How SMEs can adapt and thrive after Brexit

Steff McGrath’s busi­ness, Some­thing Wicked, is all about women’s empow­er­ment. Edgy, kinky, lux­u­ry and leather. At the same time, McGrath is adamant that this shouldn’t mean the exploita­tion of women in anoth­er coun­try, which is why her brand is all about being British as well. It uses a care­ful col­lec­tion of sup­pli­ers across the sup­ply chain, with the leather pol­ish sourced from an award-win­ning bee­keep­er in Lon­don, stock­ings sourced from a rare sur­viv­ing hosiery man­u­fac­tur­er, while a female sad­dler in St Albans makes hand­made cuffs and col­lars.

Despite try­ing to keep the whole man­u­fac­tur­ing process in the UK, Some­thing Wicked is still the kind of small out­fit that has suf­fered since Brex­it, some­how evad­ing the div­i­dends pro-leave min­is­ters promised from leav­ing the EU.

From going to trade shows in Paris and New York, sell­ing whole­sale and direct to con­sumer and migrat­ing to a new ecom­merce plat­form, Some­thing Wicked was on the road to an excit­ing endeav­our – but the Brex­it “cliff edge” led to the end of EU orders.

McGrath’s is one of the many busi­ness­es in the UK and EU that incurred the wrath of Brex­it red tape, many of which had sup­ply chains that stretched beyond their own bor­ders lead­ing to high­er costs, delays and increased bureau­cra­cy. Throw in all kinds of unpre­dictable fac­tors, such as the pan­dem­ic, glob­al con­flict and future uncer­tain­ty, and tra­di­tion­al busi­ness mod­els are being con­tin­u­ous­ly test­ed, espe­cial­ly when they have to import and export goods.  

In response, busi­ness mod­els have had to be adapt­ed for sur­vival but this might not be a bad thing. As well as re-envi­sion­ing how busi­ness­es oper­ate, these upsets have caused busi­ness own­ers to build sus­tain­abil­i­ty, busi­ness con­ti­nu­ity and resilience into their oper­a­tions, while stay­ing ahead of the curve and try­ing to antic­i­pate the next thing.

Assess­ments have clear­ly laid out the increased costs that new bor­der arrange­ments have added to busi­ness­es fol­low­ing Britain’s exit from the EU. These might arise from pay­ing inter­me­di­aries to com­plete paper­work; gov­ern­ment or port fees; or cor­rect­ing admin­is­tra­tive errors due to unclear new rules and pro­ce­dures. 

There’s no ques­tion that crises cre­ate an oppor­tu­ni­ty. It’s impor­tant to remind our­selves just how inno­v­a­tive and cre­ative we were in the first six months of Covid

Small­er busi­ness­es lack the same resources, staffing pow­er and finan­cial sta­bil­i­ty to respond to these admin­is­tra­tive bur­dens as larg­er enter­pris­es, which can relo­cate and lever­age more finan­cial assis­tance. Brexit’s impact on small busi­ness­es has thus been seem­ing­ly dis­pro­por­tion­ate as they find it hard­er to export to the EU and whose busi­ness per­for­mance is hin­dered by bur­den­some reg­u­la­tion.

“A fifth of small firms cur­rent­ly export – the low­est point since the spring of 2020 when restric­tions aimed at halt­ing the spread of Covid first took effect,” says Lucy Monks, who is head of inter­na­tion­al affairs at the Fed­er­a­tion of Small Busi­ness­es.

“At the same time, one in eight small exporters have tem­porar­i­ly or per­ma­nent­ly stopped sales to the EU – and a fur­ther one in 10 are con­sid­er­ing doing so,” she adds. 

Tas­nime Rother­ham, busi­ness own­er of Very Craftea, says that dif­fi­cul­ties export­ing after Brex­it meant she couldn’t cap­i­talise on, say, a viral post that cap­tured poten­tial inter­na­tion­al cus­tomers. The com­plex­i­ty around send­ing goods abroad with the red tape involved made her stop send­ing goods to the EU. And as a small busi­ness, she did not find the flu­id devel­op­ments easy to under­stand. 

Each pass­ing month since Brex­it, she dis­cov­ered more things she and her peers didn’t know about, like the code you have to have on every pack­ag­ing, with­out which the pack­age will be returned and some­times that postage would not be refund­ed. Each time a new issue hin­dered the busi­ness own­er dur­ing this peri­od, the price for the con­sumer would go up, she says. Cus­toms would also hold things up but no one, it seemed to Rother­ham, under­stood what was hap­pen­ing or had the right paper­work. Rother­ham says she has had to sus­pend ship­ping inter­na­tion­al­ly, which has hin­dered her growth. 

