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2021 Small Business
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Small businesses not sure what to expect in 2021
Small businesses are uncertain about the rest of 2021, weary of spending money, increasing marketing expenditures or adding new employees to the payroll. Even still, these business owners are optimistic that customers and revenue will grow.
Those are the key findings from a survey of 124 small businesses that are clients of McElvy Partners, a Houston-based company that works with more than 2,000 small businesses annually on marketing and customer growth strategies.
The survey, conducted the first two weeks of February 2021, asked small business owners to answer 10 questions about their business and their outlook for the remainder of the year. Respondents represented a mix of businesses, with 73 percent indicating they have anywhere between 2-25 employees. According to Small Business Trends, 90 percent of small businesses, nationally, have less than 20 employees.
Of those who responded to the survey over the phone or online, 65 percent had been in business for more than 10 years and 86 percent had been open five or more years. According to the SBA, only half of all small businesses remain open more than five years, weighting this survey heavily toward more successful business owners.
“I think the collection of business owners we were able to survey gave us a strong look at how businesses feel about the rest of this year,” said Jonathan McElvy, CEO of McElvy Partners. “We had a good mix, but the core of our respondents would be considered successful operators, which tends to offer more authentic results to the questions we asked.”
This survey is by no means designed to be considered a national scientific sampling of small business owners. Rather, it was designed to poll the clients within the portfolio of McElvy Partners, an organization that works with more than 2,000 small business clients, big and small, each year. It was our intent to understand how our clients feel about the coming year, the expectations they have for business growth, and the concerns they have coming out of one of the most difficult years in history. Through phone, email and our website, we reached out to our client base and asked that they take a few minutes to complete the survey. Those who responded were incentivized by having first access to the results, along with our analysis of the survey, as a whole, and each individual question. The survey was conducted from Feb. 1-12, 2021, and 124 small businesses responded.
There was a mixture of optimism and pessimism from small business owners. For instance, respondents were asked whether they planned to hire more employees in 2021. Just over 53 percent said yes, they plan to hire more people, while 47 percent said no, representing a nearly even split on the question.
The same was true on a number of other questions. When asked whether businesses would add more inventory this year, keep it the same, or have less inventory than 2020, 46 percent said they’d add more, 47 percent said they’d have the same amount, and 7 percent said they’d have less. Again, an even split between businesses that add or stay the same.
And when asked if businesses expected their vendors to charge more, less or the same amount, again, the numbers were nearly even. Of the respondents, 52 percent expect to pay more for goods, while 48 percent expect to pay the same or less as they did in 2020.
“Our big takeaway from those three questions is an overwhelming sense of uncertainty about what will happen as the year goes on,” McElvy said. “For every business that thinks vendors will charge more, another thinks vendors will charge the same or even less. Same with inventory – half think they’ll add inventory; half think they’ll have the same or even less.”
After such a difficult 2020 for small businesses, McElvy said uncertainty is not the news he was hoping to hear.
“For most of our small business clients, 2020 was about the worst it could get in terms of revenue. To hear that half of those clients don’t expect it to get better is worrisome.”
Another question in the survey asked whether small business owners thought overall revenue would increase in 2021. While 73 percent said they expect higher revenues, 14 percent expect it to be the same, and 13 percent expect revenues to be even lower this year.
“It’s obviously good news that three-quarters of our respondents expect revenue to grow, but more than a quarter of them expect revenue to be the same or even less,” McElvy said. “That falls in line with a number of national surveys we’ve seen that about 30 percent of small businesses expect to fail as consequences of this pandemic linger.”
According to a national survey published in Forbes magazine, small businesses reported revenue declines of 52 percent in the second quarter of 2020, compared to the same quarter of 2019.
“In working with our clients, we know 2020 was the bottom of the barrel, in terms of revenue,” McElvy said. “Businesses that expect to survive – especially as government funding programs taper off – should overwhelmingly feel like revenues will be higher this year. To a large degree, that is the case. But having nearly 30 percent of our clients worry about revenue this year is some cause for concern.”
Along with uncertainty, respondents also seem more confused about marketing and their online presence than any other part of their operations. When asked the one area of business that could use the most help, nearly 41 percent said marketing and managing their company website. After that, 25 percent wanted help with customer retention, nearly 21 percent said managing and hiring employees, and 14 percent said managing their finances.
In a separate question, business owners were asked whether they planned to spend more, less or the same amount of money on marketing in 2021 as they did in 2020. Almost 51 percent of respondents said they’d spend the same amount on marketing, 37 percent said they’d spend more, and 12 percent said they’d spend less.
