Why Are U.S. Small Businesses Slowest to Adopt Better Technology?

Simple changes in habits and process could prove more effective than costly educational campaigns in helping small businesses take advantage of digital technology’s benefits, according to behavioral science research conducted by Xero, the global small business platform.

The One step study surveyed more than 4,200 small business owners in six countries (Australia, New Zealand, the UK, the US, Canada, and Singapore). Carried out in partnership with behavioural science consultancy, Decision Design, the report found that small businesses which readily adopt new technology enjoy on average 120 percent higher revenue. They also reported 106 percent higher productivity than those which repeatedly fail to do so and were 27 percent more likely to wake up excited about their work.

Yet despite technology adoption’s substantial and well-documented benefits, and even after the pandemic drove firms to deploy digital solutions en masse, only one in five small businesses consider themselves as technology adopters – compared to nearly one in three who admit they continually delay investing in new technology.

The research revealed that this ‘adoption gap’ stems from several behavioral barriers – mindsets and perceptions about technology and change – that frequently recurred amongst small businesses all over the world. Small business leaders tended to believe that their current solutions were good enough even if new technology might help them do better; to focus on risks and short-term losses when considering change; and to freeze up when forced to compare, understand, and choose between numerous technology options.

The study found that amongst the six countries surveyed, small businesses in the US were most likely to delay adopting new technology (31%), with only five in ten being open to taking risks when making business decisions; and seven in ten putting off technology decisions because they felt more comfortable working on day-to-day matters. However, small businesses in the US were also least likely to:

Stress about competitors gaining an edge by upgrading their technology (3 in 10);
Declare that the safest course of action is to stick to existing technology solutions (less than 5 in 10); or
Say they can’t handle the effort needed to adopt new technology (less than 3 in 10).

“Relatively few US small businesses feel challenged by insufficient internal support, the complexity of how new technologies work, or the effort involved in upgrading technology – yet compared to other countries, they’re falling behind on technology adoption in a substantial way,” said Ben Richmond, US Country Manager at Xero. “The report’s findings suggest that while small businesses in the US don’t lack confidence, they may be struggling to turn that into decisive choices – whether because of time or more short-term pressures.

“Communicating the value of technology adoption with greater urgency – by contrasting adopters’ performance to those who delay – might help spur US small businesses to take that first step.”

Based on its results, One step offers several recommendations for how policymakers, advisors, and technology vendors can help small businesses by presenting technology adoption in a more straightforward, less daunting way. These include:

Encouraging smaller incremental changes to technology, rather than high-cost, high-risk investments;
Celebrating small businesses who’ve benefited from technology adoption as examples that normalise digital change;
Quantifying the true gap between current operations and those enhanced by technology; while also
Measuring technology’s benefits in a way that’s more relatable to small businesses’ experiences; and
Narrowing and simplifying technology choices to minimise decision paralysis.

The report also includes simple handles that small businesses can grasp to help overcome their behavioral barriers including decision matrices, ‘pre-mortem’ evaluations, cost-benefit analyses, and setting aside time for peer learnings. Each activity helps to clarify the true risks and rewards of technology adoption, allowing small business leaders to overcome confusion and uncertainty to make more rational decisions about the different options they may face.