Small and medium-sized businesses (SMBs) in Canada have shown strength and resilience in weathering the pandemic and, like larger Canadian businesses, they’re emerging confident and optimistic about their growth over the next three years. However, this renewed confidence doesn’t come without risk, and to gain an understanding of the challenges they face, how they plan to overcome those challenges and the strategies they’ll use to grow, KPMG in Canada surveyed over 500 SMB business owners and decision-makers. Similar to the results found in this year’s CEO Outlook research, which focuses on Canada’s largest organizations, these leaders are continuing to adapt and innovate, looking to hire, focusing on digital agility and cyber security, and committing to making a difference on social and environmental issues.

9 of 10

leaders are confident their business will grow

The talent challenge

Seven out of 10 leaders are looking to add to their headcount, but this may be easier said than done, as the ability to find or retain talent is seen as the top threat to their growth. Many existing employees are suffering from COVID fatigue as the lines blur between work life and home life and as a result, scores of employees are leaving their current positions in search of better pay and flexibility.

Mary Jo Fedy

“Attraction, retention and development of talent is the number one issue. To attract and retain talent, SMBs will need to give employees more of what they want by adopting hybrid work models and addressing climate, equality and diversity issues.”

— Mary Jo Fedy, National Leader, KPMG Enterprise

The pandemic has also changed the way many businesses work, requiring more employees with digital skills—especially cyber security and data analytics. As a result, 68% are struggling to hire people with the right skill sets to achieve growth. Challenged to hire the skilled employees they need; businesses are considering recruiting outside of Canada—which presents a range of tax and immigration implications.

68%

are struggling to hire people with the right skill sets to achieve growth

Digital transformation continues

Technical skills are in high demand because the pandemic accelerated the digital transformation of companies of all sizes as they moved to remote work and made even greater expansions into online commerce. Seventy-eight per cent of businesses already had an online presence, but the pandemic has them planning to make more products and services available online and seven out of ten already use, or plan to use, an online platform provider to make products and services available.

Businesses are also using, or plan to use, data analytics and artificial intelligence tools and more than half (56%) of leaders think digital currencies and cryptocurrencies will be the future. To foster this innovation, they’re looking to bring in third-party expertise and off-the-shelf software and are interested in partnering with innovative startups.

The cyber threat

But as digitization has increased, cyberattacks have also accelerated. Both SMBs and the CEOs of large corporations see cyber security as one of the top three risks to growth and they’ve increased their focus on cyber security, data protection and privacy. According to a recent KPMG cyber poll of SMBs, nine out of 10 employ security best practices and routinely update and patch their systems and 56% have developed comprehensive playbooks and run through cyber simulations regularly. And yet, 36% of SMBs and 27% of CEOs say they’re unprepared to handle a cyberattack.


36%

are unprepared to handle a cyber attack

Nearly eight in 10 Canadians are concerned about their personal data being stolen in a cyberattack on their financial institutions, retailers, wireless/internet providers and governments, so a cyberattack could erode consumer trust at a time when online business is growing in importance. Recognizing this, a larger proportion of leaders will be allocating up to 20 per cent of their IT budgets to cybersecurity this year. Still, the cost of cyber security and technological innovation is a major concern.

Appetite to be acquired

A third of SMB leaders are looking to be acquired because they can’t afford to make the investments needed to succeed in an increasingly digital economy. And even though nine out of 10 large organizations are looking to make an acquisition in the next three years, according to Canadian CEOs, many SMBs are unprepared and would need to work toward becoming a suitable target by getting their financial house in order. Other options may include looking at partnering with innovative startups either through outsourcing or co-sourcing, finding new sources of capital or even pivoting to a new business or business model.

Seeking supply chain solutions

Leaders are also facing headwinds from the ongoing disruption to supply chains, which they rank as the second greatest risk to the growth of their business. The pandemic exposed many vulnerabilities with global and domestic supply chains, and the disruption—which required short-term tactical responses—was on a scale most supply chain leaders had never seen before.

Leaders say they would source domestic supply if they could, but it’s not available. However, a majority (79%) are hopeful that over the next three years that will change and they will be able to source more product inputs within Canada to avoid supply chain disruptions and improve their operational resiliency.

“The intention of Canadian companies to source more product inputs within Canada creates an opportunity for Canadian businesses and could bode well for future business investment in Canada.”

— Mary Jo Fedy, National Leader, KPMG Enterprise

The importance of ESG

Aside from operational adaptations, the pandemic has increased awareness of ESG issues and stakeholders are expecting organizations to address these. Customers are looking to organizations to take the lead on societal challenges such as racial and gender equality and climate change. Employees also expect companies to tackle these issues, and it has become a baseline expectation for talent that companies are trying to attract and retain. Investors are demanding a commitment, a plan and a measurement of outcomes, and leaders expect that banks will start to insert loan covenants related to climate change.

Organizations are listening to their stakeholders and addressing these issues. Seventy-eight per cent say the pandemic and other recent events have increased their commitment to make a difference on social and environmental issues, with nine out of 10 saying they serve a diverse community so it’s important to ensure their workforce, too, is diverse.


78%

are increasing commitment on social and environmental issues

Key takeaways for SMBs:

The ability to attract and retain talent, cyber threats and supply chain disruptions all threaten the growth of SMBs but they’re finding solutions to these issues. Having weathered the pandemic, they’re ready to grow their business—and have a positive impact on the world. Leaders might consider:

  • Improving their cyber security posture by employing security best practices, conducting regular cyber simulations, and routinely updating and patching their systems.
  • Facilitating technological innovation by partnering with innovative start-ups through either outsourcing or co-sourcing.
  • Ensuring they’re addressing ESG issues to attract and retain customers and employees, as well as satisfy investors.
  • Financing growth by looking for new sources of capital or being acquired.

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