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Episode 299
April 14, 2023

Leveling the Playing Field for U.S. Small Businesses

What do you do when there is an area in public affairs with either fast change or major conflict happening? You send in the sophisticated research team Mark Drapeau leads and find out what is going on and why. Listen in now to our conversation with Mark as he shares insights from years of research and also more about their newest report called Maximum Impact: How Digital Ads Level the Playing Field for U.S. Small Businesses!

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What do you do when there is an area in public affairs with either fast change or major conflict happening? You send in the sophisticated research team Mark Drapeau leads and find out what is going on and why. Listen in now to our conversation with Mark as he shares insights from years of research and also more about their newest report called Maximum Impact: How Digital Ads Level the Playing Field for U.S. Small Businesses!

Data, Digital, and Disruption

  • {00:05:45} “We want people to be armed with the best data points to tell a great narrative.” - Mark Drapeau
  • {00:11:38} Every single thing could be seen as a threat or an opportunity depending on where you sit and how you react to it.
  • {00:17:13} How does sports gambling and gaming effect other areas of the economy and why would that trade off be interesting and necessary piece of data to look into?
  • {00:27:18} “Digital tools are a force multiplier for businesses trying to sell.” - Mark Drapeau
  • {00:36:35}  Across all small-medium sized businesses, about 67% of the overall ad budget is digital and that includes social media, video search, and other kinds of digital advertising. For small businesses with less than ten employees, it's 74%.
  • {00:41:39} “We write in a very broad way and don't go too deep on anything. And then we frequently kind of follow up with shorter in-depth pieces that dive deeper into something that we're very interested in.” - Mark Drapeau
  • {00:36:35} There are many interesting data points through the years from the studies RXN and DCI have conducted, and a very common thread they’ve noticed is that it is very difficult to separate the person from the business when it comes to decision making.

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Brian: [00:01:04] Hello and welcome to Future Commerce, the podcast about the next generation of eCommerce. I'm Brian.

Phillip: [00:01:09] And I'm Phillip. And today on the episode, if you've ever wondered to yourself, "Well, how do SMBs grow and scale their business?" If you've ever wondered how SMBs are faring in this digital economy and freely available, widely available tools that are pretty prolific these days, companies like MailChimp certainly making a name there. Well, we have the definitive source here with us on the show, Mark Drapeau, who's the Partner and Chief Research Officer for RXN Group and the Editor-in-Chief of the Data Catalyst Institute is with us to tell us all about it in a new piece of research as well as the stuff that DCI covers on a daily basis in the SMB space. Welcome to the show, Mark.

Mark Drapeau: [00:01:50] Hi guys. Great to see you.

Brian: [00:01:51] Hey, Mark.

Phillip: [00:01:52] Great to have you. And for folks who don't know what Data Catalyst Institute or RXN Group are, give us a little bit of the background.

Mark Drapeau: [00:02:00] Sure. RXN Group was formed just before COVID, actually, so it's been quite a journey the last few years here. We're an influence and advocacy company and we focus on research and public affairs, communications, and advising executives. A lot of that is centered around topics where there's either fast evolution happening or conflict happening, things have gotten stirred up for some reason that causes problems for businesses and governments. And I like to sum it up as the three D's: data, digital, and disruption. Those are things where there's trouble brewing that involves any or all of those three D's that tend to interest us a lot. And the Data Catalyst Institute is our in-house think tank, our publishing platform, where we publish research and also publish outside smart opinions, short takes from our staff, and from outside experts and research fellows that we have working with us part-time. And that's always evolving. But it's essentially our little media company and we hope to add our own podcast later this year.

Phillip: [00:03:18] Well, everyone's got a podcast. You must have one, Mark. You must.

Mark Drapeau: [00:03:22] Absolutely. I agree.

Phillip: [00:03:23] And we have a mutual connect, someone who's been on the show on at least one occasion. Hitha Herzog, I think helps you in that capacity from time to time.

Mark Drapeau: [00:03:32] Yeah. Hitha is a retail expert. She introduced all of us together a month or two ago, and she is a DCI research fellow. She's been one of our contributors. And she also helps us interpret or publicize some of the data that we publish in our reports.

Phillip: [00:03:51] You did a little bit of fancy footwork earlier. I thought of you guys as a think tank, but I think think tank is a word that people don't quite understand. Would you describe DCI and RXN Group in that way?

