The 7 biggest challenges for SMEs in 2024

There’s no doubt that 2023 was a mixed bag for SMEs with a ‘steady state’ year against a backdrop of economic uncertainty, geopolitical tensions and the ongoing hybrid working tug of war. But what’s in store for 2024? We chat with ECI’s Toby Fitzherbert, who has worked on a number of SME services investments, to discuss the challenges facing SMEs this year.

1. Artificial Intelligence

A year ago, ChatGPT had just launched and was barely on the SME agenda. Until then, the assumption had been that AI was only for big companies with the resources and capital needed to update their infrastructure and develop bespoke software. Now, as we start 2024, SMEs are facing the challenge of embracing AI or risking stagnation. With an explosion of off-the-shelf AI products entering the market, SMEs need to work out the best route forward for digital transformation. A recent Salesforce survey reported that high performers are nearly twice as likely to use AI than underperformers, so it’s clear SMEs need to invest in the right solutions to generate insight, drive efficiencies, and improve customer offerings.

Moneypenny is a great example of a company helping SMEs tap into exciting trends in AI to improve customer experience, with its outsourced comms services using large language learning modules to create message summaries, sentiment analysis, and automated quality control. On a much wider scale, the anticipated launch of Microsoft’s Copilot will be one to watch closely, with its claims to help boost productivity, increase creativity, and save time/resources through built-in AI integration across its product suite.

2. Funding

Banks’ subdued appetite for lending & increasingly stringent credit checks means SMEs won’t have as much access to capital as they would like, or have been used to. Indeed, towards the back end of 2023, two-thirds of SMEs found it more difficult to access finance from high-street banks compared to 2022. To twist the knife further, those able to secure funding will be impacted by the significantly higher cost of debt as existing high-interest rates are expected to remain at current levels throughout the year.

However, while traditional banks’ lending is down 20%, alternative lenders can provide a finance lifeline. The challenge here can be finding the best deal, which is why SME services marketplaces like Bionic – who have around 100 trusted business lenders on it’s platform – will become increasingly valuable for SMEs in sourcing the best possible financial solutions.

3. Culture & talent management

A third of businesses experienced worker shortages in 2023 and I expect recruitment and retention to remain challenging in 2024, as SMEs look to compete with large employers without the same budgets or brand recognition. One way SMEs did this post-pandemic was through offering greater flexibility and now many are struggling to maintain their unique company culture and productivity while having so many remote employees.

At ECI’s recent People Forum HR Leaders discussed the tightrope of ensuring that you are flexible enough to ensure you can attract the best talent, while also supporting staff and building strong teams. This will be a significant challenge for SMEs over the coming 12 months

4. Accelerating the B2B sales engine

The UK’s B2B landscape has seen a slowdown recently with some SMEs seeing sluggish growth through the loss of sales momentum. The reasons we’re all familiar with – inflation, weaker consumer confidence, interest rates, labour shortages, geopolitical tensions – are seeing weaker business and consumer confidence.

That said, 70% of UK SMEs are feeling optimistic about 2024 and are expecting an average of 15% yoy revenue growth this year. Businesses will need to continue to adapt if they want to capitalise on 2024’s opportunities with leaders needing to:

• Laser focus their sales engines, reinvigorating and accelerating to ensure maximum efficiency
• Invest in marketing and customer services so the sales funnel is fully optimised
• Focus staff with increased training and personal development

5. Reaching net zero

SMEs are, as a whole, further behind medium and large enterprises in planning for net zero, without the same resources and budget to make progress, and with many below the legal and regulatory thresholds accelerating the pace of change at larger companies. This is likely to change in 2024 as SMEs feel the impact from larger customers or suppliers who will be looking at the carbon footprint across their supply chain. For example, SMEs tendering for government contracts may find it mandatory to have a net zero policy in place.

Smart SMEs will need to look for cost-effective routes to net zero, with government grants, knowledge hubs, third-party service providers such as Zenergi, and innovative technologies to streamline footprinting, all becoming much more ubiquitous.

6. Cybersecurity

While headlines often focus on data breaches and ransomware attacks at larger companies, SMEs will increasingly become the target for cybercriminals due to their perceived lack of security, outdated systems, and potential lack of resource. According to Grant Thornton, the majority of SMEs experienced a cyber-attack in the past 12 months, with 18% saying their businesses weren’t protected by cyber security software.

2024 will undoubtedly see the increasing use of AI to automate and personalise attacks with ever more convincing phishing emails and targeted ransomware, making it more critical than ever to invest in cyber security measures. Our Cyber Growth Specialist, Ash Patel, and Avantia’s CTO, Dan Huddart, recently teamed up as part of our Unlocked event program and identified the top 5 cyber threats every company should be prepared for.

7. Compliance

2024 is going to be a busy year for compliance teams with several new regulations such as TUPE changes, the Flexible Working Act, the Product Security and Telecommunications Act, which places more duty of care on companies to ensure their products meet security standards, and the Workers (Predictable Terms and Conditions) Act, which looks to provide more predictable work patterns for casual or short-term workers.

There is the as-yet-undefined regulation of AI which companies will need to navigate, and its wise to be cautious, particularly when considering any potential impact on data privacy or discrimination. ECI’s Growth Specialist on People and Culture, Lesley Davies, recently commented:

“In 2024 it’s going to be critical for SMEs to develop their own risk analysis and governance frameworks when it comes to artificial intelligence. Those making this a priority will be well-positioned to rapidly comply with the inevitable legislation when it becomes compulsory; those who don’t, risk being overwhelmed and even caught out.”

More compliance pressure may come as no surprise, but there are an increasing number of products available to help with the associated burden. Companies like LegalVision are becoming increasingly available to help under-pressure teams, with a pool of lawyers on monthly subscription to ensure compliance across the legislative maelstrom.

A year of growth ahead

While the past couple of years have seen some challenging times for SMEs, the agility they have been forced to develop will lay the foundation for a more optimistic 2024. There may be further uncertainty this year, but by focusing investment in key areas, business owners will hopefully be in for a fruitful 12 months.

About the author

Toby Fitzherbert

"I am a Director in the Investment Team at ECI having joined in 2018. My role involves meeting and investing in exciting, market-leading, high growth businesses and their great management teams, as well as supporting that team throughout the investment journey."

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