Growth SMEs are leading innovators

While one third of SMEs say they have no plans to invest in innovation, those SMEs who do innovate are expecting a potential A$100 billion revenue boost in 2017. Results of the latest Scottish Pacific SME Growth Index show the SME sector is reluctant to commit to new products and services and other innovation, yet those growth SMEs who do innovate are expecting a significant revenue boost from their efforts.

Since 2014, we have engaged specialist research firm East & Partners to conduct six monthly polls of more than 1200 SME leaders across all states and key industries, to test SME sentiment and concerns.

For the SME Growth Index, SMEs were identified as growing, stable or declining revenue, then were asked if they had innovation plans for the first half of 2017.

While more than 99 per cent of growth SMEs have innovation plans, 70 per cent of negative growth SMEs say they won’t be investing in innovation.

It’s unclear whether businesses are growing because they are innovating, or whether it’s that businesses aren’t innovating because they are not growing. What we can deduce is that those Australian growth SMEs who are investing in innovation are expecting clear and substantial returns on their investment.

East & Partners analysis of SME Growth Index results indicated that early investment in innovation could give SMEs a significant revenue boost as they grow.

Their data indicates a very steep jump in innovation-based incremental revenue as the enterprise gets bigger: there’s an anticipated revenue increase of around nine per cent for $1 million to $5 million-sized SMEs, and 56.5 per cent for $15 to $20 million-sized firms.

Yet one in two SME owners and senior managers are increasingly reluctant to release new products or services, and almost 36 percent of SMEs have no plans to invest in innovation in 2017.

Can SME innovators expect a billion dollar boost?

Of those who do innovate, the SME Growth Index results show that one in three expect an up-to-10 per cent revenue boost, and one in 10 expect a 50 per cent or higher revenue rise.

East & Partners used ABS data on the SME sector, combined with the increased revenue percentages indicated by SME respondents, to extrapolate that SME innovators are expecting a $124.7 billion increase in incremental revenue in 2017.

The billion dollar boost is largely driven from the “top down” by larger SMEs in the $15 million to $20 million revenue bracket who are expecting the greatest returns from innovation. However, even an SME with $1 million to $5 million revenue turnover is expecting to increase revenue by an average 9.3 per cent in the next year purely from innovation investment (a boost of approximately $116,000 for each small-business innovator).

Despite the gains expected from innovation, the Index highlights an SME sector exhibiting increasing reluctance to develop new products and services. The proportion of SMEs with no plans for new products or services jumped from one in three (31 per cent) in September 2014 to almost half (47 per cent).

Very few SMEs (just over five per cent) plan to release both new products and services, instead opting for new services only (almost 30 per cent) or products only (18 per cent).

More than one in three SMEs have no innovation plans, but in breaking this down, this represents only 0.6 per cent of growth SMEs, while 69.8 per cent of negative growth SMEs won’t be investing in innovation.

The Index results indicated that innovation was a tricky question for SMEs – but it was interesting to note that SMEs indicated they could double the revenue lift from improving their cashflow than they could from investing in innovation.

Peter Langham, CEO, Scottish Pacific