Mark Drapeau: [00:04:09] I think think tank is just a bit of like inside the Beltway jargon if you will. But really think tank is just sort of a nickname for a research institute. They take a lot of different forms. Some of them are at universities, some of them are inside the government, and some are just independent non-profits or for-profits. And, you know, really their job is to do research and advocacy on some level or another. Some are really hardcore with their own lobbyists. They do political fundraising, and stuff like that. Some are much more truly academic, like the RAND Corporation, for example, is one that was founded in World War II era still around today in Santa Monica. They're practically a university, so they take on all different forms. For us, it is a way to research and explore and convene people around the things that we're interested in. So we do work for clients and we also do work like sort of for ourselves to get ahead of the curve and do thought leadership. We also work with people like Hitha and other experts, professors, and the like. And so this is our way to kind of bring people around a brand to publish things and increasingly be a little bit more of a media company with things like a podcast and a newsletter that will be more forthcoming and perhaps events in the future, too.

Brian: [00:05:35] And for you in your day to day as the Chief Research Officer, what does that look like? It sounds like you're diving into data a lot.

Mark Drapeau: [00:05:45] Yeah. Anything that is research design, publishing, and dealing with outside experts is essentially my domain. So we do different kinds of projects. As I mentioned, we do sort of pure research projects where someone really wants to discover or explore or do thought leadership, where it's sort of research for the sake of research, we want to find insights no matter where they may lead. We also do lots of public affairs projects, so things that kind of tie into lobbying, government relations, anything where the public is either being educated or influenced or deals with government money or anything of that sort that kind of falls under public affairs. And we do often research-driven public affairs. And so [00:06:34] we want people to be armed with the best data points to tell a great narrative. [00:06:39] We also bring in outside experts of different kinds: economists, business school professors, and other kinds of specialists to help communicate our results or validate things and speak with their voices as independent folks and not as, you know, grubby consultants, if you will. And so that's very important because everyone, of course, wants to advocate for their own clients. So bringing in really independent experts with great resumes, really where they can speak with an independent voice and validate our work is a real tie breaker.

Phillip: [00:07:19] Can I ask a question here? So we're kind of on this overarching narrative in 2023 of sort of explaining how the world works because commerce powers everything. And you have a commercial product that you have clients and you have folks that are, I'm assuming, underwriting this work. How does the business of DCI actually work? So you're advocating, but who benefits from the advocacy, and how does that make the world a better place, if you don't mind me asking?

Mark Drapeau: [00:07:53] Sure. Yeah. So there's really like two sides of the house. So RXN Group is the overarching consulting firm. We do custom work for clients. Some of that is custom research. And so that is really focused on helping some client to solve some kind of problem. And we publish that work at DCI because that's our publishing platform. But that's really the business model of RXN Group. So DCI is kind of our think tank appendage, and so it serves our RXN Group. But what's really happening now is it's evolving its own business model, and that's kind of what's really interesting for me. So the other part of my job besides the custom research work for clients is figuring out what we call RXN Ideas. And so that is non-client work, non-custom work, where we're developing research and ideas, products that are more like intelligence and insights. And so what you can't see on it yet, but some of the short form pieces we published kind of allude to, is longer form intelligence reports that take third party research, combine it with some first party research, combine it with interviews with experts, case studies, interesting ways of drawing landscapes or battlefields or scenarios to give people a more strategic level of knowledge about the future. And the audience there, the customers there are more along the lines of investors, for example, who are placing bets on the future. So the custom research work tends to be more tactical. There's a problem right now that we're trying to solve. It's acute. The ideas products that we're developing as DCI's kind of separate business model are more strategic in nature. How do we untangle the forces in the world? How do we understand where things are going? Probably these are things that are more interesting to you, like in your day to day work. The way we kind of break it down is that we view essentially everything through the lens of what we call the four forces: innovation, society, markets, and policy and law. And usually, when these things collide in interesting ways and create tensions, that's where acute problems come from. It's because society and Congress are opposed to something about crypto. Things like this. So the markets and the innovation community want to develop more coins or more trading platforms and stuff. But society and Congress or lawyers are kind of pushing back and saying, "Hmm, I think this has gone too far," or "I think this runs afoul of something." And so that's when we get the RXN research call, which is, "Help us solve this. This is a problem." With the ideas products, it's all about how do you see around corners? How do you understand where the problems are coming from, perhaps years in advance or at least months in advance? Where's the battlefield shaping up now? And that might be at the national level or the European level or at a state level. It depends. And then what are some scenarios for where this is going in the future? So we can't predict the future, but we give you some insights about possible future worlds that could be good or bad. And one thing I like to say is,  [00:11:38]"Every threat is an opportunity in disguise." So every single thing could be seen as a threat or an opportunity depending on where you sit and how you react to it. And what I want to do with these ideas products is really kind of set the table for people to at least understand that and hopefully make the decisions they need to make from wherever they sit with more data. [00:11:59]

Brian: [00:12:51] So it's counterfactual analysis effectively. What are the opportunities ahead? The what ifs? And sort of presenting like if this thing plays out, this is what's going to happen. Whereas if this other thing plays out, this is what could happen. And so you need to keep track of these two things because depending on which of these two things might win, and I'm simplifying this, but this is the future that will happen and you'll know that because this thing is picking up more traction. It's interesting.

