Mid-Year SMB Sentiment
Josh Newman: Thank you all for joining us today at TriNet PeopleForce 2023. I'm really excited about this session. I'm joined by John Campbell who brings 20 years of market research experience to the table. So we have a great resource with us today. And in fact, if, you know, when we get through the prepared content, we'll also reserve some time for Q&A.
In John's market research, what he's doing is putting developing customized research to bring information for impact to his clients. And John and I were talking a little bit earlier and in this experience, he's worked with a range of different company sizes, industries, and one that I thought was pretty interesting is, when you're on the client side, I think you told me you worked for a boot company, doing some research there. So before we get into the actual study that we're here to talk about today, you have any interesting stories from that experience and doing research at the boot company?
John Campbell: I do. I do. It really shows you how far-reaching marketing research can be right? So I got to do a whole tour of the South. We were a hunting boot manufacturer and I made what ended up being friends just by going to sporting goods stores and talking to guys about their boots. You wouldn't believe how passionate these guys are about their boots. I mean, they could remember the type of boot they wore when they went out hunting to get their big trophy deer or whatever. So, I was not expecting the level of connection that I was getting with these guys just talking about boots. So that was pretty interesting.
Josh: That's awesome. So, in the audience today, we have a lot of small and medium-size businesses. Obviously TriNet works with Harris in doing market research. And I think I neglected to say in my intro that you're the senior director of research at Harris, but TriNet is a large enterprise, is obviously doing this research, but with entrepreneurs and small business owners in the room, what advice or how could they go about conducting some research to get the insights that can help them drive their business? Do you have some tips for them?
John: Yeah. So we have, now this is selling without selling, we have a product offering that allows small businesses to go out and talk to consumers as well as B2B audiences at a very low threshold of investment. It goes out twice a week. We hear from 2, 000 consumers at a time and you can go out and ask these questions.
It's $1,100 a question and it's a real easy, low kind of threshold way to get really quick answers to questions that you have. And it's really fantastic because we can help you craft questions if you're not really sure how to go about doing that. We can look at questions if you already have them, just to give our spin on—is this a sound marketing research question? So it's really just a quick, easy way to go out and ask questions and get powerful answers to.
Josh: That's great. But what about—I'm a five-person company. I have no budget to hire Harris or someone like a Harris to conduct research. What could I do just in house that could help me understand some question on that after our market dynamic?
John: Yeah, yeah. Even SurveyMonkey, right? There's all kinds of free options out there that you can write your own questions. Things that we see move the dial the most are if you have advertising that you're gonna put into market, doing a little bit of testing on that first to make sure that your message is actually hitting like you want it to. We find that, you know, that's probably one of the best ways to make sure that the investment that you're spending is really gonna do what you intend it to do.
Josh: Yeah, that's great. Okay, my last question before we get into the meat here, which is the study we commissioned for People Force. The last question before we get there is—yeah, so you've been after this a long time, have a lot of experience today and we're all hearing about the pervasiveness of data, ML, AI—how is that shaping how you're conducting research, how other entrepreneurs and businesses, is it helping, is it hurting, what's the impact and the dynamics of research like this?
John: Yeah, I'll speak specifically to AI. It's really been a double-edged sword so far, because on the good side, we have all of this very powerful technology that we can take all of this vast body of data that we have internally and be able to go out and query it and just get quick answers across this huge set of data. On the bad guy side, the bad guys are using it as well, so by bad guys, the people that go out and will employ AI to take surveys. And it's becoming more and more difficult to find these responses. We actually have to have people go through and take these responses out of the survey, put them into more AI technology to tell us—is this AI technology?
So it's pretty fantastic, I mean, fantastic that we have those tools to help us figure it out, but pretty wild that that's a thing now that we have to worry about is bots and AI taking surveys. So it's just making sure that the people that we think we're talking to are actually people and not computers.
Josh: Interesting. Yeah. Alright, so let's dive into the study. It's hot off the press, about as recent as the data can be on the macroeconomic trends for small and medium-size businesses. I'll let you dive in.
John: Great. So first, let's just kind of run through real quick what we're going to talk about. We want to take a look at some experience and what they expect to experience in terms of financial performance for SMBs, dive into some of their perceptions around the economy as well as the big R word, recession. Is it here? Is it coming? When's it coming? How bad is it going to be? I also want to take a look at some steps that businesses have recently taken, both just kind of in general, and then as well as some recession coping actions that they might have taken. And then the hot topic, AI, kind of get a sense of the prevalence of that within SMBs.
