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How much should SMEs invest in technology?

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When so many owners say that it’s important to invest in technology, why do many hold back? How much is enough? And what’s the best approach for a small business with limited cash?

Rogan Hounsell-Roberts was a founder of a successful scale-up; has helped organisations across many sectors achieve success; is a founder of KR5 Consulting; and has a passion for helping ambitious business owners scale-up and exit.

In the City Sprint Collaborate UK 2018 report, 79pc of SMEs think it’s important to invest in technology. The biggest hurdle is lack of budget. So how much should a small business invest? I take a look into the whys and wherefores and suggest a practical way forward.

Why invest in tech?

30pc of owners with less than ten staff want rapid growth & profit with a view to exit. For those owners, tech offers the chance of scaling fast. The biggest driver is growth with a strong link between growth and technology investment. Customer experience is in second place. You can read more in “Why customer experience matters for scale-up design”. A close third is for smooth and efficient operations.

Earlier we looked at real examples of tech. In “How can information technology help a business?” we’ve seen tech help boost sales at lower cost; get work done faster with less resource; and provide information to manage the business. Then in “Business Benefits of Information Technology” we looked at using tech to help teamwork, and collect and crunch data to quickly meet needs. In “Innovation of technology in Scale-ups”, we also looked at investing in what gives you an edge.

What do SMEs invest in?

The State of Small Business Britain Report 2018 gives a view into the use of tech in small business (with less than ten people).  Most of us are aware of Making Tax Digital (MTD), with VAT returns live in April 2019. Then it’s probably no surprise that 40pc of us are using web-based accounting software. In 2017, companies with less than ten people, made online sales of over £26 million (source: ONS). This may explain why 30pc of small businesses are using e-commerce systems. There’s a shift to use tech in sales and marketing. Perhaps that’s why 18pc of SMEs use customer relationship management software. Interesting that in 2018 only 9pc were using machine learning, and 3pc using AI. I’d expect the 2019 figures to be much higher. Then there are about a quarter of businesses that don’t use digital at all.

How much?

What’s the benchmark for investing in tech? We’ve used the Frost & Sullivan “Top End User Priorities in Digital Transformation, Global 2019” report. First let me say that these metrics are for running costs, staff and investment, including telephones. So, the spend is inclusive. Spend is as a percentage of global revenue. Secondly how much varies by industry. For example, high-tech invest between 9pc to over 15pc. At the lower end, agriculture, food & beverage mainly invest less than 6pc. Most other businesses invest between 5pc and 10pc. The key is the link between growth and tech budgets. About half of those with more than 30pc growth invested more than 15pc of the revenues to their tech budget!

Not enough cash?

If you’re a small business owner and you’ve read this far, then you may think that level of spend is in the realms of fantasy. It’s ok for big companies, not for small ones.  You’re not alone, 38pc of SMEs see budget as the biggest hurdle to invest in technology. Perhaps it’s best to think of that level of spend as your aiming point. Meanwhile you have to balance where you want to be, with what you have to hand.

Moving forward

When you invest in technology, planning is essential. If funds are tight, then work out what’s most important and do that one thing. In general, big projects are risky, it’s often best to breakdown the vision into practical and affordable steps. That means you’ll get an earlier return and reduce risk. You’ll get the metrics you need to fund the next step. You can bounce off the success of one step into the next step toward your vision. Breaking the problem into manageable steps is easier for staff too! If things don’t turn out as you expected, then you haven’t bet the farm, and you can make a timely course correction to achieve greater success.

KR5 Consulting is a business technology consultancy with a passion to help ambitious business owners. We provide a unique approach to business technology to help you scale-up and exit. Our approach delivers high-level views for the board, along with incremental and practical implementation. Our work starts by understanding the business direction and needs so we can work together to create a plan. We create a map of the current and future systems to create a clear overview and monitor progress. Our purpose is to help you accelerate, increase profits, scale-up, acquire customers and beat the competition. We do the heavy lifting so that senior leaders can focus their time on building a successful business.

If you’d like to explore the ideas in this article further or need help and advice, please contact Rogan at rhounsell@kr5consulting.com – to arrange an informal chat.

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