Mark Drapeau: [00:13:21] Yeah. I think every situation or every topic shapes up a little bit differently, but what is almost always going to be true is that when you dive into these four forces, they're sort of sub-forces beneath them, like underneath innovation, it might be the rise of mobile phones or the rise of smartphones and mobile apps would be like a sub kind of thing that makes something else possible. And so some of them are more known than others. And where a lot of the unknown for the future lies is with the forces or sub-forces that are relatively unknown. We genuinely don't know which way this is going to go. And when you put a couple of those together, it gets pretty complex, and so those are sort of the storylines that help guide the future.

Brian: [00:14:12] So what's the storyline that you've been thinking through recently?

Mark Drapeau: [00:14:16] Sure. So I'll toss out maybe a few and then maybe depending on what you're most interested in, we could dive a little deeper. So we're creating some products like this around, for example, crypto policy, and the rise of crypto, the excitement about it, the market possibilities, its relation to regular currency or fiat currency, but also all the crackdown that's been happening with the SEC, different views of society where people are getting sucked into losing their money or fraud or things. That's a really, really interesting, complex, fast-moving area, almost too fast to make a report, which is something we've struggled with. Another one is the rise of digital and mobile sports gambling and also to some extent casino gaming, which really only became fully legal five years ago or so.

Brian: [00:15:12] Yeah.

Mark Drapeau: [00:15:13] Now it's in about 30 states, sports gambling on your phone. Casino gaming on your phone is legal and like maybe six states I think. Don't quote me on those exact numbers, but I think that's right. It's going to happen in Massachusetts on Friday, I believe. So this is like a state by state battle that's been happening for five, six years, but there are new players jumping into that. There are also concerns about gambling addiction or inside gambling, especially with the NCAA. There aren't a lot of regulations around whether or not a basketball player's girlfriend's friend can place a bet. I mean, there are a lot of possibilities. And certainly players have been sucked into gambling scandals over the years going back a hundred years.

Phillip: [00:15:59] Oh, sure.

Mark Drapeau: [00:16:00] And so this just kind of multiplies the different ways in which it could happen. It might be harder to track.

Brian: [00:16:07] Yeah. Let alone scams. But gambling on gaming, gaming is... That could get really addictive and really brutal, especially when you look at online cultures that have been developed in specific games. It's like it's pretty intense. It could be how people run their livelihood.

Phillip: [00:16:28] I'm curious Mark, too, on just on that note and if this is something you've explored, but it feels like the proliferation of smartphone gaming and gambling across states has a potential risk to be like a hole in the bucket of consumer spending that would typically go to other businesses, SMBs, and enterprises. This is the money that doesn't just come out of nowhere. If you combine that with crypto. There's this potential shift to experiences and different kinds of experiences that has a material impact on retail and services businesses. Any thoughts about that? And then I'll let you continue your litany of things you're focusing on.

Mark Drapeau: [00:17:13] No, not at all. It's an interesting question. I imagine digital sports gambling consumers think of it in a bunch of different ways. I just think of it as a little spare change in my pocket and I kind of throw it at a game from time to time. I don't get too deep in it. I don't worry about... You only bet what you can afford to lose. So I'm like a small time user of these apps. It's kind of fun for me. It's just a little thing. But certainly there are other people that really get sucked deep into it and they're losing money they probably can't afford to lose. And even people that can't afford to lose it, but probably bet more than they should, I imagine that that is money that isn't going to buy new shoes or a jacket or clothes for their kids. It's that extra thing. It's that extra Lego set. It's the extra pair of sneakers for baseball or something. I imagine that is true to some extent. It probably is, actually, we should throw that in our report. It probably is like some larger economic downside to the growth that's happened in this other part of the economy for Caesars and MGM and FanDuel and those guys that are just making, you know, tens and tens of millions of dollars off it. So it's an interesting way to think about that.