“What’s clear from our survey is that, increasingly, businesses understand that this still-new digital marketing space gets more and more complex,” McElvy said. “Businesses initially thought digital marketing would make things easier, as long as they had a website and a social media account. But that’s not borne out in the responses.”
McElvy also noted that while a large majority of business owners expect to grow customers and revenue (72 and 73 percent, respectively), they plan on that happening without an increase in marketing expenses.
“More than 63 percent of our respondents said they plan to spend the same or even less on marketing as they did in 2020, but most businesses plan on getting more customers this year,” he said. “Growing business or revenue usually means a concerted effort in marketing. And while the marketing landscape is noisier and more difficult to navigate, it’s still something small businesses will have to do in order to grow this year.”
To begin our inaugural Small Business Sentiment Survey, we asked two demographic questions to get a better understanding of our respondents. By asking for total employee ranges and the number of years in business, it was our goal to determine whether we were weighted heavily toward established businesses or relatively young owners.
The results to these questions made it abundantly clear that answers to our survey came from established businesses that are not too big but are not too small, either. We believe this was a perfect sampling of our clients, and it gives us a high level of confidence in the results.
Based on all national statistics, half of small businesses fail within the first five years. The longer they remain open, the better chance they have for sustained profitability and, obviously, longevity.
Because most of our respondents had between 2 and 20 employees (the majority of all small businesses across the country) and because 86 percent of our respondents have been open for more than four years, we believe the answers to the remaining eight questions in the survey are extremely reliable.
It is also important to note that the solicitation of this survey from our company’s clients came with the benefit of receiving the full results and analysis of the survey. It is our belief that more established and successful business owners and operators would see the value of this information, which is likely why our respondents were weighted toward successful small businesses. Because of that, this survey may not account for smaller and younger businesses, and it may leave out some of their sentiments about the coming year. In that case, many of the answers may be overly optimistic and may only pertain to the same demographic group that responded to the survey.
A small majority of business owners and operators (53 percent) said they do plan to hire more people in 2021, and that number is quite a bit lower than what we would have expected. Most small businesses (see Questions 5 & 6) said they expect to have more customers (72 percent) and more revenue (73 percent) in 2021 than they did in 2020. However, with only 53 percent planning to add staff, this indicates four possibilities:
- Businesses are going to try to maximize profits with lower overhead and an increase in revenue;
- Businesses have maintained the appropriate level of staffing and have implemented new processes in order to run their businesses more efficiently;
- Leading up to the pandemic, many businesses were highly profitable as the economy soared. It is possible many were over-staffed due to favorable economic conditions.
- Businesses have not yet considered their needs to handle more revenue and will, ultimately, add more personnel.
Each of those reasons, and possibly combinations of them, are reasons only half of small businesses plan to hire more people this year.
The results to this question also indicate two other key factors:
First, based on these results, the national unemployment numbers may remain higher than ideal throughout the rest of 2021. Small businesses employ 47 percent of the national workforce, and most small businesses have shed employees during the pandemic. If only half of small business owners plan to hire this year, that will leave a large population of unemployed workers throughout 2021.
Part of proposed stimulus legislation from the Biden Administration is to maintain increased federal unemployment benefits through the end of August 2021. This may be evidence that such a plan is needed.
It is also noteworthy that the national job index in January was flat, which fell immediately before this survey was taken. There’s high likelihood that business owners expected job numbers to increase, as did the Federal Reserve, and that had an impact on the responses of small business owners in this survey.
Second, and maybe most important, is that such an even split among respondents points to a high level of uncertainty. With half of small businesses planning to hire and half planning to keep employment levels the same for the remainder of the year, that’s a strong indicator that many small business owners don’t know what to expect just yet.
Those who plan to hire are likely hopeful that they’ll be able to afford more employees. Those who don’t plan to hire are likely considering the current levels of revenue and are possibly waiting for something more concrete before they commit to hiring.
This was the first of three questions we asked small business owners and operators to get a sense for how they feel about added expenses in 2021. Of course, the specifics of inventory levels, especially during a pandemic, have carried far greater importance as supply chains have been disrupted and access to goods has proven difficult.
As with many other responses in this survey, we found a great sense of uncertainty among small business owners. Coming off such a difficult year for so many businesses, the expectation is that more businesses would plan to grow revenue by adding more inventory and selling it. Instead, we found a statistical tie between businesses that plan to add inventory and those that plan to keep levels the same in 2021.
