Behavioural Research by Xero Uncovers Barriers to Small Business Technology Adoption

Anxiety over short-term risks of change, overconfidence in the safety of the status quo, and choice paralysis are the most common behavioural barriers to small businesses taking up new business technologies

Simple changes in habits and process could prove more effective than costly educational campaigns in helping small businesses take advantage of digital technology’s benefits, according to behavioural science research conducted by Xero, the global small business platform.

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The One step study surveyed more than 4,200 small business owners in six countries (Australia, New Zealand, the UK, the United States, Canada, and Singapore). Carried out in partnership with behavioural science consultancy, Decision Design, the report found that small businesses which readily adopt new technology enjoy on average 120 percent higher revenue. They also reported 106 percent higher productivity than those which repeatedly fail to do so and were 27 percent more likely to wake up excited about their work.

Yet despite technology adoption’s substantial and well-documented benefits, and even after the pandemic drove firms to deploy digital solutions en masse, only one in five small businesses consider themselves as technology adopters – compared to nearly one in three who admit they continually delay investing in new technology.

The research revealed that this ‘adoption gap’ stems from several behavioural barriers – mindsets and perceptions about technology and change – that frequently recurred amongst small businesses all over the world. Small business owners tended to believe that;

1. their current solutions were good enough even if new technology might help them do better;
2. they focus on risks and short-term losses when considering change; and
3. they find themselves freezing up when forced to compare, understand, and choose between numerous technology options

“Our research suggests that for small businesses, the greatest hurdles to harnessing technology’s benefits aren’t a lack of information or choice, but deeper anxiety and concern about how complex and costly the change process might be,” said Rachael Powell, Chief Customer Officer, Xero. “Small businesses may know the benefits, but they’re not adopting technology because the idea of doing so feels deeply uncomfortable and even threatening.”

The study also found that sole traders – who made up eight in ten respondents – were more likely to struggle with these behavioural barriers to technology adoption than small businesses with larger teams. Compared to businesses with 20-49 people, sole traders were:

• 29 percent less likely to agree they needed to change their technology in order to grow;
• 39 percent more likely to feel confused when comparing technology options; and
• 27 percent less confident in taking a ‘leap of faith’ with new technology due to feelings of uncertainty.

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“Sole traders make up the majority of small businesses but also feel pressures and challenges more keenly than firms with more people to share the load,” said Powell. “What we’ve found is that giving sole traders too many options, or failing to communicate in a way that’s directly relevant to them, can hinder rather than help them in adopting new technology. The resulting inertia comes at significant cost to their growth and, given their economic significance, to our society as a whole,” Powell added.

Based on its results, One step offers several recommendations for how policymakers, advisors, and technology vendors can help small businesses by presenting technology adoption in a more straightforward, less daunting way. These include:

• Encouraging smaller incremental changes to technology, rather than high-cost, high-risk investments;
• Celebrating small businesses who’ve benefited from technology adoption as examples that normalise digital change;
• Quantifying the true gap between current operations and those enhanced by technology; while also
• Measuring technology’s benefits in a way that’s more relatable to small businesses’ experiences; and
• Narrowing and simplifying technology choices to minimise decision paralysis.

The report also includes simple handles that small businesses can grasp to help overcome their behavioural barriers including decision matrices, ‘pre-mortem’ evaluations, cost-benefit analyses, and setting aside time for peer learnings. Each activity helps to clarify the true risks and rewards of technology adoption, allowing small business leaders to overcome confusion and uncertainty to make more rational decisions about the different options they may face.

“When we go beyond the surface-level reasons and understand what motivates our decisions, we can then make the right changes to our mindsets and habits for meaningful results,” said Powell. “The research we’ve done suggests that we all – policymakers, vendors, and small business leaders – need to rethink how we approach technology adoption in the small business community. It’s also a cause for hope that with a few small, simple adjustments to our practices, we can help our small businesses achieve the full potential that digital technology offers them.”