Brian: [00:18:38] The economies are about trade offs, right? And when you start taking money that was spent in one sector, like you said, that extra bag, that extra piece of luggage, or the thing that wasn't necessary but brought a lot of joy or could be passed down or resold. And you're passing it to a different part of the economy that could have some serious impact.

Phillip: [00:19:02] And other people like there's a take rate. Sure. So at some point, the money is going back to, say, MGM or FanDuel, but other people are also benefiting on the other side of that transaction and they have more money to spend. So it probably becomes a very challenging analysis to do about how much of that money stays within those ecosystems and whether they become sort of neo banks to themselves. People keep calling Starbucks a bank. I mean, these are very much captives as well. They're holding on to money that gets circulated around the same ecosystem over and over.

Mark Drapeau: [00:19:37] Yeah, two things. There is like around these Caesars or MGM or FanDuel or DraftKings, there is an ecosystem of contractors and other designers, and coders that make all that stuff possible. Mathematicians running the sportsbooks on the back end. Other companies they collaborate with to make the whole experience happen. Marketing companies that get the word out or create all these different incentives to sign up for the first time or place a risk free bet, as they call them, where you sort of have insurance on bets. And so there's a whole trickle-down economy benefiting all those people. And then one thing that's become apparent to me is that there's been a rise of day trading in the stock market. Companies like Robinhood that have enabled that. Now it's getting cracked down on but day trading and crypto where people are kind of lending out their crypto to get high interest rates back. And that's been really severely cracked down on at least in America by the SEC. And then with sports gambling, you can do very much the same thing where you can treat it a little like day trading, particularly betting in real time on games that are happening. You can kind of say, "Okay, I'm going to take the points and then I have the opportunity to cash out and earn 20% more." "Okay. I just made seven bucks on my five bucks. Let me take that seven bucks and I'm going to put it back into the same game because the odds have changed. I can see the players playing now. I have a different hypothesis. Let me put in my seven. And in fact, I'm going to double down. I'm going to put three more in to make it ten." And so you can kind of play it that way. It can be good if you're smart and lucky, but it can also be really dangerous as you kind of get in deeper into a game if you're not good at assessing those odds. So the rise of these digital platforms, high speed data, real time, whether it's odds or something, real time stock prices, it's all created similar environments where some people see it as an opportunity to maybe make a quick buck/kind of play a real life game and it might be more exciting to people then like a video game or something else. And it's a little addictive, of course. And I think the trick is hopefully not too many people find it truly addictive to cause a problem.

Brian: [00:22:49] I can see where this is headed, and I think it's going to get a lot worse before it gets better.

Phillip: [00:22:54] There's a story to be said around also the states that allow hallucinogenics. You know, maybe we could just like really go hard on...

Brian: [00:23:01] Little correlation.

Phillip: [00:23:02] All of these cultural happenings and modernity all at one time and see just like it's a crucible or it's like a petri dish, just let's see what populations explode and which ones thrive. I think it could be really interesting.

Brian: [00:23:14] It's a giant A/B test.

Phillip: [00:23:16] It is. It's post-apocalyptic. Some saw this in Blade Runner, actually, is what I'm trying to say. Mark, you also I think you've been focusing on some sort of commerce centric, all of this is commerce, actually, but to some degree, sort of more retail or marketplace-centric types of businesses. What are some of the focuses you've been looking at there?

Mark Drapeau: [00:23:39] Yeah, so we've been doing research since 2020 on different aspects of the small business economy and many small businesses, well, they all sell something, but about two thirds of them, or something like that, sell physical goods. In our estimation. So they're using platforms like Spotify, Amazon, Marketplace, eBay, Etsy, all kinds of different digital tools, platforms, software and apps to do retail. And we've studied a lot of different aspects of that. But one thing in particular we focused on is the use of these digital tools and how they view them as important to their business. Things they couldn't live without. Things that have helped them through COVID when they had to shut their brick and mortars or not be able to attend like a farmers market or an art fair or other in-person things that many of them also do in addition to e-commerce. And even now, what we kind of call the digital safety net, which is these digital tools that kind of help you survive through bad times, it's still in effect, even in a mostly post COVID world because we just published a survey last week, I think, about how digital tools make small business owners feel more confident and also are being used to communicate with employees, communicate with customers, market and advertise during a period of high inflation. They say the tools make them more efficient as a way to deal with that high inflation and help them deal with supply chain problems in various ways. So, by and large, small business owners are very adaptive. Most of them are using these tools as part of a repertoire to make themselves more efficient, communicate more efficiently, get their brand out there, get their product out there, actually sell things, and there really is this interesting ecosystem of millions of small businesses just in the United States that are interconnected with all these kind of tech giants, the Googles, Facebook, Salesforce, you mentioned MailChimp a little bit smaller, but there's just this wealth of bigger companies producing these tools and a small business economy relying on them and evolving with them as the tools get better and so on. That's quite fascinating. And we're studying many different aspects of that, most recently how small businesses use digital ads in different ways to drive their business.

