New Report: SMBs Race to Critical Mass on AI Usage

• SMBs generating more than $150,000 in revenues are more likely to implement innovation strategies for growth than SMBs generating less than $150,000 in revenues.
• One-third of SMBs use AI, but more than half of SMBs with growing revenues use AI in some way.
• AI can help SMBs reach their business goals: Nearly all SMBs that use AI find it effective.

Small to mid-sized businesses (SMBs) with growing revenues and those generating revenues of more than $150,000 are more likely to use innovation strategies for growth. In contrast, those with fewer resources, such as those with decreasing revenues and those generating less than $150,000 in revenue, are more likely to implement cost-cutting measures as a growth strategy. Overall, SMBs see marketing as the most important strategy. Among those that implemented at least one growth strategy, 23% said increasing marketing was the most significant for their growth. Many of these businesses are integrating artificial intelligence (AI) into their businesses. Nearly all of them find it effective in helping meet their growth targets.

These are some findings detailed in “Innovators and Cost Cutters: Growth Strategies for SMBs,” a PYMNTS Intelligence report. This edition examines the growth strategies SMBs have implemented in the past year. It draws on insights from a survey of 517 SMBs conducted from April 5 to April 26.

• What’s at Stake
• Key Findings
• Conclusion
• Methodolog

What’s at Stake

SMBs focus on growth, even amid turbulent economic winds. In the last year, we found that 91% of small businesses used at least one strategy aimed at growth. Most businesses implement strategies aimed at innovation and expansion. However, those that are struggling focus more on implementing cost-cutting strategies for growth. Whether SMBs employ cost-cutting or innovation strategies, one strategy is widely available to all of them: AI. Among SMBs that have tried AI tools, 96% see AI as an effective tool to streamline their tasks and innovations. The businesses that are most at risk and have employed cost-cutting strategies benefited most from AI in improving simple tasks with automation.

Key Findings

Nearly all SMBs used at least one strategy aimed at growth last year.

SMBs constantly adapt to external pressures and do their best to keep their businesses growing. In the last year, 91% of SMBs implemented at least one strategy to grow the business. This was true for 97% of SMBs in business for five years or less. These young SMBs face the dual challenges of developing a new business and finding what works for them.

What are these businesses doing to grow, exactly? SMBs are most likely to increase marketing, expand products and services, and increase prices. Overall, these businesses see marketing as the most important means of growth. In fact, 23% of SMBs that implemented at least one growth strategy said marketing was their most significant growth strategy. Building more products and services was cited as the most important strategy by 18%. Increasing the prices of some products and services was key for a similar portion.

Increasing prices indicate that these businesses are struggling to ensure their processes are cost-effective. The data suggests they are taking strategic strides to compete for growth in an environment of economic pressures, such as high inflation and cost of goods.

Resource-rich SMBs are more likely to use innovation strategies for growth.

PYMNTS intelligence classifies the types of growth strategies that SMBs implement as either innovation or cost-cutting strategies. Those pursuing innovation strategies aim to expand their offerings or customer base, while those pursuing cost-cutting strategies aim to reduce the cost burden to the SMB. The data suggests that SMBs prefer to focus on innovation strategies but can only do so if they are in a stable economic position.

SMBs with increasing revenues are more likely to use innovation growth strategies. Those with fewer resources and decreasing revenues are more likely to use cost-cutting strategies. For example, 80% of those with increasing revenues implemented innovation strategies in the last year, compared to 61% with decreasing revenues.

SMBs with decreasing revenues favor cost-cutting strategies. In fact, 48% of SMBs with decreasing revenues mainly implemented cost-cutting strategies. Just 27% of SMBs with increasing revenues did the same. Focusing on cost-cutting strategies, however, may hinder innovation for SMBs that are resource poor. Consequently, those SMBs have fewer opportunities to expand their products and services or invest in marketing, for example.

