Digital transformation is no longer a luxury reserved for enterprises with deep pockets.

For better or worse, it’s a universal requirement — a matter of survival for any business, regardless of size, trying to make it in this wild, uncertain digital environment.

Luckily, digital transformation for SMBs is more accessible and affordable than ever. But the flip side of that is, the stakes of DX have become much higher – when you’re running a business with access to fewer resources — be it talent, tech, or capital. – there’s very little room for error. If digital transformation initiatives fail, the business may soon meet that same tragic end.

In this article, we’ll explain why DX is an urgent priority for all SMBs, discuss common barriers, and look at some of the ways SMBs can transform with minimal risk.

For SMBs, Digital Transformation is the Key to Long-Term Survival

Digital-first SMBs are better equipped to meet customer needs, slash operating costs, measure and improve business performance.

The majority of participants in a 2021 SMB Group survey saw a strong connection between tech investments and business growth.

IDC predicts that 70% of SMBs will have dramatically ramped up IT spending by 2026 to become more “digitally resilient.”

And — key findings from the 2022 Sage Digital Britain report reveal that the sharp rise in digital adoption among SMBs is driving business and economic growth. 80% of participants say they rely on digital technology to launch, grow, and sustain their business. UK SMBs now generate ~£216B a month from their digital investments.

Basically, SMBs are getting wise to the idea that DX is an urgent priority.

With that in mind, here are a few key areas where smaller companies are getting the most bang for their budgets:

1. CX Drives the Entire Strategy

Customers have the same expectations for SMBs as they do for massive global enterprises. In other words, SMBs are competing with the Amazons of the world with a tiny fraction of the resources. According to recent Salesforce research, 83% of customers expect to interact with someone right away when they contact a company, and 78% say they’ve used multiple channels to start and complete a transaction.

Another Salesforce report found that 70% of SMBs say their customers expect online transactions, and two-thirds reported that improving community support on digital channels has played a key role in their company’s survival during COVID.

For nearly half of those companies, DX investments allowed them to become deliberate and transparent in their communications and turn their focus toward fostering long-term connections, while 42% said they expanded the number of channels customers can use to get in touch.

2. Invest in Fundamentals First

Sage researchers also found that participants were increasingly prioritizing investments in reputation management, cybersecurity, and remote collaboration — across a wide spectrum of industries.

However, “digital fundamentals” like accounting, CRM, and HR software represented the lion’s share of DX spending. While Sage frames these findings as “trends,” we wouldn’t exactly say accounting software qualifies as 2022’s white-hot tech investment. But — the data does indicate a widespread understanding among SMBs that cloud-based accounting, finance, and sales platforms represent the first major step in their DX journeys.

That core financial data serves as a foundation that informs everything from sales and marketing to project management, HR, and customer service because literally everything links back to the bottom line. This is old news, but the way customers interact with brands has fundamentally changed. They expect brands to demonstrate empathy and more values-oriented behavior. They also want personalized solutions, relevant messaging, and user-friendly experiences.

3. Focus on High-Impact Areas

DX investments help SMBs make major quality improvements to products, services, and the overall customer experience. Visa reports that even just investing in digital tools like online payments, loyalty programs, and rewards goes a long way. Two-thirds of SMBs say customers spend more when using digital payment methods.

Digitalization has enabled smaller companies to scale 1:1 connections without losing the authenticity customers crave. While self-serve support options, virtual agents, and automated email sequences and dynamic personalization capabilities help time-strapped teams do more with fewer resources. And – it paves the way for the kinds of data-driven decisions that mitigate risk, eliminate waste, and increase profitability — even in the face of uncertainty.

Across the board, SMBs must focus on making really these strategic investments – investments that align with their customers’ most pressing pain points and requirements – and their own.

Barriers to Transformation

We won’t lie, SMBs are up against a lot.

An August 2021 Harvard Business Review article warned that “current economic conditions” threatened the success (and survival) of many SMBs. This is, in large part, due to the fact that enterprises are better equipped to adapt their product and service offerings around literally whatever customers want.

A year after that piece was published, current economic conditions” have gotten, well, crazy. And not in a good way.

Here’s a quick look at some of the biggest barriers small- and medium-sized companies are facing today:

1. Inflation

Inflation is wreaking havoc on everything from fuel prices to labor costs. Again, big companies have more resources that first hand to help them weather the storm – making it harder for SMBs to compete. At the same time, inflationary pressures make DX an even more urgent priority. Businesses are increasingly relying on data to ensure they get things right the first time, drive greater efficiencies, and respond to new demands. Ultimately, though, SMBs need to get over that first hurdle (money) to invest in the tech and talent they need to make DX happen.

2. Supply Chain Strain

Obviously, the current state of the supply chain represents a big problem for small and large companies alike. However, enterprise orgs have more options when it comes to sourcing materials. For example, they can afford a temporary hit to margins if it means customers get their orders on-time. SMBs typically don’t have the wiggle room to pay more for materials or fuel costs.