Phillip: [00:26:32] You did a study recently that's forthcoming, sounded like almost 8 in 10 folks that responded in the study agreed that digital advertising helps them compete with larger companies. And having that sort of lever where, you know, I think it makes perfect sense if you were selling at a... It's assistive. It doesn't necessarily replace all of the in-person retail channels, farmers markets, green markets, you know, local businesses, marketplace. So but they're becoming more savvy as well. And I think they sort of sympathetically reinforce each other. Understanding the customer and digital helps you to serve your customer better in person and vice versa.

Mark Drapeau: [00:27:17] Yeah. [00:27:18] Digital tools are a force multiplier for businesses trying to sell. [00:27:23] And of course, larger small businesses do have more resources in the form of people and money by and large. But we've talked to people that are just one person operations that just are keen on learning how to use the tools and deploying them. And they have very, very fast turnaround time and how fast they can do that. Some other people, we also talked to businesses that struggle to understand how to implement tools like that into their business strategy or their plans. And a lot of that is like an education gap essentially, for any number of reasons. So it's not that it wouldn't work for their particular business, but there are education gaps out there. We also know through some of our work that generally small businesses in rural communities are a bit of a step behind on some of this stuff, whereas the ones in urban communities are a bit of a step ahead. And again, that's very complicated because it comes from your business peers, your news sources, and your education level a little bit plays into that, but of course, we found rural businesses that are like digital superstars. So it's really a case by case thing. And we love diving into these individual stories as we interview people or create vignettes. As you can see in our pre published report here, we highlight about ten businesses in this report.

Phillip: [00:28:48] "Ah, the coastal elites win again."

Mark Drapeau: [00:28:51] I think there are certainly things to be learned from the businesses that are the best in class at doing this stuff. There's also, from a more public policy point of view, people in rural communities, but people also from different groups like people of color or women or other kinds of groups we can study that are maybe behind on average, how do we solve for that? Is it a broadband Internet problem? Is it an education problem? Could communities and cities be doing more to educate or convene people? To different degrees, we've kind of looked at all those different things because different audiences in the public policy arena want to understand specific stuff about their state or their city or their type of community that they're from that they represent.

Brian: [00:29:49] So are you suggesting that some of these platforms, Google, Meta and their platforms and the like, could collaborate with local organizations and government agencies to help provide more education for small businesses, especially in rural areas? That's interesting. It seems like, kind of what I'm hearing is that these big platforms are actually providing opportunities for small businesses and giving them the tools they need to make their business successful.

Phillip: [00:30:25] Ah, they're stimulating the economy, actually. Yeah, you're right.

Mark Drapeau: [00:30:27] I think absolutely that's true. It's very easy for someone to talk about, "Oh, these are the biggest tech companies." We know from small business owners which ones are the most popular that they enjoy using or use the most. And it's many of those same companies. There's a plethora of platforms that are used for placing digital ads, for example, everything from Google and Facebook to Amazon, which is basically the third most popular company down to Twitter, LinkedIn, Pinterest. There's a whole bunch of them, just digital tools in general. We know that includes companies like Salesforce, Oracle, Adobe, Cisco, Apple. So all these companies in a way are powering and making possible the work that's being done in the small business economy. The other interesting thing about small business that we published a lot in a couple series of papers, one is called Digitally Driven and one is called Super Selling, which is more focused on product retailing, is that many, many businesses also sell stuff old school, so they view having a brick and mortar location or more than one as important, you know, by and large they haven't shut those down. They see it as FaceTime with their customers. They use it as a workshop or a loading dock or whatever the case may be. And also what I call offline marketplaces are also very popular. So things like flea markets, farmers markets, art fairs, trade shows, where it's essentially a marketplace of lots of different vendors, all arrayed in real life. They view those as places to talk to their superfans, the guy who buys the cheese from them every single Saturday at the farmer's market. They want to see them. They don't want to have merely an online relationship with that kind of person. They don't say, "Hey, just buy the cheese through Shopify. Leave me alone." So there is like a bit of a yin and yang between the centuries and centuries, if not millennia-old ways of selling things. And these new methods, online web stores, online marketplaces and apps, even other things, things like GrubHub and DoorDash. These kinds of platforms.