Again, this is also interesting given the results of Questions 5 & 6, where most business owners obviously expect this to be a better year. If that’s the case, and based on the assumption that inventories were lower last year than in previous years, that would indicate one of three scenarios:
- Businesses have excess stock and they plan on selling more of it this year;
- Businesses haven’t considered this expense and will likely need to plan for it in their projections;
- Businesses have found other revenue models that don’t require full inventory levels. Many may have moved to on-time delivery or may be working on more of an e-commerce platform that doesn’t require high levels of inventory.
Along with the two groups, representing 93 percent of respondents, nearly 7 percent of small business owners or operators believe inventory will be even less than last year. For some of them, that could be a function of e-commerce and on-time delivery. It also plainly indicates that a small sample of respondents are not optimistic about this year and are planning for things to be the same, if not worse, than 2020.
Above all else, the responses to this question tell a consistent picture that businesses are split between reasons to be optimistic and reasons to be cautious. With a combined 54 percent of owners and operators planning to have the same or less inventory, caution and uncertainty are quite clear in these answers.
This was the first of two questions designed to understand how small business owners feel about revenues, profitability and public confidence in reopening as the pandemic fades. Specifically, this question sought the answers of service-oriented businesses who don’t usually carry inventory and rely on more of an open economy to succeed.
As expected with both revenue questions, the answers were overwhelmingly positive. Nearly 72 percent of respondents said they do expect to have more customers this year, which means they don’t see any possible way economic conditions can get worse than 2020.
As mentioned in the Executive Summary, a national survey published in Forbes magazine said small businesses saw an average loss in revenue of 52 percent in the second quarter of 2020, when compared to 2019. That clearly correlates to the number of customers service-oriented businesses had. And when you consider that many of these specific businesses were not allowed to even open during the early months of the pandemic, that nearly three-quarters of respondents expect to have more customers this year is not unexpected.
However, there is some gravity in the number of businesses that expect their customers to be equal or less in 2021 than what they had in 2020. More than 28 percent of businesses surveyed said they do not expect growth this year.
There have been a number of national surveys that have shown similar numbers. A survey conducted by National Write Your Congressman found that 35 percent of small businesses were very uncertain about the future. And a Small Business Credit survey, published Feb. 8, 2021, said 25 percent of small businesses didn’t expect to survive 2021 without the help of more federal government stimulus.
While there has been a second round of PPP, which has proven to be exponentially more difficult than the first round, and there’s also another stimulus bill in Congress, the level of federal help to small businesses will not fully help a quarter of small businesses survive. The $1.9 trillion stimulus legislation only has 2.2 percent of the funds allocated for small businesses, and 61 percent of that money is earmarked for restaurants and live music venues.
This second question on financial expectations for businesses was, again, overwhelmingly positive. After a miserable 2020, 73 percent of respondents said they do expect revenues to be higher than the year prior. In order for most small businesses to survive, that has to be the case.
A company called Guidant Financial released a survey in January 2021 that had lower numbers of small business confidence. Only 49 percent of their respondents felt confident or highly confident that business will rebound in 2021, which meant half of small businesses were either neutral or not confident in a post-COVID rebound.
Our Small Business Sentiment Survey was taken the first two weeks of February, after the second round of PPP had rolled out and after there were serious discussions about further stimulus from the federal government.
And like those service businesses that believe they’ll have more customers this year, 73 percent of small businesses in our survey feel the same way.
Again, that leaves a full quarter of all small business owners who are concerned about 2021. If their revenues are flat to last year, that would indicate they will struggle to keep the doors open. What’s even more concerning for this question is that more than 12 percent of respondents believed their revenue would be lower in 2021 than it was in 2020.
This doesn’t mean the worst
Just because small business owners reported concerns about the coming year, and even though many of them do not believe they’ll have increased revenues over last year, does not mean all of these businesses will fail.
One of the constants in times like this is that small business owners, the entrepreneurs, find new and innovative ways to stay in business. In fact, most small businesses that make it past the 5-year threshold survive because they made changes to their models, found better ways to run their businesses, and sought out efficiencies they had never considered before.
While there have been business casualties during the pandemic, there have been thousands of businesses that have pivoted to new models and new revenue streams. More important, many of them may well survive on less revenue in 2021 because, out of sheer desperation, they have found better ways to run their businesses.
The second of three questions we asked small owners about expected expenses was designed to understand current trends in pricing and how that may change over the course of 2021. The answers may also help owners understand what their customers may expect in the coming year.
The responses – as was the case throughout much of the survey – gave a mixed message and a revealing glimpse into expectations.
