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Jobs to be Done: Helping US SMBs build credibility and legitimacy in order to access funding

11:FS Customer Strategy and Research Team

This is the fourth instalment of a 6 part series that explores the Jobs to be Done (JTBD) for US SMBs that we identified in our recent research.

Each blog post dives into one of the jobs and how we examined it with a JTBD canvas. If you missed the first post that explains JTBD and the canvas, check it out before reading this.

JTBD #3 | Build business credibility and legitimacy in order to access funding

In the previous two blogs, we discussed the importance for SMBs of tracking and managing their cash flow in a coherent way, and of separating the business' finances from the owner’s personal capital to limit financial risk.

The focus for this blog is business credibility, and how financial providers can help growing SMBs to build it effectively.

But what do we mean by credibility?

When we spoke to business owners in our research, it was clear how important it is to them that their business is taken seriously, even if they are operating solo out of their bedroom. And not only do they want to be taken seriously by their customers, with whom they are passionate about building strong and trusted relationships, but also by other businesses, investors and financial services providers.

A credible business is one that can clearly communicate its purpose and brand values, whilst proving its ability to operate as a going concern. SMB owners that can achieve these things are more likely to achieve success, including being able to access funding if and when they need it.

A credible business is one that can clearly communicate its purpose and brand values.

Access to finance is crucial for all SMBs at various stages of development, from start-ups to those that have been operating for a while. New businesses need finance to kick-start operations, perhaps via the purchase of a new office space or hiring employees. More established businesses looking to grow their revenue might need funding to increase production or diversify into new markets.

Many business owners will use their personal capital or money from friends and family to help finance business expansion, but these sources of funds are usually finite. There generally comes a time in the life cycle of most SMBs where they will need funding from a financial provider to further their business ambitions.

Our research highlights that this can be a difficult process for SMBs, many of which struggle to evidence their business credibility and therefore gain access to funding.

This is particularly true of those that don’t have a dedicated business bank account to manage their money, as the business’ finances are indistinguishable from their personal assets.

A situation like this is common, with a large proportion of SMBs failing to see the benefits of opening a business account and put off by the admin process, as discussed in our previous blog post.

Digital financial services providers are beginning to recognise the importance of helping SMBs to build credibility, and are tailoring their services and marketing accordingly:

  • Digital bank Azlo encourages businesses to open an account to “enhance their professional image”, and strongly makes the case for keeping personal and business finances separate.
  • Business credit card and digital account provider Brex enables customers to access greater credit limits by funnelling all their cash flow through their Brex account, giving the provider a more accurate picture of the SMB's finances.
  • Shopify provides various free online tools to help businesses build professionalism and credibility, including templates for invoices and business cards, and advice to help firms improve their branding.

Digital financial services providers recognise the importance of helping SMBs build credibility, and are tailoring their services accordingly.

But PayPal and Square are the real leaders in this space, having pioneered a new approach to business lending that enables SMBs to access funding without having to go to great lengths to prove their credit worthiness.

Based on existing sales and account history that the providers already have access to via their other services, customers can apply for working capital loans in minutes without needing to supply any extra documentation. This allows them to access additional funds in a seamless and integrated way, freeing them up to spend more time running the business that they love.

How did we draw up the canvas?

  • Current state

The current state for this job focuses on the frustrating situation that many small business owners find themselves in when trying to secure funding to grow their business, but cannot easily prove the credibility of their business to lenders.

  • Contextual triggers

Businesses often don’t recognise they lack credibility until they approach lenders. A financial institution needs to be convinced that a firm’s operations are legitimate and viable before it will consider providing funding.

Without substantial evidence, in the form of financial accounts, transaction records and sales forecasting, it’s difficult for a business to make progress with its application for funding.

  • Barriers to behavioural change

Business owners may be using their personal bank account to run the business, rather than an official business bank account. This restricts their ability to build up a business operational history and makes it difficult for lenders to understand the financial position of the business.

It’s also common for SMB owners to use a non-bank platform such as Square or PayPal to manage their money, which can have similar implications.

  • Desired state

SMBs want to be recognised as a credible business and feel that they are making progress with their expansion goals, so they can unlock their full potential as an entrepreneur.

Download our canvas pack here.

How is the job evolving?

Whilst some of the JTBD, such as tracking and managing cash flow, have become even more important for SMBs in the face of the COVID-19 pandemic, the focus on building credibility to acquire funding will have changed depending on individual business priorities.

Funding has largely taken on a different purpose for businesses since the pandemic, as many have had to pivot their focus from growth to survival.

Whereas before COVID-19, SMB owners may have been looking to acquire funding in order to expand their business, falling revenues due to lockdown has meant that many will now be looking to build credibility to acquire funding to stay afloat.

Since the pandemic, many have had to pivot their focus from growth to survival.

That said, the pandemic has opened up new opportunities for some SMBs which have adapted to offer new products and services in line with changing customer preferences.

One of the SMB owners that we spoke to has launched a subscription service, for example, to deliver bread to customers that would otherwise be shopping at her physical store.

As the COVID-19 situation evolves over the coming months, we will see SMB owners continue to find creative opportunities to grow and remodel their product and service offerings based on what customers need and want.

For some, this will lead to successful new revenue streams and a foundation for future growth. Those providers that can use existing data to recognise SMBs' credibility and ambitions in a changing business environment will win customers across the SMB segment.

More in this series:

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