Challenges Small Business Owners Will Face In 2025

By
Himani Verma

Goldman Sachs survey found that 91% of small business owners are struggling with the current economic impact on their industries. 56% report that the situation has worsened since the beginning of the year. Are small business owners prepared for these upcoming challenges in 2025?

Challenges Small Business Owners Will Face In 2025

In January 2020, when most theatres closed due to the COVID-19 outbreak, Huanxi Media Group partnered with Bytedance to release its New Year-themed movie Lost in Russia on TikTok and other platforms, despite their focus on short-form content. The film garnered 600 million views in two days, generating goodwill among homebound viewers and seizing a market opportunity that other studios missed by postponing their releases. 

Rapid decision-making, in the wake of urgent situations like the pandemic, brought forward a new concept: Prioritisation. The principle of prioritising speed over perfection is critical in modern business terminology as businesses will need to act swiftly to remain competitive. 

While traditional strategies may favour meticulous planning, small businesses will need to embrace flexibility and adaptability. This is exemplified by Qantas’ decision to offer “flights to nowhere”, which not only catered to the public’s desire to travel but also demonstrated the value of quickly adapting to changing market conditions.

Moreover, building a robust organisational structure will be essential to lessen the effects of any transformation. Business owners will benefit from utilising diversification and efficient slack rather than solely focusing on optimisation. 

Diversity, Equity, and Inclusion (DE&I) principles are fundamental to promoting a workplace that respects and values the unique perspectives of all individuals, ensuring fair treatment and equal opportunities. For example, a tech startup might implement DE&I by actively recruiting from underrepresented communities, ensuring equitable pay, and fostering a workplace culture where employees can voice their opinions without fear of exclusion or bias.

Swiggy, one of India’s largest food-delivery startups, built a platform with over 160,000 restaurants across 500 cities. Swiggy added more than 36,000 street food vendors to reduce its reliance on traditional sit-down restaurants, providing valuable flexibility and societal benefits despite lower profitability. It is a prime example of how diversification can cushion a business against sector-specific downturns. 

As small businesses prepare for 2025, adopting these methodologies will not only help them survive but thrive in a volatile global market.

Small business challenges

  • Understand broader economic trends
  • Technological advancements and integration
  • Increasing brand awareness
  • Workforce management and talent retention
  • Lack of capital and cash flow
  • Customer expectations and market competition
  • Burnout

Microeconomic trends

The shift in the global economic landscape due to interest rate fluctuations, inflationary pressures, and supply chain transformations has already impacted many industries. According to the Business.org survey, 89% of businesses have already raised the price of their products or services due to inflation. While some businesses cut expenses by purchasing the bare minimum of goods to have in stock, many entrepreneurs have fundamentally altered their business plans to adapt to the new economic landscape.

For small business owners, the rising cost of borrowing will make it more expensive to finance growth and expansion, while supply chain bottlenecks could continue to affect product availability and increase delivery times. For example, P&G, one of the world’s largest consumer goods companies, has hiked prices by more than 1% for the past nine quarters due to rising raw material costs and inflationary pressures.

According to the International Monetary Fund (IMF), global inflation is forecast to rise from 4.7 percent in 2021 to 8.8 percent in 2022 but to decline to 6.5 percent in 2023 and to 4.1 percent by 2024. Inflation, further, will likely drive up the cost of raw materials, utilities, and labour, making it harder for small businesses to maintain profit margins. It is caused by increases in production costs associated with raw materials or labour, or market disruptions

The solution: 

  • Cost Management and Efficiency: Optimising inventory management through data analytics, negotiating with suppliers for favourable terms, and automating processes can reduce costs and improve operational efficiency.
  • Dynamic Pricing Models: Implementing dynamic pricing strategies allows businesses to adjust prices in response to changing costs and market demand, maintaining profitability.
  • Financial Resilience: Reassessing business plans, exploring alternative financing options, and hedging against interest rate increases can strengthen financial stability.
  • Digital Transformation: Expanding e-commerce presence, adopting data-driven decision-making, and leveraging technology for operational improvements can enhance business agility.
  • Supply Chain Flexibility: Building redundancies with multiple suppliers and investing in supply chain technology enhances resilience and mitigates disruption risks.

