The COVID-19 crisis exposed stark differences in the fortunes of different small and medium-sized businesses (SMBs).

Well-capitalised start-ups have weathered the storm better than cash-poor community businesses; manufacturers of Personal Protective Equipment (PPEs) have experienced unprecedented demand while hospitality venues have been shut; 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 Organisation for Economic Co-operation and Development (OECD) estimated that across 32 countries, 70 to 80 per cent of SMBs had experienced a drop in revenue of between 30 and 50 per cent.

Larger businesses have been slightly less hard hit as a group, but the pandemic amplified a divergence between leading companies and the rest.

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, organisational capabilities and strategic focus to continue to invest and adapt throughout the crisis. Most notably, they accelerated digitisation, including automation and shifts, to online channels and remote or hybrid work; re-organised and re-skilled 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.

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 SMBs 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 per cent 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 per cent more likely to have implemented new technology since the crisis began. These organisations already had the confidence and capability to go through the often challenging implementation journey. In particular, they had learned that digitisation was not a magic wand — it’s powerful only when integrated with people and processes.

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 can further boost their business. Basic as it sounds, it’s likely to set them apart from competition.


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 the 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 per cent 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 per cent of office workers say they will consider leaving their current job if not given the opportunity to work from home at least some of the time.


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. 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 per cent more likely 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. Many organisations remain vague about their post-pandemic remote work setup.

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 organisation 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 will benefit from upskilling their existing staff — McKinsey research finds that the benefits could outweigh the costs in three-quarters of cases.


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 SMBs 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.

Second, expand the organisation’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 per cent of SMBs said 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. SMBs draw the most inspiration — and performance improvements — by interacting with and learning from their peers. - hbr.org