So to give just a quick background on the actual survey itself, we went out and heard from 550 high level, business owners, partners, C-suite type respondents. It was fielded in a bunch of different major metropolitan areas, just to make sure we got a good cross section. It was in the field from July 27 into August 9 and important for me to note that we did a survey similar to this last year.
So as I'm going through, I'll make some references to what we saw last year. There are some pretty big changes year over year that we saw that I'll call out. We focused on the verticals that you see there, mainly because they are TriNet's verticals, but also it's just a really good representation of the market. And then just make sure that we're all on the same page. What we define as an SMB is a business with five to 249 employees. So first, let's talk about financial performance. This chart here has a lot going on, so I'll walk us through it. What we're taking a look at here is what they saw in the first half of 2023 in terms of revenue and profit, and what they expect to see in the second half.
So what really jumps out at me here is taking a look at the actual experience. So the first half of what they saw and you see compared to the second half, we're seeing a higher proportion of folks saying that they saw decreases in both revenue and profit. But when we look to the second half, those kind of go away in a pretty drastic manner. So what this is telling me is there might have been through some rough times in the first half, but there's an optimism for that second half.
Josh: Yeah. I mean, that's a fairly striking change over a fairly short amount of time. So are you seeing market fundamentals to back that up or what do you think is substantiating that marked distinction between half one and half two?
John: What we think is really driving that is the folks that we're speaking to are really entrepreneurs at heart, right? There's that. If there's a challenge, we're going to find a way to overcome it and get things done. And we did another body of research at the tail-end of the pandemic that really corroborates this. They see challenges, they're facing stuff. But there's just that will and that grit to make sure that end of the day, things are going to keep going. I think that's really what's driving it.
Next here, this one just is a flow through of the responses. So if in the first half you saw an increase, where do you expect to land in the second half? And we can see the majority of those that saw an increase in the first half expect to see that revenue increase in the second half. Likewise, for those that are stable, it's about a 60/40 split there of those that were stable in the first half, 60 expect to see a revenue increase in the second half or remain stable.
So this is just kind of more evidence that if things were going well in the first half, they're probably going to be going well in the second half as well. And just to be consistent, we wanted to look at profit too and it's more or less the same story here.
Audience member #1: Can we ask questions as you go through?
John: Yeah, absolutely.
Audience member #1: Did you ask them about spending in any way? Have they changed their spending habits in the second half to capture the increase?
John: We actually, yeah, you're a wise man. We asked about that, taking a look at investments as well as, yep, we have a question in the talk that covers that too.
Audience member #2: And are these numbers just based on sentiment? You mentioned about optimism or is it based on actual numbers that are seeing actual numbers come through in the first half that's done, and now second quarter of the second half is, right, you know, are they looking at it and extrapolating?
John: Right, right. It's exactly that. So, they were able to base what they saw and give us an actual answer for the experience, what they experienced, and then the second half is a little bit of the outlook or kind of what they anticipate will happen. Yeah.
We also saw a really big difference when we broke it down by vertical and quite a striking difference too for the technology sector. And I think we're all pretty aware that the technology sector had to make some pretty tough decisions the first half of the year in terms of layoffs and that kind of thing. So, the fact that it decreases to only 8% when it started out at 51%, I think that shows that they really, you know, they made those tough decisions, they're setting themselves up to be successful in the second half of the year, and just wanted to call that out.
Josh: Yeah, I mean, that number is pretty stunning for technology. That's such a massive difference, half over half. What are you seeing that you think might be driving such a large difference, especially in the technology vertical, or why is that sentiment so much different for tech as compared to other verticals?
John: Just a little bit of backing data for that—my particular group at the Harris Poll, we have a lot of technology clients, and we saw similar things. The actual spend in marketing research was pulled back in the first half of the year and now that we're getting into the second half, all that investment's coming back. So I think what was really driving that is they saw the rain clouds, right? So they wanted to be proactive, make some decisions, that obviously tough decisions when you're letting people go, but we're just really trying to right-size everything and get ready for the second half of the year.
Audience member #3: What's your distribution on those verticals, those six verticals you have? I mean, is it approximately in terms of percentages?
John: No, it just fell out naturally. So we went out and offered this survey up and the size of the particular vertical, it just kind of fell out naturally, we didn't have any quotas set.