Brian: [00:32:47] It feels like a lot of those platforms, though, are built for local selling. So it's interesting, if you can get ahead and you can get educated on using these platforms, sometimes that leads to a national audience. But a lot of it I have a feeling, especially for these smaller sub 12 person companies, they're being enabled to go take more of the local market. And it's a little bit of an arbitrage opportunity for them because as people have changed their habits for how they discover things on a local level, any business that can leverage some of these tools to get ahead of SEO or to get into paid. I mean I think your study's all about paid. If they can use tools like ChatGPT to go do this they're going to be miles ahead of their competition when it comes to competing at a local level. That would be one of my takeaways here.

Mark Drapeau: [00:33:52] Yeah. One of the things we found, especially with rural communities where the small businesses by definition are more isolated from foot traffic and so on, is that they do have a very good local ground game and a lot of their wholesaling is to other local businesses, local stores and stuff where they probably have personal relationships, community relationships, and they do attend the farmers market and they do have that one brick and mortar store, and don't remember the number off the top of my head, but a pretty significant portion, something like 30 to 40% of these rural small businesses, their sales are happening outside their area.

Brian: [00:34:32] Interesting.

Mark Drapeau: [00:34:33] And the methods, this won't be surprising to you, but the methods that help the most with those sales outside their area are online marketplaces and online stores. So they do have a Shopify or an Amazon or an eBay or whatever tools they're deploying exactly that are helping them sell outside their community, outside their state in many cases, and what comes in handy there? Digital ads. So inside your community, people are more apt to know who you are, what your brand is, and what you do. They see you at church, whatever it might be. But outside your community, nobody tends to know who you are. So how do you advertise your new dark chocolate with salt bars outside your local area in rural California? Digital ads. Probably for the most part, right? And that points you to some online channel that they're then utilizing to grow the business. And more of the growth is coming from those outside sales, they estimate, than from the community where they're going to be more saturated.

Brian: [00:35:31] Interesting.

Phillip: [00:35:32] I'm very surprised actually at, you know, one of the top level findings, again, we're looking at an advanced copy. It could be that things kind of level out a little bit here. But the fact that businesses with fewer than ten employees in your study tended to spend more on digital advertising than larger businesses. The total number of dollars may grow over time, but the percentage of spend is highly skewed to be higher dollar value relative to the revenue of the business when you're much lower. Do you think that, just kind of getting you to elucidate on the findings a little bit... Do you think that that's because there's sort of a threshold to entry for digital ad spend to where it becomes effective? There's a bar, a threshold that you're going to have to spend to kind of get into it no matter what. And so, therefore, it represents a higher amount of revenue. Or is it because there's a greater amount of opportunity for a business at that scale and they're spending more?

Mark Drapeau: [00:36:32] Yeah. So the numbers are that [00:36:35] across all small-medium sized businesses, which is pretty diverse, about 67% of the overall ad budget is digital and that includes social media, video search, and other kinds of digital advertising. For small businesses with less than ten employees, it's 74%. [00:36:56] So it's 7% higher. I think that's real. One thing we do like to do is look at the tiniest businesses which are most small businesses. We didn't dive deeper into that. But what I could imagine being the case is that it's a little bit more bang for your buck in plug and play. And so you've only got seven employees. You don't have anyone dedicated to marketing and advertising at that point, more than likely. So what's the easiest thing to do? Probably not buy a billboard or place something in the local paper, if you even have one, or start making phone calls. It's figure out for Facebook or Google or Amazon or whatever platform you're going to reach your customers on, how do I buy ads here? Is this effective? How quickly can I test things and see the ROI that that drives? And so I imagine that that accounts for that like 7% difference with the smaller businesses. It's not huge, but it's almost certainly real. And I think you just tend to get more bang for your buck that way.

Phillip: [00:38:00] Yeah, I mean, it's two data points, but it also sort of hints at a trend line that the larger a business grows, probably the less percentage of digital ad spend... Thank you for correcting my interpretation, by the way, very lightly.

Mark Drapeau: [00:38:13] You're right. You're right on.

Phillip: [00:38:15] Yeah. But it could be that it's not a percentage of spend as a percentage of revenue, percentage of spend as a total digital ad spend. So the efficacy over time is, you know, maybe as they grow revenue, they're diversifying channels in which they're making bets for digital ads or for ads in total, right?

