Top 10 business trends and where they came from
Small businesses stared down some of the biggest and weirdest challenges they’ve ever faced in 2020. Experimentation and improvisation flowed fast, and with that came lots of lessons (and yes, a few bumps and bruises).
The business trends that emerged during the year were all about adaptation and resilience. Many of them worked, which is why we expect them to stick around into 2021.
In case you don’t know us, we’re Xero. This report is based on the experience of our 2.3 million small business subscribers. So jump in and see what we learned about emerging trends in business.
You can find out about the methodology we used here.
Explore our 10 trends
Business trend 2
Rainy day funds are going to bulk up in 2021
Contingency became more than a line in a budget this year. It was the difference between survival and closure for some businesses.
Spare cash was used to transform operations, take sales online, buy new lines of inventory, or introduce extra health and safety measures. It helped other businesses ride out the drop in sales that happened when customers hunkered down at home.
Given that 70% of small businesses expected a decline in overall revenue for 2020 (in a study commissioned by Xero and conducted by Forrester Consulting, Oct 2020), those emergency funds will get a workout.
But not every business had the cash cushion they would have liked. That’s not surprising. It’s hard to sit on a pile of money. Small business owners generally prefer to put profits back to work in the form of capital investment or extra marketing.
However, events occasionally come along that remind us how important it is to have a rainy day fund. 2020 gave us that in spades.
“Keeping access to working capital, whether it’s cash on hand or access to funds as in lines of credit, is of utmost importance.”
Jay Kimelman, The Digital CPA
So if having a rainy day fund is to become a business trend, the natural question is – how big should it be? The precise amount is likely to depend on your specific business and industry but think months, not weeks.
“We advise our clients to build a war chest to cover 1.5 to 2 months of expenses – and that’s worked well. Only one of the 600 businesses we work with has had to close due to the downturn.”
James Devenny, Devenny Payne
“As a rule of thumb we suggest setting aside a minimum of 4 months business running costs.”
Pamela Phillips, de Jong Phillips
An accountant or bookkeeper can help you decide, based on your situation.
Business trend 4
Remote working will become even more of a thing
Productivity hasn’t been tied to the workplace for a long time now. That business trend just got supercharged.
All sorts can be run online now, including office documentation (word processing and spreadsheets), time-recording and scheduling, accounting and finance, project management, and inventory management to name a few.
Businesses are increasingly likely to take advantage of these types of products. In early 2020, almost 50% said they planned to move IT to the cloud – up from 32% a year earlier (Forrester study, 2020).
The ability to stay productive from anywhere always sounded like a good idea. The events of 2020 proved it. Businesses that ran online systems did better through the economic upheaval.
Among Xero’s 2.3 million users, those that used:
• at least one other business app suffered 12% less revenue loss than other businesses.
• five or more other business apps suffered 33% less revenue loss than other businesses.
(Xero SBI, 2020)
“I’ve been working from home since 2009. Everyone is learning what I’ve known for a long time...productivity can equal or surpass working in an office with the right management and people.”
Tate Henshaw, Arc Management
“I suspect we’ll see a move towards a hybrid way of working with many businesses supporting their team to work from home while keeping a scaled down office as a space to meet, share ideas and build relationships.”
Pamela Phillips, de Jong Phillips
“The technology has been around for awhile, but cloud adoption makes the process easier. We’re starting to see businesses decrease or even drop their office footprint.”
Jay Kimelman, The Digital CPA
Business trend 6
Workplace flexibility is here to stay
Employees and employers made lots of sacrifices for each other in 2020. And they may just hold onto the lessons in empathy in 2021.
We already know that many small business owners give up holidays or dip into their own savings in order to make payroll. In return, employees give hours of dedicated service.
But that give and take went to another level in 2020 as employees were asked to work fewer hours and in some cases take on extra health and safety risks. In return, they often asked for time back to support family, friends and communities in need.
Along the way, the old-school work week – eight hours a day spent at the place of business – started to look irrelevant.