Audience member #3: So, it was a respondent size? What I mean is, what are the number of respondents?
John: Right, so it was a 550-person survey overall and it just broke out however the responses came through. If that makes sense.
Audience member #3: I thought you would categorize the response. If it's coming from a technology C-level executive, then financial services, right? I mean, so you really know some distribution as to where these responses are coming from.
John: Yes.
Audience member #3: So you know the response?
John: Yeah. And again, just wanted to stay consistent, so we looked at profit as well and almost the exact same story. Technology really pegged high for having a first half that was rough and a really optimistic second half. So what are they planning to do with that optimistic look at revenue and profit? What we can see, it looks like they're planning to make some investments. And you're going to say, "John, I'm no math whiz, but these percentages add up to way more than 100%." And you're right, they do. That's because this is a multiple-choice question, so they could say that they were going to invest in more than one area. And to that point, we looked at, across all the investments, we see that 97%, so almost everyone is planning to invest in at least one of these four areas that we looked at.
Josh: Yeah, and as an employee at TriNet, an HR company, I can't help but notice the bottom number, bottom bar here, although still a nice number, 60% plan to invest in expanding employees and workforce, but that number does lag behind new products and services and others. Why do you think investing in hiring people is lagging some of the other investment areas?
John: I would really have to say that investing in people is more of a sticky investment. I guess you can say when you bring someone on, it can be more difficult to get rid of them as compared to other investments. I know it's terrible, right? Yeah, we're not trying to clip people here. I swear. Yeah, but I mean, when you look at it compared to those other investments, there's more sentiment. I mean, these are people.
Audience member #4: Yeah. Well, and I think, too, what you said about if companies just did a right-sizing exercise, you know, six months ago or a year ago, in theory, they're at the size they need to be from a capital standpoint, and so they just don't need to based on this exercise.
John: That's right. That's right.
Audience member #4: That box right there is probably the biggest reason tech critical.
John: Exactly. Yeah, and that's why we wanted to call that out.
Audience member #4: They're not hiring anymore because there's this belief that AI is going to be the panacea to so much. I'm a mentor at a technical college here in the Tri-state area and my CS engineers usually are snapped up before the semester ends. Computer science and they're not. So, not only has the salaries decreased for them, but their opportunities have completely, I'd say by like at least a third, which is to me, seeing that from the front line, you normally, as I said, my students are employed before, like two months before the term is over at very high salaries. And that's just not the case now. So, I think there's such a big, when we talked in the last session about the hype in AI. I think the hype is of employers who think AI is going to solve so much and allow them not to invest in people. And that I think is really tragic. That really worries me.
John: Right. Yeah, I agree.
Audience member #2: They still need engineers to build the architecture.
Audience member #4: But they don't think they do.
Audience member #2: Oh, okay.
Audience member #4: They really believe that AI is gonna come up with that, like that organic, what's the “if then” statement? This program, then it goes to this, you know, particular part in the diagram and this is the architecture that's gonna follow, and that could really, that's where you talk about the irresponsibility of how fast AI can be developed.
John: You're right. Yeah, we'll actually talk about that some more later. Yeah, really interesting. So next we'll take a look at some of the perceptions that we're seeing around the economy and some of the actions that these folks are taking.
I'll start out with top business challenges. One of the things that really jumped out to me here right away is the fact that we're not seeing any one or two challenges really take the cake. Nothing's really jumping out. It's all, you know, just kind of across the board, right around that 20% area. And what we think is driving that is the fact that we went out and we saw a very diverse type and set of businesses. So, you know, different businesses will have different challenges and that's why we're not seeing any one really rise to the top. If we had focused just on tech, I'm sure we would have seen some of these really take the cake, right?
Some of the stuff that we wanted to call out from this, so the year-over-year changes, those red boxes mean that there's a statistically significant decrease in the percentage that said these particular challenges compared to last year. So fewer folks are saying economic challenges and inflation and we saw more saying domestic political uncertainty, which I think kind of makes sense since we're heading into a presidential election season, right?
Yeah, so interesting there, too, to see that cyber security as one of the top ones and spent some time thinking about that. And what we kind of came up with is the fact that, you know, if you get hacked and your customer information gets out there, there's no quicker way for your customer client to lose trust in you. And that is so hard to gain back, so I think that's why we're, and across all the other work that Harris does, we typically see that being towards the top tier of business concerns.