As well as shoul­der­ing the impact of Brex­it, oth­er glob­al uncer­tain­ties have direct­ly and indi­rect­ly impact­ed small busi­ness­es.

For instance, Covid-19’s sud­den onslaught meant that the brick-and-mor­tar shops McGrath was sup­ply­ing with her gar­ments were closed dur­ing much of the lock­down and so weren’t tak­ing stock. 

Before the impact of Brex­it red tape, Rother­ham also saw pur­chas­es of her loose-leaf tea and embroi­dery kits paused dur­ing the pan­dem­ic because they were con­sid­ered as sim­ply “nice to have items”.

It is not only sup­ply that has been affect­ed by the glob­al uncer­tain­ty; there have been demand shifts, too. Covid-19 saw many house­holds pri­ori­tise essen­tial goods over ser­vices like hair salons but reopen­ing meant a sharp rever­sion on what goods and ser­vices con­sumers were spend­ing.

For Natal­ie Quail and her pre­mi­um oral care at-home teeth-whiten­ing brand, Smile­Time, there was an unex­pect­ed demand that they frus­trat­ing­ly could­n’t meet. 

“Every­one had their smile full front and cen­tre every day on Zoom. So we saw an increase in demand,” says Quail, “but we strug­gled at the begin­ning to meet that demand with our sup­pli­er because fac­to­ries had shut down in the US and Asia.” Even when fac­to­ries start­ed to reopen after a few months, she says dif­fi­cul­ties per­sist­ed at inter­na­tion­al ports.

Dr Moni­ka Paule is the CEO of Caszyme, a Lithua­nia-based research and devel­op­ment com­pa­ny in the field of CRISPR-based mol­e­c­u­lar tools, whose clients include inno­v­a­tive cor­po­ra­tions and star­tups, most­ly in the US, Europe and Asia.

The pan­dem­ic brought Caszyme mul­ti­ple chal­lenges, in par­tic­u­lar, as an indus­try play­er that relies on lab­o­ra­to­ry work which can’t be done remote­ly and uses spe­cial­ist mate­ri­als that have an expiry date not dis­sim­i­lar to food. The stock­pil­ing, says Paule, ties up the finan­cials and holds back invest­ment­That said, the need to move fast to avoid waste means metic­u­lous and advanced plan­ning that has done away with their pre­vi­ous­ly lean busi­ness mod­el.

The war in Ukraine, trade wars and embar­goes have fur­ther pushed some away from Asian sup­pli­ers and toward those clos­er to home. The con­flict also meant Sim­ply Wicked’s expan­sion into inter­na­tion­al orders to Rus­sia hit a wall, as their drop ship­pers could no longer access that mar­ket due to sanc­tions.

“For the last three years, it feels like I’ve had a base­ball bat and I keep hav­ing to bat away one thing after anoth­er, just to try and keep chang­ing,” says McGrath.

Busi­ness mod­els have cer­tain­ly been adapt­ed, includ­ing by replac­ing pop­u­lar just-in-time glob­al man­u­fac­tur­ing sup­ply chains with just-in-case arrange­ments.

Busi­ness­es in EU-mem­ber coun­tries like Lithua­nia – par­tic­u­lar­ly small busi­ness­es – also have to con­sid­er whether keep­ing the UK as an export mar­ket is worth the addi­tion­al effort, paper­work and cost, accord­ing to Rasa Uždavinytė, who is the direc­tor of inter­na­tion­al trade devel­op­ment depart­ment at Inno­va­tion Agency Lithua­nia.

Those with a high depen­den­cy on this mar­ket will inte­grate the addi­tion­al inter­nal and exter­nal process­es to deal with the bureau­cra­cy. Oth­ers will turn to ecom­merce if they have con­sumer-ori­en­tat­ed busi­ness­es. 

Uždavinytė notes how geopo­lit­i­cal devel­op­ments, such as the trade war with Chi­na and cer­tain embar­goes, have dis­rupt­ed Lithuania’s high-tech indus­tries, par­tic­u­lar­ly its laser indus­try, which depends on com­po­nents from Chi­na.

In response, “Lithua­nia is focus­ing on diver­si­fi­ca­tion and look­ing for new mar­kets that relate both to exports and to import the sup­plies,” Uždavinytė says. That might mean more talks with and sup­pli­ers from Tai­wan or the US. That les­son of diver­si­fi­ca­tion is uni­ver­sal across indus­tries and juris­dic­tions as busi­ness­es have learnt to seek addi­tion­al income streams.

