300,000 businesses a year succumb to “churn”

Each year 300,000 new businesses come online and 300,000 cease to operate, according to research published today by Deloitte Access Economics and Salesforce.

The report found talented staff members are the differentiator in allowing SMEs to avoid succumbing to the “300,000 business a year churn”.

The survey of 500 Australian businesses with 16-100 people found SMEs are facing more pressures from online-only competitors that have lower costs of distribution and broader market reach.

It found SMEs can use analytics to get a deeper understanding of their customers as they grow their online delivery services, and shift from website only innovations to mobile engagement and delivery.

The research highlights the adoption and increasing maturity of the cloud by top performing SMEs, alongside using social and mobile to better connect with their customers in real time, anytime.

Businesses believe future growth is more likely to come from recruiting the right talent (37%) as well as increasing productivity (35.5%), the second most important factor for growth.

Separately, they cite accessing skilled labour as the number one issue facing their business.

Deloitte Private partner, Joshua Tanchel, said a key incentive to prevent churn and retain employees, is being able to act on the fact that employees are motivated by more than just perks and pay.

“The most engaged employees are those that access good analytics, work in a digitised business and can access collaborative technology,” he said in a statement accompanying the research.

BizExchange chairman David Bird told SmartCompany the high churn figures could be a result of the nature of digital businesses.

“Digital businesses are a lot easier to set up and don’t require as much investment but what people don’t realise is the ongoing task of maintaining a digital business is probably quite high,” he says.

“People are looking to do things faster, younger people look at exiting when they start up but the older generation may think to set up a business and have it for life and hand it on to their children.”

Bird says founders of digital businesses may set up a few businesses and then if they find they are not going well it is not too expensive to shut them down and move on to something else.

Peter Strong, chief executive of the Council of Small Business of Australia, agrees the churn figures are not necessarily negative.

“10,000 businesses go insolvent each year so the majority of [the 300,000 businesses closing] are not going under, they are closing for other reasons,” he says.

“Sometimes people close a business down for a really good reason and because it wasn’t working for them.”

Strong says it is “always tough” for new businesses as their first time in business is likely to be challenging.

“I think there needs to be a lot more research and due diligence done by people going into their first business,” he says.

“People starting their second and first business approach it very differently.”