Technological advancements and integration

A 2023 survey by Deloitte revealed that over 50% of small businesses had fully integrated AI and digital tools into their operations, indicating a potential lag in tech adoption. The rapid expansion of technology brings possibilities and difficulties for small firms. As more advanced technologies such as artificial intelligence (AI), machine learning, and blockchain become mainstream, small businesses will be under pressure to integrate these innovations to remain competitive.

The cost of adopting new technologies can be prohibitive for many small businesses, especially those with limited resources. Furthermore, staying up to date with constant technological changes requires not only financial investment but also significant time and expertise.

The solutions:

  • Scalable Technology Solutions: Invest in low-code and no-code platforms for affordable tech integration.
  • Automation: Use AI-powered tools to automate routine tasks and improve decision-making.
  • Strategic Partnerships: Collaborate with tech consultants or peers to navigate and implement relevant technologies.
  • Gradual Adoption: Implement new technologies in phases to reduce risk and ease the transition for staff.

Increasing brand awareness

In a crowded marketplace, standing out is becoming more difficult. With the rise of social media and digital marketing, brand awareness has become essential for small businesses seeking to compete against larger corporations. However, small businesses often struggle with limited budgets for marketing and brand-building activities, which can hinder their ability to reach their target audience.

In essence, a 2022 Salsify marketing survey found that 46% of the people surveyed said they would pay more for businesses they trusted. The finest marketing tool available to small business owners and entrepreneurs is their website, which they can use to increase brand awareness. 

For instance, Allbirds, a sustainable footwear brand, built strong brand awareness and trust using its website, despite competing with big names like Nike and Adidas. With a small marketing budget, Allbirds focused on storytelling and transparency by highlighting the eco-friendly materials in their products, such as merino wool and eucalyptus fibre. They also shared their environmental impact through dedicated sections on their website. The site’s simple, easy-to-use design, along with effective SEO and digital marketing strategies, helped Allbirds connect directly with customers and avoid traditional retail channels. This strategy boosted customer trust and allowed the company to grow rapidly, reaching a valuation of over $1.7 billion by 2022

The solutions:

  • Digital marketing tools: Utilise SEO, social media marketing, and email campaigns to target audiences more effectively.
  • Content marketing: Establish brand authority through blogs, videos, and other content that speaks directly to your audience.
  • Influencer partnerships: Partner with influencers or collaborate on community engagement initiatives to increase visibility.
  • Focus on niche markets: Target smaller, specific market segments with personalised messaging to stand out from competitors.

Workforce management and talent retention

A 2023 survey by PwC revealed that 57% of small businesses face challenges in managing their workforce effectively, with talent retention emerging as a critical issue. 

The rise of remote work and flexible job arrangements has transformed employee expectations. Small businesses will need to compete with larger companies that offer more extensive benefits and development opportunities, making talent retention a major issue.

For example, Buffer, a social media management software company, implemented a four-day workweek in 20202 to support employee well-being and mental health. Despite concerns about productivity loss due to reduced hours, the results were positive, with 91% of Buffer employees reporting that they felt happier and more productive. This initiative helped Buffer address talent retention challenges by offering a unique work-life balance benefit, which is particularly appealing as larger companies continue to attract talent with competitive compensation packages. 

The solutions:

  • Flexible Work Arrangements: Offering hybrid or fully remote work options can improve employee satisfaction and help retain top talent.
  • Employee Development Programmes: Investing in training, upskilling, and career development opportunities fosters employee loyalty and enhances productivity.
  • Recognition and Rewards Systems: Implementing recognition programmes that acknowledge employee achievements can boost morale and reduce turnover.
  • Workplace Culture Focus: Cultivating an inclusive, supportive, and transparent workplace culture encourages long-term commitment from employees.

