From Crisis To Connectivity: How Blockchain Technology Can Play a Role in Small Business Recovery
By Rishima Gajawada and Benjamin Woloschuk
Recovery from the pandemic has impacted the ability of many small businesses to integrate technology into their operations. According to the Business Development Bank of Canada, businesses ahead of technology adoption trends are 62% more likely to maintain higher sales growth. However, this remains a dream for many businesses as many owners fear the idea of technology adoption due to the inherent resistance to change and a lack of “in-house tech knowledge." According to a Deloitte survey, many businesses are uncertain about what technologies or software to adopt. 67% of businesses find the costs of technology and software to be a challenging hurdle. E-commerce as a platform is growing, and small businesses can embrace this change by learning about the applications of new technologies like blockchain.
Following early 2023, the Canadian economy has remained in a sticky situation of rising inflation, a tight labor market, supply chain constraints and market turbulence. These changes have heavily impacted and continue to affect small businesses, and these challenges can be especially hard to overcome for businesses with limited resources. Many of these challenges, primarily inflation, impact at least 75% of a business’s profitability, with the other 25%, including the issues of supply chain efficiency and access to capital and labor.
Like any other organization, a small business prioritizes four key factors: customers, employees, operational efficiency, and profitability. If any factor is compromised, the others are inevitably impacted. Given the current economic situation, the buying behavior of Canadian consumers has been changing and profits for small businesses have been decreasing. Consumers have been paying more and buying less. Additionally, high prices in food, gas, and increased mortgages have significantly decreased discretionary consumer spending. Surprisingly, consumer spending has increased within the e-commerce industry. In July 2023, online sales grew by 2.4%, resulting in an industry increase of $4 billion, accounting for 6% of total retail trade. During the height of the pandemic, all transactional activities occurred online and remained a growing preference afterwards, making many Canadians reliant on e-commerce platforms. However, despite these increasing trends, the current economic situation continues to negatively impact small enterprises. This can be seen in rising expenses, which has led to large financial outflows.
In addition to rising costs, changes in consumer spending continue to fluctuate, impacting profitability. Currently, 53% of businesses struggle with limited access to business financing, and 18% have faced bankruptcy or insolvency, reflecting businesses' financial challenges over the years. The current rise in online consumer spending gives more reason for current businesses to expand online. Over the next five years, the revenue growth within the e-commerce industry is forecasted to slowly rise. According to an IBIS report, revenue within the e-commerce industry is expected to grow at a compound annual growth rate of 5.1%, accounting for 40.6 billion dollars. However, expanding e-commerce platforms comes with challenges, predominantly with differentiation. Competing in a saturated market with similar products or services can make it challenging for a business to stand out. Incoming entrants must establish unique platforms to lock in customers and develop a base that promotes a positive sales forecast. Building this base, however, will depend on the quality of the consumer experience. Given that one of the prominent concerns for businesses today is rising costs, transitioning online is increasingly feasible due to low operating costs. This can be done by creating an e-platform that allows the business to integrate sales and inventory management between online and brick-and-mortar operations. An online platform will enable the business to better track customers, improve the overall customer experience, and expand the target market. Eventually, a growing customer base will lead to increased sales and stable revenue.
Although growing online seems both simplistic and inexpensive, there are many other challenges apart from differentiation in the digital marketplace. Some of the predominant challenges are order fulfillment and cybersecurity, which often negatively impact a customer’s experience and can even ruin a business’ image. As a business expands its online presence, orders may eventually outpace fulfillment capabilities, and handling and storing consumer data may become an uphill battle. Proper cyber security practices must be kept in place to prevent any form of cyberattacks on critical business infrastructure ranging from customer information to sales, inventory and other crucial records. Each of these factors can impact the customer experience to varying severities. To help businesses overcome these challenges and maintain a stable customer base, small businesses should start looking into blockchain technology.
Blockchain is a database technology that can track transactions and assets within a business network and keep records of payments, orders, and production. There are three main components to blockchain technology: ledger technology, immutable records, and smart records. All participants within a network have shared access to the ledger. This technology allows transactions to be recorded once and eliminates the issue of having duplicated files for commonly done business practices. As for immutable transactions, no other participants can make changes once a transaction has been shared with the ledger. If any errors were ever to arise, a new transaction would have to be created to reverse the error. This technology comes with features that define conditions for corporate bond transfers, speed up transactions, and incorporate rules and regulations through smart contracts. Every transaction through this platform is registered as a block of data connected to other data blocks that have been added previously or will be added in the future. Every additional block also strengthens the verification of the previous blocks, enhancing the entire chain's security. This feature allows blockchain technology to eliminate the possibility of any cyberattack or tampered data by a malicious participant.
With such features, blockchain technology can be beneficial for small businesses that seek to maintain an online platform. Given how the technology is structured, it will allow small businesses to track orders, make and receive payments, and maintain productivity levels in an affordable yet effective way. This emerging technology is yet to expand in Canada. Currently, only 0.3% of Canadian businesses use blockchain technology. Firms may leverage blockchain to establish a devoted customer base, improve internal efficiency, and boost data security, as the system is designed with attributes that aim to improve security with each block of data added. Through progressively higher security levels, the data entered by a business across the platform is safeguarded from malware or cyberattacks. As this is a rising concern for many firms, blockchain will boost consumers' confidence in interacting with a given e-commerce platform by providing additional protection for sensitive information. Moreover, since the technology is designed to store and maintain data records, it enhances the firm's internal efficiency. Since blockchain has many features, any business using the platform would improve its efficiency as the software replaces most of the work that a typical employee would perform.
One of the aforementioned blockchain capabilities is the capacity to retain data records containing information such as payments, transactions, and orders. In taking advantage of these capabilities, businesses can use saved information to auto-fill customer information, providing a seamless shopping experience. This data can be further applied as information that businesses can use to make critical decisions. One of the most daunting challenges that small businesses encounter is boosting sales and attracting customers. When a company employs blockchain technology to enhance its online platform, it can maintain a track record of its customers' orders and transactions. This information could be used to modify the inventory or develop marketing strategies to attract more consumers. Considering the impending threat of competition that all businesses face in the e-commerce industry, blockchain technology will prove to be a game changer as its adoption and application is accelerated.
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