Let’s hope COVID-19 isn’t a ‘mass extinction event’ for small businesses

Most of the attention surrounding the economic fallout from COVID-19 has focused on job losses — now 38.6 million since March. Census data also indicate that roughly 47% of U.S. households have been impacted by layoffs or salary reductions.

Somewhat less attention has been paid to COVID-19’s effect on small businesses (SMBs) and the related implications for the digital marketing ecosystem. According to an Alignable survey of more than 300,000 small businesses, roughly 85% have now been affected, mostly in the form of lost revenues and layoffs. About 75% of SMBs have applied for help from the Payroll Protection Program, although less than 40% had successfully received funds as of early May.

Only a few months of cash

Of the roughly 30 million small businesses in the U.S., more than 90% have fewer than 10 employees. SMBs are responsible for about 48% of U.S. jobs; and between 2005 and 2019, 64% of new jobs were created by small businesses, according to U.S. government data.

But small businesses now face an existential threat unlike anything in the last 75 years. Surveys and data from major banks, Facebook and others show that two-thirds of SMBs have only a few months of cash reserves on hand and often less than that. Putting aside partisan politics, this recognition is undoubtedly part of the motivation to reopen the economy right now.

The survival of small businesses as a group matters to digital marketers, agencies and SaaS companies because SMB spending represents billions of dollars annually. Most of Google and Facebook’s advertisers technically qualify as small businesses. And while there are no entirely reliable estimates of aggregate SMB marketing spending, it’s a very big number.

Billions in marketing spend at risk

Historically, SMBs spent roughly $6,000 on average on advertising and marketing each year, though often less. Let’s conservatively assume that the universe of SMB marketing spenders is 6 million. Hypothetically, that would represent $36 billion in annual marketing spend, some of which still goes to traditional media and offline marketing. But companies such as Intuit have argued the SMB holistic marketing spend annually exceeds $100 billion.

These budgets would obviously be lost to the digital marketing ecosystem if SMBs fail. Various surveys and forecasts have attempted to quantify the permanent closure risk but there’s no consensus. One academic study published earlier this month estimated that 2% of SMBs in the U.S. have already closed. However, other survey-based estimates argue that between 7 million and roughly 12 million SMBs could be at risk of permanently closing if the economy doesn’t “return to normal” by the end of the year.

Help and self-interest from big tech

In this context a mix of duty and self-interest has motivated all the major tech companies to offer SMB support, in a variety of forms:

• Google introduced support links for business profiles earlier this month for the U.S. Canada, UK, and other English speaking markets. It allows business owners to add a donation and/or gift card link to their profiles, together with a message about why the funds are needed and how they’ll be used. For donations, Google has partnered with PayPal and GoFundMe. For gift cards, the company is working with Square, Toast and others. Google also previously pledged hundreds of millions of dollars in SMB aid, including $340 million in ad credits.
• Facebook previously made $100 million available in grants (including ad credits) to small businesses, with $40 million of that dedicated to the U.S. market. The company also has partnerships with a range of companies to enable consumers to buy gift cards and vouchers on local business profiles. Facebook Shops, the cross-app e-commerce platform the company announced this week, is aimed at small businesses moving online.
• Yelp has made a range of tools and services available for free to small business, especially restaurants and bars. It also implemented an SMB relief program worth $25 million, consisting of waived ad fees, free ads and various product upgrades.
• Bing donate button: In partnership with GoFundMe, Bing allows merchants to place a  donate button on their local listings pages.
• Nextdoor also offers offers gift card purchasing and GoFundMe campaigns, by including a link on the business profile page.  

There are numerous other relief efforts, such as Help Main Street, trying to help the small business market with free services and funding. The outstanding question — for which there doesn’t currently seem to be an answer — is: is any of this helping? Are these links and programs actually generating funds and revenue for local business owners?

Can the combination of government loans and private fundraising keep more small businesses from running out of money? We sincerely hope so; the vitality and character of local communities are at stake.