With business maturity comes experience, but it can also bring profit-reducing conservatism.
With age comes experience, but it can also come with profit-reducing conservatism, according to new research.
In a survey of 1,000 small business conducted by American Express, researchers found nearly three quarters of business owners had taken action to future-proof their business in the face of sustained economic uncertainty.
Businesses that had been in existence for more than five years were more likely to invest in future-proofing methods that resulted in a reduction in profit, whereas younger businesses tended to take a more effective approach.
“We’re seeing that small business owners are taking steps to safeguard their business and ensure its longevity,” said Jason Fryer, head of Small Business Services at American Express.
“What is interesting is that these businesses seem to fall into two camps. Some have focused their efforts on customer retention and growth, while others are more concerned with cost-containment, yielding significantly different results,” he said.
Businesses that had been established for more than five years were more inclined to resort to safer internal methods of future-proofing, including reducing expenditure than their younger counterparts (56% vs. 42%).
Nearly half of all businesses that reduced expenditure saw a reduction in profit, with more than a quarter expecting the trend to continue next year.
In contrast, businesses younger than five years looked to their markets and were more likely to innovate by implementing or improving marketing campaigns (23% vs. 13%) and adapting their product or service offering to capture more market share (31% vs. 21%).
More than half of businesses that improved their product or service offering reported increased profits, as did 57% of small businesses that ramped up marketing activity.
“It really is a tale of two profit lines being driven by two fundamentally different approaches to business survival,” said Fryer.
“The results of this survey provide food for thought for businesses focused on future-proofing their operations. There are valuable lessons for all of us here.”
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