“For most people, life doesn’t suit a 9-to-5 routine. Flexible working is hugely valued. Whether that is for doing the school pick up, going out for a bike ride when the weather’s good, or spending a month working from New Zealand (as one of our team did last year). Well, why not? As an employer, this is a relatively easy benefit to offer.”
Pamela Phillips, de Jong Phillips
The traditional structures of the work week, pay cycle and remuneration are decades old and have been steadily evolving anyway. The events of 2020 may accelerate that for a lot of workplaces.
“We have offered our team members the ability to flex their work hours, so they can ensure their family, children and educational needs are met. Most call it work-life balance, I call it work-life integration.”
Jay Kimelman, The Digital CPA
Business trend 8
‘Pivot’ is the buzzword that will never end
A lot of emphasis will go on business resilience in 2021. That means having things like business continuity plans and rainy day funds in place – and it also means being ready to pivot.
Sick of that word? That’s fair enough. But it really just means being flexible and open to change. Businesses that reacted quickest to the events of 2020 found ways to survive and even thrive into 2021.
“Agile businesses, run by open minded owners, were undoubtedly better able to adapt than those who held firmly on to what they have always done. That’s not to say all businesses were able to pivot. But if you look at those that did, you’ll find innovative and exciting new ideas that put them in a strong position for the future.”
Pamela Phillips, de Jong Phillips
There were big headline-grabbing pivots, like the staging company that switched to making work-from-home desks, or the bakery that started churning out ‘bubble cakes.’ But a pivot doesn’t have to mean a complete change in direction. It can mean tweaking parts of the business, such as adding an online shop, offering delivery, picking up new inventory items, setting up remote working, or accepting new types of payments.
“The pivot questions might be do we work from home? can we operate with fewer staff? can we survive on lower sales? do we offer delivery? It all comes down to having a business continuity plan and knowing when to act.”
Jay Kimelman, The Digital CPA
“You can sit still and do nothing, but your business is just going to contract if you let the world take control. We had clients bring forward their plans and actually spend money when lockdown hit.”
James Devenny, Devenny Payne
If your business is equipped to pivot away from a threat, it’s also able to pivot toward an opportunity. Sometimes you can do both at the same time. 2020 was a good reminder of the value of flexibility. The lessons learned will be valuable into 2021 and beyond.
Business trend 10
Small business tech is on a roll
2021 will be a big year for doing business from a distance. And that means it will be a big year for tech.
Businesses are hurrying to move IT services to the cloud, so employees can work from home. And they’re moving sales online, so customers can shop from home.
Xero watches technology trends in business through our app marketplace. In it, we’ve seen big spikes in searches for:
• ecommerce tools for setting up online shops
• payment services for accepting credit cards (and other forms of online payment)
• cash flow management tools
• inventory management apps
Meanwhile 50% of small businesses said they planned to move IT to the cloud when we asked in early 2020 (Forrester study, 2020).
It’s clear that small businesses think online tools like these will make them more resilient to socio-economic upheavals like the one we’ve just had. And they’re right. Xero users who were using at least one other business app when COVID hit suffered 12% less revenue loss through the crisis than other businesses (five or more apps, and the losses were 33% less).
We expect to see more of the same in 2021. Working flexibly, selling online, and connecting virtually are business trends that in many ways are just getting started.
"Many businesses have pivoted to new tools and technology that allow them to rapidly serve customers or sell products online, access finance, or retain key talent. While we're still in a period of upheaval, there's positive opportunity for innovation as people adapt to new ways of working."
Nick Houldsworth, Executive General Manager Ecosystem, Xero
How do we know this stuff?
Xero is used by 2.3 million small businesses in 180 countries. We based this small business trends report on their experiences.
Specifically, data came from these surveys and reports:
Xero 2019 – Needs Beyond Accounting
Small business survey
Xero SBI 2020 – Pandemic Insights: Small Business Experience
A report based on aggregated and anonymised user data from Xero subscribers, amongst other sources
Forrester study, 2020 – The Next Chapter For Small Business
A global SMB and consumer survey, commissioned by Xero and conducted by Forrester Consulting, published in October 2020
Insights came from accountants and bookkeepers who use Xero to serve their small business clients.