Insights from category creators and the investors who believe in them.

Why SMBTech Is the Next Frontier

July 13, 2022
Celebrating the SMBTech 50 list in New York City

A version of this article originally appeared on Crunchbase.

Small and medium-sized businesses (SMBs) are the lifeblood of the global economy. In the U.S. alone, more than 30 million SMB companies employ more than 60% of the workforce and account for about 40% of U.S. GDP. 

From this foundation, we’ve seen the rise of the SMBTech ecosystem, which includes a range of companies that support and enable SMBs in the digital era. This was not always the case—SMBs were slower to adopt technology, infrastructure costs were high, and the unit economics proved to be difficult in courting SMBs as customers.

The tech landscape

Four major changes in the tech landscape have contributed to building scalable solutions for SMBs:

  1. Cloud: Spurred on by Amazon’s AWS and Salesforce, the advent of cloud services significantly lowered infrastructure costs and saw a huge transition to cloud adoption.
  2. Mobile: The creation and popularization of the smartphone fundamentally changed the way everyday consumers interacted with technology on a daily basis.
  3. Digital: Social media and telecommunications encouraged businesses to go online and leverage advertising tools and customer interaction opportunities.
  4. Payments: The digitization of payments made it easy for people to send and receive money around the world, and SMBs could integrate payments in their offerings.

Over the last few decades, increased accessibility to technology has created a friendlier environment for starting a business. While it may have previously been cost-prohibitive to create a product and sell it from a shop, open a salon, or build a restaurant, today’s landscape looks different. 

With everyday consumers adopting technologies at faster rates than ever before, it’s only natural that businesses are leveraging the same technologies to succeed. Today’s SMBs can access crucial business tools from Day One—things like contactless payments, software stacks, supply chain management, online ordering, and more. Having this kind of support early on helps give SMBs the space to innovate and thrive.

Big players, small players

By building comprehensive communications and advertising tools, large companies like Google, Salesforce, and Facebook had already inadvertently created solutions for SMBs, allowing SMB employees to interact with one another or their customers, and to advertise products and services online. Even within the SMBTech industry itself, giants have emerged, with Shopify providing e-commerce capability, Stripe with payments, Square and Toast with point-of-sale, and RingCentral with cloud phone systems. But these companies only skim the surface of disruptors within the SMBTech industry.

Just like their customers—the SMBs—these SMBTech companies often have the same scrappy can-do mentality, working to identify the pain points of their users and tailoring tech-enabled solutions to counter them. 

The last few years saw the growth of vertical-specific solutions, including:

Function-specific solutions have also been prominent, including:

No matter what type of small business you’d like to start, there is almost certainly a tech stack waiting to support you.

How the pandemic accelerated adoption of SMBTech

During the COVID-19 pandemic, small businesses were hit the hardest, and many were forced to close their doors. Those that were able to stay afloat moved to innovate as fast as they could, and benefited from access to technology like online ordering and digital payments.

SMBTech companies also struggled during the pandemic, with SMBs needing to cut costs to stay open. As most small businesses realized the need for tools and applications almost overnight, some services couldn’t keep up with the increased demand—according to an October 2020 report by Hello Alice and GGV Capital, about 75% of small business owners intended to spend more on technology in 2021. 

Other SMB companies quickly offered outsized support, creating products and services that helped businesses stay in operation. Technologies such as contactless payment, online ordering, improved supply chain management, and core software stacks were quickly prioritized and deployed by SMBTech companies.

Introducing the SMBTech 50 

GGV Capital has believed in the potential of this category for many years, including launching the SMBTech Index and the premier SMB-focused thought leadership event, SMBTech Summit, three years ago. GGV has also been longtime investors in the SMBTech sector with companies such Brightwheel, Drata, Electric, and Homebase

This is not a unique position in the VC world; the SMBTech sector is poised for incredible innovation and growth. To celebrate the success of the SMBTech industry, GGV—in partnership with Crunchbase—launched the inaugural SMBTech 50, the first list to recognize the growth and potential of startups that serve small and medium-sized businesses. This incredible group representing the 50 companies traveled to New York City in April, where they were invited to ring the closing bell at Nasdaq MarketSite to celebrate everyone’s excitement for the sector.

To better understand what SMB owners and employees are thinking and how they’re feeling,
Homebase* tracks data for about 2 million employees working for more than 100,000 small businesses. Here are some highlights from Homebase’s July 2022 survey of about 700 SMB employees and about 500 SMB owners:

  • About 80% of small business owners and employees are concerned about a recession.
  • Employee hours declined 12% in July 2022 versus June 2022, suggesting owners are opting to cut working time versus staff. 
  • 89% of small business owners are still planning to hire in the next one to two years, down from 96% in January. They’re also planning to hire fewer people than projected at the beginning of the year.
  • 81% of SMB employees say they’re happy with their current jobs. 

Today, people are adapting to a new normal that’s riddled with ongoing supply chain disruptions, inflation concerns, geopolitical conflicts, and other challenges. If we are to believe small businesses will thrive on the other side of the pandemic—local restaurants, florists, coffee shops, gyms, salons, etc.—then we also have to believe in the tech supporting all of the entrepreneurs and small business owners who drive our economy. The future is bright for SMBTech. 

Anyone with a Crunchbase Pro account can follow the SMBTech50 list and track the companies here.

*Represents a company in GGV Capital’s portfolio