Smaller Businesses Forgo Lucrative Ventures Due to Caution or Resource Limitations
Small businesses often hesitate to seize opportunities that could improve their bottom line due to various barriers and concerns. A recent study, conducted by Kellogg associate professor of finance, Sean Higgins, and collaborators, aimed to understand why small businesses hesitate to act on profitable opportunities and how reminders and building trust can increase acceptance [1].
## The Experiment
The researchers designed an experiment to study the behaviour of small businesses in Mexico, offering them the ability to opt in for lower payment-processing fees [2]. They found that the effectiveness of announced reminders stemmed from an increase in trust among merchants [3].
## The Impact of Reminders
Announced reminders had the largest impact in encouraging merchants to opt in for the lower fee. Pre-announced reminders (reminders announced ahead of time) had an additional impact, increasing uptake by 2 percentage points compared to just reminders [4]. Reminders were more effective at shifting merchant behaviour compared to a larger reduction in the fee [5].
## The Role of Trust
Giving merchants a deadline caused a decrease in uptake on day one due to a decrease in trust. However, the study demonstrated that by the time of the deadline, having a deadline did not increase uptake by the overall firms, but it did increase uptake among the smallest firms [6]. The goal was to retain merchant customers and encourage them to accept more credit card transactions [7].
The findings demonstrate the value of building trust with customers, including when offering them benefits. By being transparent about the benefits and potential risks of new opportunities, addressing concerns openly, and ensuring that any new technology or program consistently delivers quality results, trust can be built over time [4].
## Addressing Small Business Concerns
1. **Financial and Resource Constraints**: Small businesses, especially those in diverse communities, face financial hurdles and may lack the resources needed to adopt new technologies. Addressing these concerns requires providing accessible training and education on new technologies or business strategies, making them affordable and aligned with the daily needs of small business owners [3].
2. **Security Concerns**: Many small businesses worry about data privacy and security when considering new technologies. To address these concerns, it is essential to focus on building secure systems and communicating the measures taken to protect data [3].
3. **Complexity and Uncertainty**: Small businesses may be overwhelmed by the complexity of new opportunities or technologies and may not see a clear path to return on investment. To address this, it is crucial to provide clear and concise communication, use case studies or testimonials from similar businesses, and use reminder sequences to keep the opportunity top of mind and reaffirm its value [2].
By addressing these concerns and building trust through clear communication, personalized support, and accessible education, small businesses are more likely to embrace opportunities that can improve their bottom line.
## The Future of Trust and Legitimacy in Financial Offers
Regulators in various countries are currently developing technologies to help consumers find the optimal middle ground of trust and understand which financial offers are legitimate [8]. As the digital landscape continues to evolve, the importance of building trust with customers will remain a critical factor in the success of financial companies and the growth of small businesses.
- In order to alleviate financial and resource constraints that small businesses often face, it's essential to provide accessible training and education on new technologies or business strategies, making them affordable and aligned with the daily needs of small business owners, thus facilitating their adoption and improvement of the bottom line.
- To encourage more small businesses to adopt beneficial opportunities, addressing security concerns necessitates the focus on building secure systems and communicating the measures taken to protect data, ensuring that these concerns are handled transparently and effectively.