Mark Drapeau: [00:38:32] Yeah. I mean, definitely the larger small businesses in the sample just do more of whatever you measure. It's more channels, it's more platforms, it's more spending, and that's not too surprising. They're more likely to say they have people dedicated to buying or selling ads. So yeah, that's pretty much the case. We did some back-of-the-envelope calculations. It's a little hard because it involves multiple numbers that they're trying to estimate in real time doing a survey. But the ROI on buying ads for the businesses in our survey is about 2 X or a little bit higher, like 2.1, 2.2 X, meaning the amount they spend on ads results in about twice the gross revenue that they estimate is coming from the ads. But that doesn't really change too much at the different size businesses or different spending levels. So it's always between like 2 and 3 X roughly. That's what we found in any case.

Phillip: [00:39:32] How does somebody who is looking at this piece of research use this to make decisions around how they're influencing an SMB? What is the outcome of something like this? And I ask you because I'm technically an SMB publisher, according to your report, and I want to know how I can use this to grow my business as well.

Mark Drapeau: [00:39:55] Yeah. Well, I think I mean, you guys are pretty sophisticated technologically, but a lot of people, there's just a lot of stuff that they don't know. So they got in the door by asking their friend who also has a business, "What should I do?" And that friend said, "Hey, place your ads on Instagram," or whatever the suggestion might have been. So that's where you start. You trust your friend or your peer, and that's how you get your foot in the door. But for many people, they're still very much in the exploration phase and they don't know what all the possibilities are. They don't know they could advertise on, say, LinkedIn or something. I'm selling on Amazon, but I didn't realize I could advertise on Amazon. I didn't realize that was also an advertising platform. So just seeing what all the possibilities are and reading about... That's why we like to include these vignettes or case studies of real small businesses and what they do because I think small businesses picking up this report can see some of themselves in the vignettes. That's a person who publishes a magazine. That's a person who runs a furniture store. That's, I think for a small business audience, that's probably the biggest use of this, seeing what all the possibilities and options are and trying to figure out where do I kind of fit in this big universe of small businesses buying and selling ads?  [00:41:20]We do these big reports for a variety of different audiences, including policymakers, business journalists, industry experts, and small businesses. So we write in a very broad way and don't go too deep on anything. And then we frequently kind of follow up with shorter in-depth pieces that dive deeper into something that we're very interested in. We've gotten so many interesting rural anecdotes, for example, about small businesses. We're actually going back through all of our old studies where we frequently ask, even if it's not the focus, "Are you urban, suburban, or rural?" And we're going to go back and strip it down by urban and rural and do a bunch of comparisons like a meta study across seven or eight studies we've done to really get a better handle on what's happening in rural communities with small businesses, with product sales, with use of digital tools and platforms. And what does that mean, especially for policymakers from more rural states or counties? [00:42:21]

Phillip: [00:42:22] I'm really interested to see how a meta report of reports would shape up. This seems to be a trend. We recently just had Ci En Lee from Zenith and Publicis on who created a project to sort of aggregate trends reports across the industry because a lot of companies and a lot of industries are producing trends reports of their own, whether or not those are for BD purposes, a lot of them have insights groups. They're trying to sell something, but it's still interesting data nevertheless. And looking across trends, especially across many, many years like you may have, you can sort of tease out some really interesting narratives that might shape the way that people think and investments they make in the medium term. Any last thoughts, Brian? I think you were about to jump in there.

Brian: [00:43:09] We had a chance to take a look at the study ahead of time. It's really cool to me to see someone that I know, Sarah Nguyen, who's the founder of Nguyen Coffee Supply, sort of featured in there. I do think it's really interesting. Sarah is about as savvy as it comes when it comes to digital. She runs her company, in my mind, like a much more sophisticated company than maybe her size would dictate. She's representative of a new kind of founder in my viewpoint. Do you think that there, in looking at this study, you compared urban and rural, but is there also a real gap between the sort of I'm not even going to say like age, but is there a psychographic sort of split between what I would consider this new sort of founder that Sarah falls into very clearly, who understands modern branding and modern tools and the founders that perhaps come from a more sort of traditional grassroots sort of approach to building a business?

Phillip: [00:44:22] Say digitally native without saying digitally native.

