New report from the ERICC Project —?What we don't know will hurt us: The invisible problems facing entrepreneurs

The ERICC project is happy to release our newest public report: What we don’t know still hurts us: The invisible problems hurting entrepreneurs. This report details two major issues that are affecting high-growth entrepreneurs: (1) the freezing of entrepreneurs’ social networks during the pandemic and (2) changes to B2B sales processes in response to lock-down. We call these problems ‘invisible’ because they have not been widely discussed in the media and are difficult for entrepreneurs to themselves identity. But these problems have the potential to limit entrepreneurs’ ability to grow now and in the future, which will endanger the UK’s broader economic recovery as it moves into a post-Covid and post-Brexit world. You can read the full report here, but below we’ll outline what the problems are, why they matter, and why entrepreneurs and policymakers can do about them.

These issues were identified through more than 190 interviews with high-growth entrepreneurs across the UK. Our research team has been interviewing entrepreneurs about how they have been affected by the coronavirus pandemic conducting follow-up interviews with those entrepreneurs every 2 to 3 months to understand how the fallout of the pandemic has changed. This gives us a unique insight into the types of challenges facing British entrepreneurs and how they are working to not just overcome these problems but also to innovate and grow despite them.

You can download the report here, but below I'll go over some of our findings and recommendations.

Frozen Networks

A London-based FinTech entrepreneur recently told us that he “hasn’t met anyone new in a year.” This represents a huge change from before the pandemic when entrepreneurs used their constantly growing personal and business networks to find the resources they needed to grow their business. Indeed, one of the few consistent findings in entrepreneurship research is that networks matter and that entrepreneurs with larger networks will generally do better than entrepreneurs with smaller ones.

Our data suggest that entrepreneurs have used their networks less and less as the pandemic has dragged on. While in March and April 2020 many entrepreneurs turned to their existing networks of other entrepreneurs via WhatsApp or Slack groups to brainstorm how to deal with the early problems of lockdown, this has become less common over time. The lower network usage is due to the challenges of having truly informal meetings online. There are more barriers to plan a conversation ahead of time than a chance conversation at an event or in a hallway, making them less attractive for entrepreneurs and workers who already suffering from Zoom fatigue. A Glasgow based entrepreneur explained that: “Sometimes you feel like you’ve got to have a reason to set up a Zoom call, it feels like a big deal, whereas before I was based in a place where you could just turn around and go, oh, does anyone got an accountant that they would recommend?”

Networks are critical for entrepreneurs because they help them find new customers, reach out to investors, and get advice from other entrepreneurs about how to overcome common challenges. Without access to their normal networks, entrepreneurs will find it harder to access these resources, slowing down their growth and leaving them venerable to more disruptions.

What this means is that coming out of the pandemic, entrepreneurs networks will be weaker than ever before. Unmaintained relationships will be weaker, meaning that it will be harder to leverage them for critical resources or support. It will be harder to find new information and insight through them because many people will have dropped out of entrepreneurial networks because their businesses failed.

Younger and first-time entrepreneurs will be the most harmed by this trend. Their networks froze while they were small, making it even more difficult to find people to turn to for advice. While entrepreneurs who were part of accelerators or co-working spaces had pre-existing Slack or WhatsApp groups to use during the lockdown, many interviewees told us that the lack of hallway conversations has impacted their ability to leverage these networks. This makes it harder for them to get advice and know-how from others who experienced the same challenges as them, a crucial form of support used by high-growth entrepreneurs.

The solution to this challenge is not more online networking events. Many of our interviewees tried these at the start of the crisis but did not find them helpful. The same can be said for online versions of industry conferences and trade fairs. It is extremely difficult for online events to provide the authentic experience and unplanned conversations found at face-to-face ones which help entrepreneurs build and leverage their networks.

Ecosystem leaders should prioritise organising meetups as the pandemic eases and face-to-face events become possible. The goal is to create new opportunities for members of the local entrepreneurial community to meet new people, build new connections, and learn from each other. The purpose of this to help entrepreneurs reconnect not just with each other but with the act of sharing their experiences with others and learning from different experiences. But ecosystem builders should also takethis pause in face-to-face activities to build more inclusive and open events to bring the community together in the post-pandemic environment. Ecosystem leaders should look for ways to increase the diversity of attendees by reaching out to those who have not been included before and look for ways to extend their reach through their choices of location, venue, formats and topics.

Changing Sales Processes

The second major issue facing entrepreneurs we identified was the changing nature of the sales processes facing B2B entrepreneurs. The loss of face-to-face contact has profoundly shifted how businesses find new customers and sell their products. Our interviews show thatthe sales funnel — the process through which new customers are identified, are educated, and eventually buy the product — has profoundly changed over the past year.

In essence, the top of the sales funnel has widened because it is easier to make initial contact with new leads. But because of the lack of trust built up through face-to-face contact and the low emotional bandwidth of teleconferences it is harder to close deals, narrowing the bottom of the funnel. This means that it is taking B2B entrepreneurs longer to close deals, creating cash-flow issues and driving up the cost of sales.

