Digital Tools Propel Small Businesses

Digital engagement can create significant opportunities for small-business expansion and innovation, according to Deloitte research.

Implementing advanced digital strategies can help small businesses gain a competitive edge. These businesses can gain big benefits by embracing digital tools such as business web presence, social media, data analytics, e-commerce, online scheduling and advertising, cloud-based software, video conferencing, and corporate social networks, according to a Deloitte survey of more than 2,000 U.S. small businesses.¹

Researchers grouped businesses into four levels of digital engagement based on their use of digital tools: “basic,” “intermediate,” “high,” and “advanced.” They found that businesses in the advanced group were more likely to have experienced revenue growth, created jobs, diversified their customer bases, and offered new products and services. Not only were these businesses more likely to have experienced revenue growth during the previous 12 months, but they also enjoyed a significantly higher rate of year-on-year growth (45 percent) than businesses with basic digital engagement (12 percent). Each step on the engagement scale—from basic to advanced use of digital tools—resulted in an average increase in revenue growth of 11 percentage points (Figure 1).

Businesses with higher digital engagement also generated significantly more revenue per employee, earning on average $504,396 per employee, about twice as much as those with only basic levels of digital engagement ($251,592 per employee). The most digitally advanced businesses are also more optimistic about future revenue growth: They are almost twice as likely to expect revenue growth over the next 12 months as those with basic engagement (Figure 2).

Increasing the use of digital tools among small businesses may be an effective way to increase employment throughout the U.S. economy. Deloitte’s analysis found that small businesses with higher digital engagement were more likely to have experienced employment growth over the past 12 months, possibly because of increased revenue growth.

During the past year, digitally advanced businesses experienced average employment growth of 13 percent, more than six times the employment growth rate observed for small businesses with basic digital engagement (2 percent). Job creation benefits were realized with every advancement on the digital engagement scale, with small businesses at intermediate and high levels of digital engagement respectively experiencing more than double (5 percent) and nearly five times (9 percent) the employment growth rate of basic businesses (Figure 3).

Researchers found that digital tools can help small businesses expand business reach and market presence. Small businesses that make greater use of digital technologies to reach customers across a wider range of markets are likely to grow faster than those with a more limited pool of potential customers.

Small businesses with basic levels of digital engagement predominantly sell locally—only 28 percent of their customers come from out of state or overseas. In contrast, 43 percent of the customer base for digitally advanced small businesses is either out of state or overseas (Figure 4).

Digitally advanced small businesses may be more likely to offer innovative new products and services. Advanced small businesses were nearly 10 times as likely (68 percent) to have offered a new product or service during the previous year than companies with basic levels of digital engagement (7 percent).

Among small businesses that experienced increased revenues over the previous 12 months, businesses higher on the digital engagement scale were more likely to attribute revenue growth to innovative new products and services. Small businesses with greater digital engagement were significantly more likely to experience innovation-related growth, with nearly half (45 percent) of advanced small businesses stating that new products or services represented a source of revenue growth over the past 12 months, compared with only 10 percent of basic businesses.

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Improving the digital engagement of small businesses can be an important driver of future growth for small businesses and the entire economy. With small businesses representing a key engine for economic growth, job creation, market expansion, and product innovation, it will likely be important that they continue to seek opportunities to adopt new and more sophisticated digital tools and adapt them strategically to grow their businesses.

—by George Collins, principal, Deloitte Consulting LLP; and John O’Mahony, partner, and Sara Ma, manager, Deloitte Australia

1. The Connected Small Businesses US research study was commissioned by Google and conducted by Deloitte. Data was gathered using an online survey of a nationally representative sample of 2,013 U.S. businesses with fewer than 250 employees. Most (92 percent) of the sample companies had fewer than 100 employees.

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