Mark Drapeau: [00:44:24] Yeah, that's, that was in my mind too. That's a great question. First of all, I concur with everything you said because I sat in on the interview with her and she's wonderful and does run a very sophisticated business. And so in this report, we tried to feature some folks that have bigger budgets and smaller budgets that are more sophisticated and less sophisticated from rural areas, from urban areas, and try to capture all of that. In terms of your question, we always do ask people their age in these surveys and we break it down into buckets. We frequently don't focus on that because it isn't like one of the primary things we set out to accomplish. But off the top of my head, the breakpoint on that is around 50 years old. So we've asked all sorts of different questions about levels of sophistication with tools, but also things like, "Do you think digital tools will help your business in the coming year?" Questions more like that. And the breakpoint is always around 50 years old. And the folks younger than that are generally more sophisticated, use more tools, value them more, and have more positive outlooks on the future because of the tools, think the economy is in better shape. Think their industry is in better shape. Just a whole spectrum of different things and different surveys we've done over the years and over 50 numbers aren't necessarily bad, but it's significant dips in the data on all those things. So digitally native/traditional background may be a big aspect of that, but we've not dug in specifically enough to really understand some of the nuances around that. For example, younger people are less likely to have children, while older people, about 50, are much more likely to be busy with all kinds of things. Maybe, maybe there's just like these other kinds of peripheral, you know, factors orbiting around. Because, I mean, one thing I've definitely learned talking to small business owners is it's very, very hard to separate the person from the business, and we've done some interviews where we talk to them about policy issues and voting on policy issues that affect their business. And to them it's mostly all kind of the same thing. I'm a person, I vote. But my business is part is a big factor of how I think about who to vote for for a member of Congress or similar kinds of folks. And so having children in your life or being in a certain community, it's inseparable from your business for most people. And so I imagine it's very, very complex, but it's the kind of thing that policymakers at all levels like to know about. They want to know about older folks, younger folks, broadband access or lack of it, and so on and so on. What's happening in my state and my community and my city? And so there are always things for us to dig deeper on and help people with.

Brian: [00:47:25] I think it's really interesting. Yeah. I think to your point, averages can be kind of dangerous sometimes because if you look at them as separate or if you just look at the average, that doesn't necessarily tell the full story. If you don't have broadband, if someone doesn't have broadband and someone does have broadband, the average doesn't exist. It's either you do or you don't. Or if you look at the split between rural and urban the average doesn't necessarily mean suburban. And so I think that's super interesting. I love that you're going to go tell those individual stories. And I'm excited to hear some of these follow up stories as well. Looking forward to the full report being published. When can we expect the report to get published?

Mark Drapeau: [00:48:17] It'll be published March 15th. And so I don't know when this podcast will be published, but perhaps by then we'll have the report available.

Phillip: [00:48:26] Yeah, I think we can go ahead and expect that it would be out and we'll link it up in the show notes or you can check it out in the description on our YouTube. Things like the Chips Act, Build Back Better, there are stimulus programs that theoretically are driving more business investment inside the United States. So I'm curious if those things will have any sort of tangible impact or downstream effects for small businesses here in the United States. And if that's something that you can take into account in future research.

Mark Drapeau: [00:48:58] Yeah, I mean, that's a tough one to answer because those bills are so broad and complicated. I think in general, though, I mean, if we're talking about US small businesses, it's good to have homegrown tech, it's good to have homegrown tech platforms and tools and so on, where in essence, the values of the companies making them are similar to the value of the small businesses and similar to the values of the country as we go through different kinds of changes. And to the extent that tech platforms made in other countries are not aligned with that, that's probably, you know, a tougher situation because you probably read in the news what's going on with TikTok and people are getting themselves into all sorts of twists about should we ban it, how should we ban it? Why should we ban it? Should it be sold to an American company? Oh, no, that's not good enough either. And there's a real scenario where TikTok is effectively banned in America. And so if you're a business that relies on that particular platform for something, instructional videos, advertising, influencer marketing, you're in trouble a little bit, and so now imagine instead of TikTok, we're talking about Alibaba or some other kind of big, Chinese tech company that has marketplaces or communications tools. And you're relying on that for some reason. That could be a similar kind of difficult situation in the coming years. And so to the extent Build Back Better, Chips Act, or other legislation or programs is helping homegrown tech and innovation, that's probably a good thing for US small businesses. I think we've done a little bit of work in the EU as well on some of these topics, and that's a bit of a tougher situation because they don't have a lot of homegrown major tech platforms and so they tend to use American ones by and large, and to some extent now Chinese ones. And they're a little bit in a pickle with regard to that because they want to heavily regulate big tech companies, but they also have many small businesses that rely on them in the same way as by and large that American small businesses do. So that's a bit of a tricky landscape over there about how that will develop in the future.

Phillip: [00:51:21] Wow. And when it does, we'll have you back to tell us the ins and outs of it and how it impacts the future of commerce. Mark Drapeau, Partner and Chief Research Officer at the RXN Group, thank you so much for coming on Future Commerce.

Mark Drapeau: [00:51:33] Thank you very much for having me, guys. Great discussion.

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