In recent years small businesses have taken a massive hit. 2020 saw huge numbers of businesses close “temporarily” due to Covid19 restrictions, and many of them never returned. Now, with further turmoil in the financial world, we look at whether there is a secret war against small business. Here goes.
First things, first. Business is tough, in fact, the general consensus is that 90% of start-ups fail and out of the remainder only a fraction of a per cent ever reach unicorn-level status.
It’s estimated that 5 million new businesses start each year in the USA and in the UK 500,000-700,000 launch. Worldwide we are looking at in excess of 305 million start-ups launched every year, a staggering figure. So, there is certainly no shortage of shiny new start-ups entering the market.
During the pandemic it’s reported that new business registrations in the UK for example soared with a 14% increase in business registrations during the pandemic. The figures suggest individuals who were stuck due to restrictions were forced to pivot, change direction and start a new venture. But what now? Many of these new businesses are struggling under the ‘new normal’.
Increased Costs – Inflation
Worldwide there has been a sharp concentration by governments to reduce inflation by increasing interest rates. However, inflation has still soared for most post-pandemic.
Unfortunately, for new businesses, this simply means increased costs at an already difficult time. Costs of transportation, fuel, and raw materials have all increased dramatically and many new businesses will have to pass these costs onto customers.
Worst still, the ‘cure’ suggested by governments for rampant inflation is increased interest rates which essentially means even higher financial costs for fledgling businesses.
Reduced Access to Venture Capital
The collapse of Silicon Valley Bank in the USA has underlined how tenuous the venture capital market is currently. Global VC funding has reduced massively (Figures suggest as much as 50%). Early-stage investors are scrutinising deals harder than ever before. Start-ups who once could rely on further funding to continue operations are finding the funding tap has been shut off.
Green initiatives
The accelerating pace of conversion from petrol to electric vehicles is disproportionally affecting small businesses. Many in the UK will have to purchase new electric vehicles or face increased road duties. It’s not just the UK, in Europe, it has been agreed that production of all petrol vehicles will cease by 2035. The US has agreed to similar proposals.
These initiatives will have a dramatic effect on small businesses that rely on transportation and footfall since the new regime will have the effect of reducing footfall and traffic to just local services and businesses.
Artificial Intelligence
Everyone has now heard of Chat GPT by Open AI but as the technology becomes more advanced in the coming months, it could mean the end of many small businesses and freelancers. If you write articles for a living or graphic design, your business is at severe risk even if you are at the high end of your profession. So many businesses are affected by this technology that it’s almost impossible to comprehend the effects.
Now that AI can create photo-realistic images and videos from a prompt and even write functional computer code all bets are off as to the level of devastation to start-ups when the technology scales to the masses. Early studies suggest that the better-paid, and better-educated will be impacted the most.
Of course, many argue this will create new jobs as with any previous technological revolutions but we will have to wait and see.
Cashless Society and Central Bank Digital Currencies (CBDCs)
Many governments are working on Central Bank Digital Currencies or CDBCs. Including USA, UK and EU. CBDCs are the government’s answer to cryptocurrencies. Much like crypto, details of all transactions will be kept on a digital ledger called a blockchain.
Unlike crypto, these currencies will not be decentralised and will be controlled by the central bank of the country concerned.
This could place in the hands of governments the ability to track all transactions and for the first time allow for a programmable currency. Many have argued that the development of CBDCs is a risk to financial freedom.
Recently in Nigeria where CBDCs were rolled out, chaos ensued as small businesses were effectively forced to switch to the new system making cash unobtainable overnight.
Final Thoughts
The pressure on fresh start-ups and small businesses has never been greater. Increased costs, reduced access and more expensive finance, and greater green regulations. Threats from ground breaking technology and a possible once-in-a-generation change to our financial system.
All of these give rise to the genuine feeling of a concerted war against small businesses. Small business is not just about creating revenue and wealth, many small businesses are at the heart of our communities and social interactions. It is vitally important for all of our well-being that this ecosystem thrives.
Vigilant and forward-looking entrepreneurs will need to be one step ahead of the game, ready to embrace the challenge and be ready for battle in the new world order.
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