DNA of an Entrepreneur report 2016

Small businesses in numbers

Advancing with confidence and ingenuity

There is a strongly bullish tone to this our eighth annual DNA of an Entrepreneur report. For the first time in many years, the majority of small businesses in all six countries are advancing in lock-step, with rising revenues, growth in new customers and improving order books. Investment has beaten expectations, particularly in continental Europe. While new job creation has lagged the upturn in the past year, one-in-five firms says it intends to hire in the year ahead.

Our own experience mirrors these findings. We have been offering small business insurance for more than 20 years and now insure around 366,000 small businesses worldwide. In the past year, the small businesses we work with have increased their combined turnover by 11%, to £51 billion. This is the second year running where we have seen our small business customers generate double-digit growth. It is noteworthy that in the UK their wage pot has also grown by 10% compared with a 3% reduction in the prior year.

Several themes stand out in this year’s report. The larger firms we contacted are unquestionably doing better than the smallest, which continue to find bank funding difficult to access. Many are responding with the ingenuity that is characteristic of entrepreneurs and turning to alternative sources of finance – some good (peer-to-peer lending and crowd funding, for example) and some not so good (credit cards).

The report reinforces the message that small business owners and managers see long hours and hard work as the key to success. Nearly half say they always expected to start their own business one day, and those same people feature prominently among those working the longest hours. But it is striking that, for the majority, money is not the prime motivator. Flexibility over where and when to work and the feeling of being in control of their lives – these are the key considerations that keep them on their chosen path.

There is much in this year’s report for policymakers to absorb and consider. While the overall tenor of the report is positive, large numbers of the business owners and managers we spoke to see their government as unsupportive and more than a third say political instability in their country is having a negative impact on their business. This should be of concern to us all. Small businesses play a critical role in economic growth and repeated studies have shown they regularly account for two-thirds or more of new jobs created.

The findings in this report are certainly important in helping us at Hiscox understand the many issues our small business customers face, not least in their vulnerability to cybercrime where one-in-ten respondents reports an attack. There is a wealth of information on attitudes and lifestyles as well as the hard financials. All is important in helping us tailor our services to meet our customers’ needs. But above all we hope the report helps promote a better understanding of what makes small businesses tick among those who have a role in supporting and sustaining this all-important sector.

Bronek Masojada

Chief Executive Officer, Hiscox

DNA of an Entrepreneur Report 2016 Download the report

Executive summary

  • Two-thirds of firms report growth in revenue with all six countries contributing to the upswing. There is a sharp rise in the number of Spanish and French firms enjoying revenue growth (69% and 60% respectively). More than three-out-of-five firms (63%) also report an improvement in forward orders. However, there is a more guarded view on the year ahead with optimism levels declining marginally in all but one country. The exception is Germany, where optimism is at its highest for four years (65%). In contrast, just 41% of French respondents are positive about the year ahead.

  • The proportion of companies taking on new staff has fallen from 21% to 13% year-on-year, and one-in-ten firms say they have cut staffing levels. However, hiring intentions for the year ahead are more enthusiastic with 21% planning to increase headcount and only 4% expecting headcount to reduce. The most active recruitment markets are Spain (where 26% of firms are planning to increase headcount) and the US (23%). The proportion of UK firms planning to hire is 3% lower than a year ago at 19%.

  • There is a marked difference between the growth rates reported by the biggest companies in our study (those with a turnover in excess of £10 million) and those towards the lower end of the range. More than four-fifths of the biggest firms (85%) report increased revenues. The equivalent figure for firms with sales of £100,000 or less is 61%. There is a similar picture for profits. Unsurprisingly, larger firms are also more likely to have hired new staff in the past year, more likely to innovate and find it easier to borrow.

  • There is no sign of an easing in credit conditions for smaller companies with 22% of respondents saying bank funding has got more difficult to access (up from 19% a year ago). One-in-six respondents (17%) now uses their credit card to help fund the business, while one-in-ten is contemplating turning to crowd sourcing and peer-to-peer lending sites in the coming year. Around one-in-six (17%) firms with a turnover in excess of £10 million is contemplating raising finance in this way – four times as many as last year (4%). For the first time, the study also reveals that 40% of those who have set up their business within the past four years are relying on income from outside sources.

  • More than a third (36%) of small business owners and managers now see no barrier to using social media in their business. Dutch and US respondents are the most positive (at 45% and 40% respectively). Younger respondents are most likely to embrace social media. The proportion of under-30s who are afraid they might not be able to control social media has fallen from 16% to just 6% in the past year.

  • For the first time in this study, 11% of respondents admitted they had suffered a cyber-attack while a further 8% said they did not know. Of those who had suffered an attack, 26% said it had resulted in a serious loss to the company, but only one-in-six of those (16%) had been able to make an insurance claim. Just 8% say they have e-risks insurance.

  • Strong growth continues, but optimism levels slip back

    Two-thirds of firms report growth in revenue with all six countries contributing to the upswing. There is a sharp rise in the number of Spanish and French firms enjoying revenue growth (69% and 60% respectively). More than three-out-of-five firms (63%) also report an improvement in forward orders. However, there is a more guarded view on the year ahead with optimism levels declining marginally in all but one country. The exception is Germany, where optimism is at its highest for four years (65%). In contrast, just 41% of French respondents are positive about the year ahead.

  • Hiring remains patchy

    The proportion of companies taking on new staff has fallen from 21% to 13% year-on-year, and one-in-ten firms say they have cut staffing levels. However, hiring intentions for the year ahead are more enthusiastic with 21% planning to increase headcount and only 4% expecting headcount to reduce. The most active recruitment markets are Spain (where 26% of firms are planning to increase headcount) and the US (23%). The proportion of UK firms planning to hire is 3% lower than a year ago at 19%..

  • Larger companies lead the way

    There is a marked difference between the growth rates reported by the biggest companies in our study (those with a turnover in excess of £10 million) and those towards the lower end of the range. More than four-fifths of the biggest firms (85%) report increased revenues. The equivalent figure for firms with sales of £100,000 or less is 61%. There is a similar picture for profits. Unsurprisingly, larger firms are also more likely to have hired new staff in the past year, more likely to innovate and find it easier to borrow.

  • More firms look to alternative sources of funding

    There is no sign of an easing in credit conditions for smaller companies with 22% of respondents saying bank funding has got more difficult to access (up from 19% a year ago). One-in-six respondents (17%) now uses their credit card to help fund the business, while one-in-ten is contemplating turning to crowd sourcing and peer-to-peer lending sites in the coming year. Around one-in-six (17%) firms with a turnover in excess of £10 million is contemplating raising finance in this way – four times as many as last year (4%). For the first time, the study also reveals that 40% of those who have set up their business within the past four years are relying on income from outside sources.

  • There is rising acceptance of social media

    More than a third (36%) of small business owners and managers now see no barrier to using social media in their business. Dutch and US respondents are the most positive (at 45% and 40% respectively). Younger respondents are most likely to embrace social media. The proportion of under-30s who are afraid they might not be able to control social media has fallen from 16% to just 6% in the past year.

  • More than one-in-ten has suffered a cyber-attack

    For the first time in this study, 11% of respondents admitted they had suffered a cyber-attack while a further 8% said they did not know. Of those who had suffered an attack, 26% said it had resulted in a serious loss to the company, but only one-in-six of those (16%) had been able to make an insurance claim. Just 8% say they have e-risks insurance.