Overall, SMBs with more resources are more likely to engage in innovation strategies, while SMBs with fewer resources must focus on bottom lines before engaging in these more fruitful but costly strategies.

Cost-cutting is favored over innovation by SMBs with decreasing revenues.

An SMB’s level of resources affects the number of strategies it implements. Those generating revenues of more than $1 million or those with growing revenues implement an average of 1.7 innovation strategies. On the other hand, those generating revenues of less than $150,000 implement 1.1 innovation strategies. Those with decreasing revenues implement just one innovation strategy.

SMBs with decreasing revenues are the only ones that engage in more cost-cutting strategies — such as cutting staffing or production costs and increasing prices — than innovation strategies, on average. Those with decreasing revenues engage in an average of 1.2 cost-cutting strategies.

While 37% of SMBs on average use AI, 51% of those with increasing revenues use it.

AI can be a convenient innovation tool for these businesses, from automating tasks to improving operations and services. Those with increasing revenues and those generating more than $1 million in revenue are twice as likely to use AI as ones with decreasing or stable revenues. Among those with increasing revenues, 51% say they currently use AI. The difference between these businesses and those that only use cost-cutting strategies is stark: Just 19% of cost-cutters say they currently use AI.

SMBs with fewer resources appear to be less likely to understand the benefits of using AI, as 69% of those with decreasing revenues say they have never considered using it. Conversely, just 36% with growing revenues say they have never considered using AI in their businesses.

How exactly are the SMBs that employ AI using it? Automation of daily tasks and improving the quality and reliability of business processes are common uses across these businesses. Sixty percent use AI to automate tasks, and 52% use AI to improve the quality and reliability of processes.

The data suggests that AI can significantly influence resource-rich businesses’ growth. Those with increasing revenues and those generating more than $1 million in revenue tend to use AI to improve the quality and reliability of processes. However, those with fewer resources turn to AI more for automation, suggesting that the resources they spend on AI focus on improving daily tasks.

The SMBs happiest with AI are the ones that use it for tasks beyond automation.

Those that use AI agree: 96% say AI is at least somewhat effective. This broad agreement means that when these businesses embrace AI, it adds value — regardless of their economic position. In fact, struggling businesses find AI nearly as effective as those that are not struggling. More than 84% of cost-cutting SMBs that use AI find it very effective. The same can be said for those that are unlikely to survive in the next two years: 89% find AI effective. The data suggests that the SMBs most needing help with their businesses also find the most immediate value in AI.

While nearly all SMBs that use AI think it is at least somewhat effective, those that use AI for reasons beyond automation are the most likely to say it is very effective. SMBs using AI to improve the quality and reliability of products and services were twice as likely to say AI was very effective compared to somewhat effective. This suggests that AI is especially helpful to these businesses when used to generate ideas and insights.

Conclusion

SMBs implement the growth strategies that they think will work best for them. For some, this leads to innovation and new products, whereas others lack the resources and need to cut costs. However, cost-cutters and innovators use AI to gain efficiencies. SMBs that have already initiated using AI nearly unanimously find it effective at meeting their needs. Ninety-six percent report AI as effective. The businesses most at risk find the greatest solace in the promise of AI, even in improving simple tasks with automation. The SMBs that have not yet tapped into the benefits of AI may simply not be aware of what they are missing.

Methodology

“Innovators and Cost Cutters: Growth Strategies for SMBs,” a PYMNTS Intelligence report, is based on a survey of 517 SMBs conducted from April 5 to April 26. The report examines the strategies that these businesses are implementing for growth. Our sample contained SMBs of varying sizes and industries: 27% generated revenues of more than $1 million, and 36% generated less than $150,000. These businesses were in retail (17%), construction (18%), hospitality (9%), and professional services (11%), among others.

Read the PYMNTS Intelligence April 2024 SMB Growth Monitor Report, “Main Street SMBs’ Revenues Grow Faster than GDP,” for more.