How Small Businesses Can Increase Their Digital Capabilities
Paying for a cup of coffee on an iPad is mainstream in big cities, but the majority of small businesses — the backbone of our local economies — have not yet fully come online. And as e-commerce outfits increasingly follow Amazon’s lead in adopting a purely data-driven model to provide greater value in the face of squeezed margins, retailers and service providers that don’t embrace technology will be at a major disadvantage. Small businesses like restaurants, which have an 80% failure rate in the first five years, are some of the most challenged in curbing inefficiency and meeting the rising expectations of tech-empowered customers.
While the business case for embracing technology is widely documented, retailers have historically shied away, given the high cost and operational complexity. But the rise of cloud computing and open APIs has changed the game for the industry, allowing small businesses to take advantage of data in entirely new ways.
I categorize local businesses into four generations of technological maturity. At either end of the spectrum are the minorities — mom-and-pop shops on one end, with old-school cash registers and no bar codes, and the most tech-savvy businesses on the other end, who are using data to optimize everything from staffing to inventory. The majority are somewhere in the middle — they’ve embraced basic or cloud-based technology but aren’t taking advantage of their data that’s now easily API-accessible in the cloud. And they’re leaving money on the table as a result.
No matter where your business is on this spectrum, here are some best practices I’ve absorbed working alongside small businesses successfully crossing the digital divide.
Bringing Your Operations Online
Bringing efficiency to operations is table stakes for retailers. Choosing a low-cost, cloud-based point-of-sale platform that facilitates smart decision making for everything from inventory to staffing is the first step. There are many to choose from, so consider the following benefits when evaluating one for your business:
Vet feature richness. Historically, point-of-sale (POS) systems were vertical-specific, but today it’s more common to find open platforms that work across many verticals that support rich integrations and add-on solutions. That said, you want to make sure the POS system you choose has the features that are core to operating in your vertical. For example, if you’re a clothing boutique, you need accounting integration, employee management, and sales tax automation. Cafés should look for platforms with turnkey loyalty programs and staffing solutions. Consider integration, too. Many systems can function with the software you’re already using, and integrate with third-party sites like Yelp and Google, so information such as hours of operation and menus can be updated online in real time.
Put analytics to work. The cloud and APIs are providing access to data on every aspect of the business, allowing retailers to make smarter, and sometimes unforeseen, business decisions. The Cafe Grind*, a busy NYC coffee shop, uses its POS system to track customer visits, how long it takes to serve each customer, and which items are selling, saving the store five to 10 hours per week in managing logistics. Palo Alto–based Tin Pot Creamery* used demographic analytics to prove that opening a store in the neighboring town of Los Altos would not cannibalize sales in its current location, overcoming a strict real estate rule banning locations within five miles of each other.
Optimize staffing. Staffing typically accounts for 30%–35% of operating costs for a restaurant. Small businesses are embracing a new crop of apps like Homebase to manage hourly employees — from forecasting labor costs to scheduling and payroll. Businesses report saving an average five to 10 hours per week on scheduling, freeing up time and resources for other priorities.
Double Down on Your Customers
Amazon and Starbucks have made reaching customers a science. They’re not simply acquiring customers — they’re enlisting subscribers who shop so frequently that joining a service like Amazon Prime is a no-brainer. You don’t have to be Amazon or Starbucks to do this. Omaha-based Scooter’s Coffee* has enlisted a loyal customer base rivaling that of Starbucks through its mobile app, where 7% of transactions occur. Here are a few examples of how small businesses are delivering the most convenient, personalized experiences for customers, and how other small business can follow suit:
Go mobile. Incorporating mobile devices — tablets or POS devices — is crucial, considering that 68% of diners say server handheld tablets improve their guest experience. You still need at least one mobile device that can print physical receipts, but many customers (42%) now prefer email receipts. Spend time handling the devices, and take yourself through the customer’s experience before you buy. While mobile payments are still nascent, about 33% of U.S. smartphone users are expected to use them by 2020, and U.S. Apple Pay transaction volume is up 450% over the past year alone. To stay ahead of the curve, look for a POS system that accepts as many forms of payment as possible, including EMV (Europay, MasterCard, and Visa), and Alipay.
Bring ordering online. Online ordering is a huge opportunity for restaurants. Morgan Stanleyprojects that the U.S. delivery market will skyrocket from $11 billion annually to as much as $210 billion over the long term. A recent study found that restaurants offering online ordering have seen their takeout revenue grow by an average of 30%, while one in five saw revenue double. Partner with established delivery services such as UberEATS, GrubHub, and Seamless to take advantage.
While tech is the secret sauce of the eBays of the world, it’s also leveling the playing field for small businesses. I believe there will always be a place for small businesses, but the ones that will thrive are leveraging these tools to connect with customers and run more efficiently.