Just over half of respondents, 51.7 percent, expect vendors to charge more for wholesale products, while 48.3 percent expect pricing to remain the same or even less than last year. Statistically, that is a dead-even split in sentiment. It’s another indicator that small business owners are not certain about how their suppliers will set pricing throughout the remainder of the year.
This uncertainty likely means one of two things:
- Those who expect pricing to increase are the business owners who also expect the pandemic to impact less and less of the general public as the year goes on. And as that happens, and the economy reopens, vendors will slowly raise their prices.
- Those who expect pricing to remain the same or even less than 2020 expect things to remain status quo and possibly even get worse before they get better. Their assumption, as is the case with so many other expectations this year, is based on current economic conditions, and it is likely businesses answered this way based on their current opinions.
There’s another takeaway from the answers to this response that small business owners should consider, and it has nothing to do with expenses.
As the economy continues to reopen – and there are plenty of signs it will – businesses should consider how they will set their own pricing this year. If half of all respondents believe pricing will increase, with the assumption that happens as economic conditions improve, the general public is likely to expect the same thing.
For a business owner projecting revenue for the remainder of 2021, the more the economy reopens, consumers will not be surprised if their costs rise. All indications are that will happen across many industry sectors. As of our publication date, gas prices were up 22 percent between Jan. 6 and March 3, Zillow projects home prices to increase 10.1 percent in 2021, and the USDA’s Food Price Outlook says food-at-home prices (grocery stores) will increase between 1-2 percent in 2021.
Small business owners should follow that lead and offset vendor price increases with their own increases in 2021.
We did not leave this question as an open book to small business owners; they were given four options:
- Managing your finances
- Managing your website and marketing
- Customer retention
- Managing/Hiring Employees
While there was no option that gained the majority of answers, the top answer (by 15 percent) was that small business owners want and need help with their websites and marketing. There are a number of reasons businesses feel that way, and it begins with the continual change in the role of websites as they relate to marketing.
For all of the 20th century, and even the first decade of the 21st century, a small business marketing plan was simple. Through face-to-face selling, word-of-mouth, direct mail, outdoor signage, newspapers, TV and radio, most small businesses found one or two lanes where they spent the majority of their marketing dollars, and it worked.
These business owners understood what they needed to give a sales person who came by the office and prepared the next round of advertising. It’s not that marketing was simple a decade ago, it’s just that everyone understood the basics of it, they understood how pricing worked and all they needed was a good deal to plaster in mass-reach mediums.
The growth of the digital marketing space initially made things seem easier. Build a good website and it appeared somewhere on a search engine. Put some pictures and specials on social media and people would share it, leading to a growth in customers.
Because it was so easy, more and more businesses used the digital marketing space, saving real money in traditional advertising costs. But as the number of businesses online grew, it became increasingly difficult to stand apart.
That’s when the digital giants – Google and Facebook, mainly – introduced more and more algorithms to rankings and where your business appeared online. No longer was it as simple as having a website and a social media page. More content became necessary. Businesses began spending more money to appear at the top. Where small businesses used to find a couple of lanes where they could market, the digital space alone had hundreds of lanes on its own.
Today, the algorithms change on a daily basis and the businesses that appear at the top spend inordinate amounts of money to reach the most people. In the process, the old places where small businesses advertised (newspapers, radio) now reach a smaller audience.
In a twist no one imagined, growing the digital marketing space was only good for small businesses for a short time. Meanwhile, the tried-and-true methods of marketing have nearly disappeared, leaving small businesses owners in limbo. Instead, the national giants control key areas of the digital marketing space, and small businesses are left to claw for the scraps.
Today, in order to do marketing the right way, small business owners are spending more and more money, and they aren’t prepared for it. They still want digital marketing to be cheap, but they don’t know how to make that happen. It is the reason more business owners need help with marketing and websites over any other category.
Even still, some of the consistent needs of small business owners remain. A quarter of them are working hard to retain customers, and 1 in 5 has trouble managing and hiring employees.
Where a common theme throughout this small business sentiment survey has been the uncertainty of the coming year, respondents seem quite certain about their plans for making large investments in their business in 2021.
More than three-quarters of small business owners said they do not plan to make any large capital purchases this year, while 22 percent said they would.
There are a number of reasons small businesses make capital investments, and nearly all of them are tied to growth in their business. Some make the investment to become more efficient or to increase productivity at their businesses. Others improve major production capabilities because new models always have better technology. And better technology usually means producing at a lower cost. Small businesses also make capital investments because they have old assets that do not work and must be replaced.
The quarter of small businesses that plan to make capital investments this year most likely fall in more of the need- or technological-based category.