One of the positive effects of the pandemic is that business leaders at all levels have become more open to video conferences rather than in-person meeting Online sales eliminates travel time and allows sales professionals to have more meetings in a day than they would with face-to-face meetings. A Belfast-based technology entrepreneur explained that:

"We have an online pitch that we do via Zoom. We’ve adopted our presentation material and so on. So we do it by Zoom. I actually think it’s potentially accelerated some conversations because you would have had pointless visits. It would have been, ‘Oh, well, you have to come and visit us’. And you’d have spent a day doing that.”

However, three countervailing forces narrow the bottom of the sales funnel, reducing the number of deals that are successfully completed and driving up the cost of sales for entrepreneurial firms:

Lack of trust

Our interviewees felt that without face-to-face contact with customers it has become harder to build up the trust and mutual understanding that is required to negotiate major deals. Without this trust, entrepreneurs have found it challenging to move discussions beyond the initial stages and successfully close a deal. This leads to a large amount of leakage at the top of the sales funnel.

Loss of trade fairs and conferences

Most of the B2B entrepreneurs we spoke with felt that the loss of in-person trade fairs and conferences had created barriers to sales. These events, while expensive and time-consuming to attend, were crucial for identifying new sales leads and building the relationships that are needed to make deals. Without these events, it’s been harder for B2B businesses to identify customers and understand their unique needs. As a digital founder in London told us, without conferences: “Prospecting now without a warm introduction is incredibly difficult. Difficult. So fighting for people’s attention in this environment is far more difficult than it was six, 12 months ago.”

Low Customer Decision Capacity

A barrier for driving sales in the pandemic was that customers’ ability to make complex and difficult decisions has diminished. As a result, it is harder for deals to progress and get buy-in from different parts of the organization. This new sales friction has two causes. First, the switch to remote working has reduced productivity for everyone, meaning that it is harder for large customers to finalize decisions. Without hallway conversations, internal champions are having a more difficult time building the internal consensus to finalize deals. Several entrepreneurs have told us that closing deals require far longer than before because it is simply too easy for customers to request another virtual meeting

Some of these issues may lessen as the pandemic eases, but they are unlikely to disappear. The consequence of these trends is that complex sales will take longer and cost more. Because the top of the sales funnel is wider and the bottom thinner, fewer customers will make it to the end and more will drop out along the way. This leads to wasted time and money spent on communicating with customers, limiting the growth of entrepreneurial firms and create cash-flow issues for firms with long sales cycles. Firms will notice that their sales cycle takes longer with their cost of customer acquisition are increasing. As a result, some types of clients, such as large institutional clients, may be less profitable than they were before the pandemic.

These changes can be addressed through business model innovation, with companies adopting their internal sales processes to adapt to these new trends. Entrepreneurs should pay attention to three key areas of the sales process: (1) how new customers are identified, (2) how deals are closed, and (3) formalizing sales activities.

Identifying customers

For many companies, the loss of trade shows and in-person visits has made it harder to identify solid leads. For now, this requires shifting towards more focused digital marketing activities, either by increasing spending on outbound marketing such as digital ads, inbound marketing through search engine optimization techniques or using business intelligence data to identify and contact key decision-makers at prospective customers. The goal here is to take advantage of the widening top of the sales funnel to identify more potential leads, to increase the number of overall sales. For many entrepreneurs, this means building organizational capabilities in digital marketing that they didn’t have before.

Closing deals

The challenges of closing deals is a result of not being able to read the room and when it’s the right time to move customers towards finalizing a deal. Due to the inability to quickly build trust by being in the same room, sellers find themselves needing many more meetings with a customer to close a deal. There are few simple solutions to this issue since it has more to do with the customer’s decision-making processes than selling techniques. Some interviewees found that providing much more information upfront has helped with this issue. Others have found that simply demanding the customer make a yes or no decision after a long negotiation has helped bring things to a conclusion.

Formalizing sales processes

For many entrepreneurial firms, the founder is the lead salesperson and sales processes are generally informal. The move to remote working and the increased reliance on multiple virtual meetings to negotiate complex sales has meant that this increase in the difficulty of closing deals might not be readily apparent. Even for larger firms with dedicated salespeople, it can be difficult to track the time each customer requires and the total cost of customer acquisition.

Given this, entrepreneurs should look for ways that they can formalize their sales processes. This might be through employing a Customer Relationship Management tool to better monitor who is in the sales funnel or creating more formal ways to record interactions with customers to gauge their level of interest and potential of finalizing a sale.

No matter what changes are made to the sales process, the goal is to address the fact that the new sales funnel shape — with its wide top and small bottom — can increase the cost of selling due to the larger number of early prospects and longer sales period to close deals. Entrepreneurs need to pay careful attention to how the sales process has changed to look out for trying to sell to clients that may require too much attention to close a deal, reducing their profitability. These customers should either be dropped or dealt with more intensively to resolve any issues and get to a ‘yes.’