So next, this is one of the most interesting ones that we came across, I think. So on the left hand side, we're taking a look at confidence in the U. S. economy. The right-hand side is the confidence the business leader has in their organization being able to weather the macroeconomic environment over the next year. And we can see big increases year-over-year. We only had about half of folks say that they were confident in the U. S. economy, for the upcoming year and now we're looking at 77%. So that is a big, big increase. Same big increase in terms of when they're looking at their own business. 82% are confident that they'll be able to weather the macroeconomic environment over the next year.
So really big differences there. Another one that I think is interesting on the left-hand side, if we look at those that are not confident in the economy over the next year, that's only down to 3% now. So again, I think this goes back to our message of optimism. You know, they're looking forward and might not necessarily be at the bottom of the trough, but they're seeing signs of things improving for the next year.
Audience member: Do you have a sense for how much of that changed from 2020 to 2022? You hear about economists now lowering all of their projections towards a recession. That picture looked very different a year ago. So if you were just reading the news and listening to tea leaves, you would have a very negative outlook last year compared to right now.
But, like, how much of that is them, you know, analyzing what the media is saying versus what's going on in their own business?
John: We have psychic people in here, because this next, not this next, but we'll skip to this one. We asked the question about actual signs in their business of a recession, and only 12% of people said that they're seeing a sign of a recession in their business.
Audience member #5: Which I don't get personally, 'cause all I see is people getting laid off and don't have a job and they're taking longer and longer to get jobs. Yeah. That spending must, there's gonna be a point where people aren't able to purchase the things they need to purchase. It might be so. It just feels there's a disconnect between some business leaders and like, "everything's fine," but all I see is people getting laid off, but it feels like a disconnect.
Josh: But unemployment rates are still at a fairly historic low.
Audience member #5: Well, that's what I was gonna ask and I don't know if the Harris, sorry, so I don't know if at Harris, if you all in addition to this study, if you do, if you have any data on that, because I think it's around a narrative and you know, as a person who's in the business of words, the narrative prevails that, "Oh, it's everyone's getting left," but actually that's people can't find folks to fill jobs in many cases, not in every case, but in many cases. So what is, I mean, so you said unemployment is still historically low, but do you all have any sort of stats on that? Like just in general, are people in this survey saying they're finding it hard to fill the positions that they do have that are open?
John: There are, yeah, we do have a couple of points about the fact that finding skilled talent is a challenge. Right, right.
Audience member #6: So is there some, I don't know what it is, there's a disconnect, but it's like skilled talent that wants to work.
Audience member #7: Yeah, and the thing with percentages is the number can still be massive, the percentage can go down, but the number still gets bigger.
Audience member #8: Inflation has so much to do with it. But also look at how much they're being compensated. You know, you’re not gonna be paying the amount that you pay your words.
John: Right. So let's go back to this one real quick. This one just takes a look at their expectations. Are we already in a recession? And if not, when do they expect it to hit? We saw about a quarter of folks saying that we are already in recession and that's up significantly over the last year. So I think more realization that it's already here. One thing that I want to draw out too is that 15% down at the bottom, so no, not all, not at all. You know, that number went down drastically. I believe it was at around 30% last year. Saying that, no, we're not going to have a recession. I think more people have been in this economic environment for a while now, realizing, "Yeah, this is probably coming, if it's not already here."
Josh: Yeah, I find that these successive slides interesting, right? Like the prior slide was this optimism. And then, the same respondent is believing we are in the midst of a recession. So at face value, how do you reconcile that sort of sequence of thought?
John: Right, right. And I think it just goes back to our optimism story, right? We've been through one of the most difficult business environments ever in dealing with the pandemic. So if these businesses are still here, still around, still kicking, they look at a recession and go, "Oh, we can handle that. We just came through a pandemic." So I think that's really what's helping drive all of this optimism is, you know, we were put to the test and now we're ready. We've made hard decisions. We're prepared. And we'll talk about that a little bit more too. But I think it's just that grit and determination.
So then when we take a look at, of the folks that say, "Yes, we're already in a recession or we anticipate one," we wanted to get a sense of how deep of a recession are they anticipating. And the majority say they're expecting a moderate recession. Only 4% thinking it's going to be really bad. And a little bit less than a quarter saying, "We don't really, wouldn't classify it as a recession, but more of an economic slowdown."