As has been well-documented, the majority of small business owners had a difficult 2020, and because so many businesses do not plan to add major capital expenses, we believe that is a direct result of small business owners seeking to recoup personal investments they made in their own companies.
According to a 2020 survey by CreditCards.com, nearly 35 percent of all small business owners tapped into their personal money to fund the survival of the business. That number has been consistent throughout numerous other national surveys, which likely means business owners will want to recover those emergency funds before making large investments.
This is also a strong indicator that small business owners believe the economic recovery will be slower than many hope. According to a publication called TheBalanceSMB.com, capital investment “is considered to be a very important measure of the health of the economy. When businesses are making capital investments it means they are confident in the future and intend to grow their businesses by improving existing productive capacity.”
While the results of this specific question are certain, they further support the overall sentiment that 2021 will be an uncertain year.
For businesses that specialize in capital funding for small businesses – community banks, private lending companies – this is a strong indicator that loans will be difficult to sell in 2021.
Every survey has one question that stands out, largely for its inconsistency to a rather consistent trend. The last question in the survey proved to be the exception.
In overwhelming fashion (63.3 percent), small business owners said they plan to spend the same or less on marketing in 2021 than in 2020. During times of economic downturns, especially during recessions, small business owners tend to cut their marketing budgets first. In the case of the pandemic, when many small businesses were forced to close their doors, they should have, and did, cut marketing completely. After all, it makes very little sense to market when potential customers can’t even visit your store.
The strong majority of businesses that do not plan to increase marketing expenditures in 2021 does not correlate to other responses in the survey. For instance, 72 percent of business owners said they expect to have more customers in 2021. And 73 percent of owners said they expect revenue to increase. Yet 63 percent of these same owners plan to spend the same or less on marketing as they did in 2021, when those budgets were already severely depleted.
There are a number of reasons business owners feel this way:
- Many business owners expect to earn back the business of their existing customers, and that will happen organically as needs increase. That does not require strong marketing campaigns.
- Don’t forget that a quarter of small business owners are not sure they’ll survive this year. Nearly all of them likely answered that they’ll spend the same or less on marketing because they do not have confidence that economic conditions will improve.
- There’s likely a direct correlation between businesses that say they need the most help with marketing and websites and those that don’t plan to spend any more than they did in 2020. If business owners do not understand this new digital marketing landscape, they’re less likely to spend on something so confusing.
- There are also business owners who have found better and more efficient ways to market and, with that, they won’t need to spend as much while actually marketing more. Maybe a new employee is a social media whiz, and much of that work has been taken in-house. Just because companies say they’ll spend less does not always correlate to doing less marketing.
While the constant theme throughout this survey is that small business owners are uncertain about the trajectory of 2021, the same is likely true about how they’ll invest marketing dollars. If the economy continues to open, and if they begin to see an uptick in their businesses, most small business owners will naturally seek to ride the wave and will ultimately spend more to promote their products and brands.
Jonathan McElvy is the president and CEO of McElvy Partners. For the past 21 years, he has worked as an executive in the media business as a general manager, publisher, president and now CEO of his company, which was formed in 2012. The first half of McElvy’s career was devoted to journalism, working as a reporter and editor at community newspapers where he covered small business issues. In 2012, his company purchased its first newspaper, The Leader, in Houston, Texas. Today, McElvy’s portfolio includes newspapers that reach nearly 400,000 readers each week in print and another 650,000 readers online, while also diversifying the company to offer full-scale digital marketing services, content creation and commercial and promotional printing services. His business expertise is largely in turning around distressed companies, and over his two decades in management, he has worked with thousands of small business owners to tell their stories, develop marketing plans and offer business advice.
McElvy Partners is the umbrella organization for a host of divisions, all geared toward working with small business clients who want to expand their reach and customer base. Those divisions include The Greensheet, The Leader, the Fort Bend Star, Texas Printers and Targited Digital Agency, all based in Houston, Texas. We also have separate divisions that publish newspapers and provide complete marketing services in Charlotte, N.C., and in five communities north of Corpus Christi, Texas, headquartered in Beeville, Texas. Along with daily management of those divisions, McElvy Partners is an information source for small business owners. Through our website, we produce daily content that compiles the most important national news related to the operation of small businesses, and we produce original content that provides information and advocacy for those same small businesses. This survey, along with our daily content, is designed as a resource to help small businesses get better information, in order to chart a clear direction for their operations. Through that direction, they are able to make better strategic decisions that help them grow their customer base. The goal of McElvy Partners is to help good small businesses find more customers.