News

Study: Small business outlook bright; customer demand driving growth

October 17, 2010

In spite of continued concerns over the economy, small businesses' hiring plans are stable compared with the spring, with one in four planning to hire over the next six months, according to the American Express OPEN Small Business Monitor, a semi-annual survey of business owners now in its ninth year.

Concurrently, small business owners' view on the economy has deteriorated. Roughly four in 10 (45 percent) have a positive outlook on the economy and prospects for their business, down from more than half compared with spring (51 percent) and last fall (55 percent).

Over the last 18 months, business owners have been streamlining operations and cutting costs. Now, as a result of those tough decisions, many business owners appear to be in stronger financial position to jump on growth opportunities that might materialize. Fewer report having cash flow issues (53 percent, down from 60 percent this spring), and while hiring plans remain stable overall, the number of business owners who plan to hire full-time employees in the next six months has doubled to 10 percent versus spring 2010.

While their confidence in the overall economy declined, more business owners said they thought sales over the next six months would be higher compared with last year (39 percent vs. 34 percent in the spring), and employee morale has shown modest improvements.

Business owners are also increasingly tapping into social media to reach customers and prospects. Four in 10 now indicate they use at least one social media platform; Facebook is by far the most popular platform, with 27 percent of relevant businesses on board. By comparison, only one in 10 business owners a year ago were using online social networking to market their businesses.

"Over the last two years, many business owners shelved investment and hiring plans and dipped into cash reserves and personal assets to stem the tide of declining sales," American Express OPEN president Susan Sobbott said. "Now entrepreneurs are driving more business with existing customers through regular follow-up and better customer service. They're also tapping into relevant and low-cost marketing tools like social media."

Generating Customer Demand: Service and Value

Overall, business owners say that increased customer demand is by far the most important factor in driving business growth (50 percent) compared to tax cuts (23 percent), access to capital (14 percent) and the ability to hire more employees (6 percent). To help boost demand, they're focused on two key strategies: deepening relationships and creating value.

• Seventy-two percent are working to build better relationships with existing customers through regular follow up, and 34 percent are actively using social media to keep connected with customers

• Twenty-five percent are highlighting how their products or services can save customers either time or money; 24 percent are bundling products or services to add greater value; 20 percent are establishing loyalty programs, 18 percent are establishing rewards/incentive programs; and 14 percent are offering free trials of their products and services

This focus on service and value could strike a chord with consumers, who reported in American Express OPEN research that price, proximity and personalized service were the three biggest drivers in choosing where to shop.

The apparent exponential growth in the use of social media by business owners is rooted in the need to drive demand. When asked about the primary benefit of using social media for their businesses, nearly four in 10 entrepreneurs (39 percent) said it increases the exposure of their business.

Social media is a lower cost marketing channel through which business owners can talk directly to consumers, who say they’re more than willing to listen when it comes to special promotions and deals. In fact, consumers said they were most interested in hearing about small business loyalty programs (59 percent), followed by free trials (49 percent), rewards or incentive programs (44 percent) and invitations to new product launches or special shopping days (39 percent).

"For business owners, social media ultimately should be a two way street. It's about business owners connecting with customers and customers connecting with businesses," Sobbott said. "More than 10 percent of consumers we surveyed reported posting a review of a small business through social media channels such as Facebook, Twitter or LinkedIn, and of these posts, two-thirds say the reviews have been positive."