So we've talked about this one already a little bit, but just wanted to spend a little bit more time on. So we went back and of that 12% that said, "Yeah, we saw signs in either our business or our client base." We asked specifically, "Okay, what are those signs?" And it's really just a slowdown of business, so reduction in business from the leaders themselves or a decrease in demand from their client base.
And here's that preparedness slide that I had mentioned. We went out and asked them, "Okay, on a scale of one to five, how prepared do you feel for a recession?" And the number that said, "We're a hundred percent ready. We're ready to go. We're fully prepared," is at just over a third now and that's up significantly over last year. And we take a look at the net there. We have about 88% saying that they feel prepared to handle a recession, if and when it comes, or if it's already here.
Here are some of the actions that businesses have taken over the last three to six months: so, cutting operating costs, postponing technology purchases, readjusting products and services, all things that kind of make sense, right? Taking a look at the year-over-year changes, we saw an increase in those that said they are going to postpone technology purchases, but a decrease in those that said they've raised prices. So I think what we were talking about already with the inflation being around for a while, if they were going to make price raises, a lot of them already have.
And then we asked a question specifically around what are some of the actions that you would take to cope with a recession? And this just takes a look at readjusting products and services, scaling down business plans and cutting operating costs, so fairly similar to what we saw on the last slide. But ones that I think are interesting here, we saw ticks up compared to last year in readjusting products and services. So optimizing what they're bringing to market tick up and layoffs and then tick down and those that saying they're not doing anything. So pretty interesting there.
Josh: Yeah, that 1% of doing nothing. To me, that really stands out.
John: Right.
Josh: So all SMBs are taking some sort of action, right? There's a lot of variability as to what they're doing, but action is happening.
John: And then our last topic is AI. We started this section off just by trying to find out generally what are some topics you're interested in learning about. And AI really took the cake there. No big surprise. It's really just prevalent in the market right now. Also things around cost management and reduction in cyber security again shows up. But I thought this was a good introduction into seeing, "Okay, yep, AI is on people's minds." We followed that up with finding out, "Okay, are you currently using AI and if so, how are you using it?"
And just skipping ahead, we see that 91% of businesses say that they're already using AI in some fashion, which actually surprised me. I didn't think it would be that high already. Particular departments that they're using it in—IT, sales, and then marketing and advertising were really the ones that took the cake.
And then we followed up with those that said that they're not currently using it and wanted to get a sense of, "Okay What are your plans for the next year?" And we see just about over half say that they do plan to use it in the next year, and then the same kind of breakout there in terms of departments with marketing and advertising really being towards the top.
Audience member #9: It's not AI, it's just algorithm.
John: Right. Yeah. So we wanted to go, we wanted to find out, "Okay, what are your concerns?" Right? So I think there is a lack of understanding there because when you see one of the top concerns is—how is AI gonna increase costs? You would think that that's gonna be the opposite, right? That's why you would use it. So, all four of these top responses—lack of data or use cases around AI, lack of knowledge and then uncertain—it just tells me there's not an understanding yet. There's still a lot of learning to be done on, "Is this good? Is this bad? Are we taking jobs away? How is this going to incorporate into business?"
And the other thing too that I think is interesting, if you look at the inverse of this. So we saw that 38% said that AI cost increases are a concern. That means that 62% are not concerned about it. So that's the majority, right? So I think it's interesting if you flip this on its head a little bit, that the majorities aren't concerned about these different areas.
Audience member #2: Or are they concerned about profit?
John: Could be, yeah. So just wrapping up real quick about what we got talked about: SMBs, again, the story of optimism, I think, is very strong, kind of throughout in terms of perceptions around the economy, financial performance. We saw higher proportions saying that, "Yeah, I think we're already in a recession," but an increased level saying that we're prepared for it.
Saw more that are postponing technology purchases, but few are raising prices. And then things that are being done to cope with the recession—adjusting or streamlining that service offering, more doing layoffs and few are doing nothing. So I think just that acknowledgement of, "Yeah, we need to do something. It's here or it's coming very soon."
And then interesting to see that almost everyone is using AI already, but there's really just a lack of understanding so interesting there.
Josh: Yeah, awesome insights, great data. Thanks for quickly taking us through it. And also, thank you to the audience. This was really active. The participation was fun, so I appreciate that. We are out of time, so we didn't get to Q& A, but we did Q& A along the way.
John: On the fly.
Josh: So, that's even better. And then a quick plug, using the app or Slido, you can rate the session, so that will be coming up as well. But thank you all for your time. Hope you found this helpful.
John: Thank you.
