The five trends that shaped SmartCompany’s first five years

features-five-trends-past-five-cake-200Have Australian businesses ever faced such a period of intense change? In the five years since SmartCompany launched in 2007, we’ve seen the global financial system driven to the brink, mind-boggling technology advances and structural change tearing sectors apart.

As SmartCompany celebrates its fifth birthday, we’re looking forward and backwards in a special two-part feature.

In part one, we’re taking a look at the key trends that have shaped the last five years.

In this second part of the special, we’ve spoken to some of the country’s great thinkers to find out what’s in store for Australian businesses over the next five years. (LINK)

So what shaped SmartCompany over its first five years? Here are the key trends.

The rise and rise of social media

The rise and rise of social media has been an enduring trend throughout SmartCompany’s life. Few technologies have transformed the way that businesses communicate with their customers, suppliers, staff and other stakeholders in the way the social media platforms have.

For many companies, this has been both a threat and an opportunity. Used in the correct way, social media allows businesses to market to customers, respond quickly to customer feedback and problems, position themselves as thought leaders and, in (reasonably rare) cases, generate sales.

But as companies such as Qantas, Bing Lee and the banks have found, social media also magnifies and accelerates the reputational damage when communications go wrong.

But social media hasn’t just changed the way we communicate – it has also forced changes in the way SMEs work and manage their business.

On one hand, a string of industrial relations disputes – typically involving a worker disciplined for criticising their employer on social media – have forced managers to introduce social media policies regulating the use of the service.

On the other hand, social media has been put to great effect as a collaboration tool in many businesses, allowing employees to work more closely together and share information faster.

As social media tools continue to move more into the enterprise space, the landscape will change again and the time businesses invest in these services will need to increase.

Many SMEs, who have seen their businesses changed by the power of social media, will be happy to make this commitment. But surveys suggest that a significant proportion of small businesses will continue to grapple with an important question: Does the return from social media justify the investment?

The banks turn their backs

When SmartCompany launched, the model for financing growth was so simple. Find a niche, build a strong foothold, go the bank and borrow money to expand. In the heady days before 2008, the banks were throwing themselves at high-growth SMEs.

And then the music stopped.

Through 2008 and into 2009, the banks went through an at-times brutal process of re-rating the small business loans, adding “risk premiums” to SME borrowers in sectors that were suddenly on the nose, such as hotels, retail and particularly property development.

Anecdotally at least, the credit squeeze on SMEs continues, although the availability of credit has fallen as a key concern for many companies. From what leading entrepreneurs tell us, this isn’t because they don’t want to grow but because they believe the banks won’t give them a good deal.

We saw the result of the credit squeeze in last year’s Smart 50, when 80% of the list were made up of new entrants. While the growth rates of these firms were spectacular, they were generally slightly smaller and slightly more cautious. They had been careful to build flexibility into their businesses, so that projects/products/services/new business ventures could be scaled up and down quickly, according to the response of the market.

Growth strategies aren’t being funded by bank funding, but though capital raisings or cashflow. Don’t expect this to change any time soon.

The political pendulum swings back

The bulk of SmartCompany’s first five years have been spent under a Labor Government. While the ALP’s time in charge has been nothing short of tumultuous, the Rudd and Gillard governments have aimed a series of big ideas and reforms at the business community – with decidedly mixed results.

The carbon tax, the mining tax and the extensive Henry Tax review that was largely ignored fell flat with many SME entrepreneurs.

On the other hand, the NBN has been welcomed by most SMEs, while Rudd Government’s handling of the GFC was skilful. In particular, the creation of a special investment allowance generated spending and investment at a time when it was badly needed.

But the biggest change from a political standpoint has been the introduction of the Fair Work Act. While big-business complaints about enterprise bargaining do not affect the vast majority of SMEs, it is clear that the power balance has swung from employer to employee under Fair Work.

For small businesses, changes to unfair dismissal, the rise of adverse action complaints (where the onus of proof is on the defendant) and difficulties in putting in place flexibility agreements have become a major bug bear. The transition to Modern Awards in the retail and hospitality sectors, which have come at a time of structural change in the economy, have only added to the impact of the Fair Work regime.

Few SMEs would disagree that the pendulum has swung too far in favour of the unions. But do many want another period of wholesale IR reform? A change of government could well keep IR on the agenda for the next five years.

The great deleveraging

Without question the biggest trend of the last five years has been the change wrought by the global financial crisis and the period that followed it – a period of deleveraging or debt reduction that continues today.

As with all downturns, the GFC hit in waves. First to be hit were the big companies that had borrowed too much and been built on business models that were only made for the boom times. Next hit were the medium-sized businesses that were left exposed by falling debt and lower revenue. Then the SMEs were hit and finally the households, who had been originally protected by Government cash handouts.

This process is never pretty or easy for SMEs to navigate. But what has made it particularly difficult to handle is the fact that there has been a double blow. The GFC that started in 2007 and went through 2008 seemed to be subsiding in 2009.

But pain had only been delayed. The governments that rushed in to try to bail out their banks and big financial services companies now also find themselves saddled with trillions in debts. Economies through Europe remain at risk of collapse and the United States faces years of anaemic growth.

While Australia has come through these twin crises in relatively good shape, the speed with which the GFC hit our shores has left households and some businesses scarred.

Consumer confidence remains fragile, spending is cautious and the household savings rate is near historical highs. Business confidence has peaked and troughed (although businesses have been optimistic for much of this period) but investment levels, trading conditions and profitability remains subdued.

For many Australian SMEs, the hangover has been far worse than the party.

Connectedness

The rise of the smartphone, the tablet computer and wireless broadband has changed Australian society and the Australian business sector – although not always for the best.

Connectedness has help level the playing field for many entrepreneurs, who can work when and where they want, offer staff flexible work arrangements and, through the rise of cloud computing, access services which were beyond their reach just a few years ago.

Connectedness has also brought businesses closer to their customers, through social media and marketing channels that rely on localisation and immediacy – the proliferation of daily deals sites is an example of this.

But this connectedness has created challenges for business too. Shoppers can enter a store and use their phone to compare the price of an item with retailers in Australia and overseas. The walls of a shopping mall are no longer protection against competitors on the other side of the world.

Connectedness has also created challenges around work/life balance and productivity. Does being able to check your email at 2am really make you and your team more efficient?

As the internet becomes imbedded in more and more devices, the power of connectedness will increase. But so could the pain.

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