Strategic investments can help smaller orgs navigate these challenges. For example, Dynamics 365 Business Central can make it easier for SMBs to overcome supply chain disruptions. End-to-end visibility and real-time insights support quick decision-making – enabling users to adapt to price fluctuations, shipping delays, and other challenges, while built-in vendor management features make it easy to place orders, track shipments, and take advantage of early pay discounts.

3. Fewer Resources

Larger budgets and more robust solutions mean it’s no big deal to turn out hyper-personalized solutions on-demand. Fewer resources means SMBs are less likely to survive a downturn —while the typical enterprise has the means to pivot when conditions change and can make strategic investments while the rest of the market suffers.

For example, many enterprise organizations ramp up M&A activity during downturns. It’s an effective way to expand offerings and tap into existing teams of experts with in-demand skills.

Lack of resources is a problem that goes way beyond access to capital. It impacts everything from hiring, training, and retention to cybersecurity and data maturity. Say, your team doesn’t have much experience working with data and you can’t hire a data scientist. You’ll likely run into issues using insights to drive action or fail to detect a security threat before it’s too late.

4. Cultural Resistance

Cultural resistance is a barrier regardless of size, and many times, SMBs have the advantage over their enterprise counterparts. They have more flexibility than their enterprise counterparts — fewer decision-makers and administrative barriers, allowing them to quickly establish consensus and take immediate action.

At the same time, the very smallest companies tend to struggle more than anyone else. The SMB Group survey found that among very small companies, tiny budgets and a lack of urgency among key decision-makers were the top barriers to transformation.

These aren’t the only barriers SMBs might face on the road to transformation. Nor are these barriers exclusive to smaller companies. It’s just that for this group the stakes are so much higher.

Another HBR piece from 2019 reported that 70% of DX projects fail to achieve their goals. The year before, $1.3 trillion was spent on DX – and based on that staggering fail rate, roughly $900B went to waste. While this data accounts for organizations of all sizes, the point is, SMBs are uniquely vulnerable to the implications of a large-scale failure.

How SMBs Can “Win” Digital Transformation

While digital transformation presents some unique challenges for SMBs, there are a few things you can do to make things easier. Here, we’ve outlined some high-level best practices for DX success:

Get Clear On “The Why”

Before moving any further, you need to figure out what, exactly, you hope to gain from this investment. You’ll need to set very specific goals about what you hope to achieve and choose metrics that measure your progress and point you in the right direction. A good place to start, naturally, is with your customers.

Focus On Priority Areas First

This CIO piece points out that SMBs can realize the benefits of digital transformation by identifying and tackling their most urgent problems and pain points first.

Amex recommends starting with customer service, IT, finance & accounting, business planning, and sales. And — the trends uncovered in the Sage report suggest that many SMBs are already on the right track.

The key thing to remember, however, is once you’ve implemented that ERP or CRM, you have to keep moving. DX is a “forever” commitment and you’ll need to put together a game plan for systematically getting from one point to the next – and put that process on repeat.

Finally, it’s a good idea to keep an eye toward the future. You might not be ready for the next wave of transformative tech – Web3, 5G, the metaverse – just yet, but it’s worth considering how they might play a role in future transformations.

Pick the Right Tech For the Job

Certain aspects of digital transformation (think — culture, hiring, and training) require significant investments, but the tech itself isn’t typically the biggest expense. These days, even cash-strapped SMBs can drive powerful transformations, as solutions like advanced data analytics, machine learning, automation, etc. have become more affordable — and just, well, better.

For example, Dynamics 365 BC allows SMBs to save money with multi-tenant hosting. That means, smaller businesses aren’t stuck with limited SaaS plans while the “good” features are reserved for enterprise users. At the same time, your tech stack needs to align perfectly with your goals. Otherwise, even the best tech with the most attractive price tag is a poor investment.

Focus On Security From the Get-Go

Building on our last point, you’ll want to make sure that security is part of the selection process. Getting to the cloud significantly reduces cybersecurity risks – but only if security is embedded right from the very beginning. This is important regardless of size or available resources but SMBs are less able to recover from a ransomware attack or high-profile data breach than their enterprise counterparts.

Companies need to evaluate systems and processes to understand what their risks are. Which resources are most vulnerable to attack – and what potential impact might an incident have on your data, reputation, employees, or the bottom line?

Find the Right Partner(s)

SMBs are more likely to succeed when they have a trusted network they can rely on. A big part of this is working with the right technology partners – including consultants, IT providers, and experts that can guide the planning and implementation process.

In a separate post, we share tips for finding the perfect-fit Microsoft Dynamics partner — check it out before you start your search (by the way, the advice holds up whether or not you’re looking at Microsoft solutions). It’s also a smart idea to team up with other business owners and entrepreneurs, industry associations, etc. – people you learn from and share lessons learned on the job.

Final thoughts

Any modern business needs to meet a certain standard to compete in this digital era and SMBs aren’t exempted from this requirement — even if it seems a bit unfair.

Velosio helps SMBs reap the transformative benefits of Dynamics 365 Business Central, Microsoft 365, and more. Contact us today to learn more about our small business solutions and services.