their four children was strained. Two of the four chose to work in the company and strived unsuccessfully for Dale’s approval. Their father often told them that the business was “too complicated” for them to understand and that they didn’t have the “big imagination” necessary for leadership. The younger two lived across the country and were disengaged from the business and the family.
What’s going on this family is a typical response to a dominant iconic founder. In family businesses, there are four common dynamics connected to an iconic founder:
- The first response is the tendency among the next generation to judge others relentlessly. Dale’s two children who worked in the business continually criticized each other’s ideas in management and board meetings. Privately, key executives and outside directors acknowledged that the siblings seemed like they were trying to “out-Dale” Dale. Dale, for his part, barely listened to anyone’s ideas but just talked about his own plans for the next big splash. Neither sibling seemed capable of extending support or appreciation to their key managers or board members, perhaps because none had been extended to them by their father.
- The second common family reaction is to disconnect. In this case, Dale’s two youngest children moved across the country to work in unrelated fields. Friends often remarked on how their talents could be valuable to their family business, but neither wanted anything to do with it. At the same time, they were careful about how they discussed their father with other people, even with each other. There was no safe place to talk about childhood feelings of abandonment and inadequacy arising from their father’s self-absorption.
- Eventually, when the icon is disabled or dies, a paralyzing effect occurs: Family owners and business leaders can simply stop making decisions, freezing the company in time. When Dale’s eventual dementia became obvious and he retired from public life, there was no one to take his central decision-making role. The two siblings who worked in the business became co-CEOs, but most of the time they could not agree. Each criticized the other for not being having the “big imagination” necessary to lead or not doing “what Dale would do.”
- The final impact is on the business, which can get stuck. In this case, management and board members watched helplessly as the business foundered. The long-tenured non-family managers who thrived in the company were the ones who knew how to say yes to Dale and were not capable of or interested in bringing new ideas. Newer, more talented executives were quickly frustrated by their inability to accomplish their goals and soon left the company. There were no pathways to evolve the workforce or the brand.
How the Next Generation Can Counter-Balance an Icon
When family members recognize the complexities of having a truly iconic founder, they can feel trapped. But there are steps you can take to prevent an iconic founder from overshadowing the next generation’s chance to grow and develop as individuals in your family businesses:
- First, acknowledge and appreciate the contributions of the founder, but don’t let their shadow shade your identity. Recognize the founder as a dynamic person who took risks with a career and with the business. Think of the founder as an inspiration, not a constraint. Forge your own career based on your skills and passions, whether within or outside of the business. Avoid the temptation to be a clone of the icon.
- Second, look forward, not backward. Recognize that your generation will need to find your own way. As next-generation family members, you may not yet be running the business, but as future owners, you can start to communicate, meet, develop trust, and determine how you want to be collective owners of the business. You do not have to be tied to the founder’s version of how family owners should operate.
- Third, be prepared to evolve. You will need to recognize the impact of the icon on the family and the business, and to have the courage to say, “We need to do this differently.” Families who move successfully past the iconic founder refresh their strategies and push their businesses to evolve. In the family, they allow the “icon” to fade and instead acknowledge the talented and flawed relative.
Dale’s family went through some tough times in the post-Dale era, especially the second generation, who never were able to work together effectively. Fortunately, the two siblings who worked in the business managed to at least hold it together, allowing the third generation to bring in a refreshed business perspective. While the cousins were distanced from the business and each other by their unhappy parents, they still felt a connection to the iconic founder’s legacy. They started asking questions about who Dale was and developed an interest in getting to know each other and the business better.
It may not be possible to shake the overbearing influence of an iconic founder until the third generation, if they aren’t aren’t paralyzed by their parents’ emotional baggage. With fresh eyes and enthusiasm, they are able to focus on what the business needs to take it forward. Family businesses can survive and thrive even after an iconic founder fades away.