Lack of capital and cash flow

Access to capital has long been a pain point for small businesses. Whether it’s securing loans for expansion or managing daily cash flow needs, small businesses often face difficulties in accessing the financial resources required for growth. This challenge is exacerbated by tightening lending standards and fluctuating interest rates.

Around 21.9% of new businesses fail within their first year, and by the fifth year, half of them have closed. Only 34.4% of small businesses last for 10 years or more.

For instance, Saddleback Leather Co., a Texas-based leather bag manufacturer, faced difficulties accessing affordable capital, even with a growing customer base. The company struggled to get traditional bank loans due to stricter lending rules and changing interest rates, making it hard to manage cash flow and finance inventory. They overcome these challenges by diversifying their funding sources, including using pre-orders for new products and improving inventory management to optimise cash flow. This helped them reduce reliance on traditional loans and maintain sustainable growth. 

The solutions:

  • Cash Flow Forecasting: Implementing cash flow forecasting tools can help businesses track income and expenses, allowing for better financial planning and management.
  • Alternative Funding Sources: Exploring alternative funding options such as crowdfunding, peer-to-peer lending, and government grants can provide much-needed capital for small businesses.
  • Invoice Management: Streamlining invoicing processes and offering early payment discounts can improve cash flow by encouraging clients to pay on time.
  • Cost Control Measures: Regularly reviewing and optimising operational costs can prevent unnecessary expenses, preserving cash reserves for essential business activities.

Customer expectations and market competition

In an increasingly competitive market, customer expectations are higher than ever. Small businesses will be expected to deliver exceptional customer service, personalised experiences, and fast responses, while also maintaining quality and affordability. With the rise of global competition, small businesses will need to differentiate themselves by focusing on niche markets and offering unique value propositions.

According to the Zendesk CX Trends Report 2023, 60% of consumers choose one brand over another based on the service they anticipate receiving. Additionally, 64% of customers are willing to spend more if a business resolves their issues through their preferred communication channels.

For example, Dollar Shave Club met high customer expectations by offering a subscription service for razors and grooming products, using technology to provide personalised experiences and smooth customer service. Competing with big brands like Gillette, the company used data and customer feedback to improve its products, leading to strong customer loyalty and fast growth. Their focus on convenience and satisfaction helped the company grow rapidly, resulting in Unilever buying Dollar Shave Club for $1 billion in 2016, showing how small businesses can succeed by delivering great customer experiences.

The solutions:

  • Personalisation and Customer Experience: Leveraging customer data to offer personalised experiences and targeted marketing can enhance customer satisfaction and retention.
  • CRM Systems: Implement customer relationship management tools to track interactions and personalise customer experiences.
  • Loyalty Programmes: Offer incentives for repeat customers through loyalty schemes and rewards.
  • Customer Feedback: Act on feedback promptly to improve customer satisfaction and build trust.

Burnout

The pressure of managing a business, especially in uncertain times, can take a toll on mental health and well-being. With limited staff and resources, small business owners often juggle multiple roles, from financial management to marketing and customer service, leading to long hours and high stress.

Without proper work-life balance, burnout can lead to decreased productivity, poor decision-making, and even business failure. The fast pace of change in the market and the need to constantly adapt can further exacerbate feelings of exhaustion.

The solutions:

  • Delegation and Outsourcing: Delegating tasks to trusted employees or outsourcing non-core functions can help reduce the workload and prevent burnout.
  • Time Management Techniques: Implementing time management strategies like the Pomodoro Technique or time-blocking can improve productivity and prevent overwork.
  • Mental Health Support: Offering mental health resources, taking regular breaks, and promoting a supportive work culture can help mitigate stress and improve well-being.
  • Setting Boundaries: Establishing clear boundaries between work and personal time is essential to maintaining a healthy work-life balance and preventing burnout in the long term.

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