Com­mon learn­ings from the past few years reveal two key themes to pre­pare for chal­lenges and uncer­tain­ty to ensure con­ti­nu­ity and resilience in busi­ness oper­a­tions: mon­i­tor­ing the land­scape; and join­ing net­works and busi­ness com­mu­ni­ties to share resources and infor­ma­tion to help respond to unex­pect­ed shocks.

For instance, Paule says, to build resilience it is impor­tant to have a broad mind­set, while keep­ing up to date about glob­al and events can help with antic­i­pat­ing future dis­rup­tions. For many, that means prepar­ing for a pos­si­ble reces­sion and shrink­ing econ­o­my and there­fore, reduced demand.

If small busi­ness­es can access the sup­port, infor­ma­tion and resources they need to inno­vate, diver­si­fy and adapt, they may be able to weath­er what­ev­er incom­ing storm is on the hori­zon

Con­nect­ing with larg­er busi­ness net­works and asso­ci­a­tions can also help to lev­el the play­ing field for small­er enter­pris­es, par­tic­u­lar­ly those that are mar­gin­alised. The Lon­don Cham­ber of Com­merce and Indus­try notes that there is a fur­ther dis­pro­por­tion­ate impact on small busi­ness­es run by par­tic­u­lar com­mu­ni­ties of colour. The impacts between these com­mu­ni­ties will dif­fer but Richard Burge, CEO of the Lon­don Cham­ber of Com­merce and Indus­try, notes there is often unac­knowl­edged racism from the rest of the world toward some of these busi­ness­es.

“Then there is access to advice and ser­vices, which can dis­pro­por­tion­ate­ly hit busi­ness­es because they’re just not part of that loop,” says Burge, acknowl­edg­ing the impor­tance of includ­ing bod­ies such as the Black Busi­ness Asso­ci­a­tion with­in the cham­ber rather than sit­ting out­side of it.

As a South Asian busi­ness own­er, Rother­ham felt that rel­e­vant infor­ma­tion wasn’t reach­ing many busi­ness own­ers among the South Asian com­mu­ni­ties in the UK. But she found ser­vices like the Busi­ness and IP Cen­tre, a British Library-based ini­tia­tive rolled out to cer­tain libraries around the coun­try, invalu­able dur­ing lock­down to access ser­vices and pro­grammes. 

Quail says indus­try-spe­cif­ic resources, in her case beau­ty-relat­ed forums and trade pub­li­ca­tions, can offer time­ly advice and infor­ma­tion. The key thing, says Quail, is that you do the research and find solu­tions that are best for you rather than fol­low­ing people’s advice blind­ly. In addi­tion, own­ers of small busi­ness­es must learn the skill of being respon­sive and nim­ble to nav­i­gate future chal­lenges.

While con­sec­u­tive shocks have dam­aged busi­ness­es and their bot­tom lines, Julian Birkin­shaw, pro­fes­sor of strat­e­gy and entre­pre­neur­ship at Lon­don Busi­ness School, says there may be a sil­ver lin­ing to the need to react to uncer­tain­ty.

“In the ear­li­est six months of Covid com­pa­nies came up with inno­v­a­tive new prod­ucts and ways of offer­ing their own ser­vice. What is dif­fi­cult but impor­tant is to remind our­selves just how inno­v­a­tive and cre­ative we were in that peri­od,” he says – adding that it’s easy to fall back into old ways of work­ing.

Each busi­ness that sur­vived is like­ly to have had to piv­ot or invoke an addi­tion­al rev­enue stream. Quail had to stock­pile and is think­ing about offer­ing more hygiene over cos­met­ic prod­ucts to weath­er any down­turn, while Paule says Caszyme had to take their busi­ness plan­ning process to gran­u­lar lev­els with a for­ward-look­ing approach.

For Rother­ham, it’s impor­tant for her to focus on her local cus­tomers and find more stock­ists, while McGrath has adapt­ed her busi­ness into some­thing quite dif­fer­ent from what it looked like three or four years ago – but with­out sway­ing from its mis­sion.

“It’s a man­u­fac­tur­ing busi­ness at its heart,” she says, and her piv­ot built on the ris­ing sen­ti­ment in Britain to reshore pro­duc­tion and build new brands. McGrath start­ed incor­po­rat­ing made-to-order ful­fil­ments from oth­er busi­ness­es by util­is­ing her exist­ing machin­ery and stay­ing with­in the under­gar­ment seg­ment of the mar­ket.

“It’s almost like stick­ing with what we do but we can help oth­er peo­ple devel­op a brand. If we can sup­port anoth­er brand to set up or to man­u­fac­ture in the UK, why wouldn’t we? It’s grow­ing the skills, and that next gen­er­a­tion of skilled man­u­fac­tur­ing com­ing back to the UK would be a great, great thing to hap­pen,” she says.

As long as small busi­ness­es can access the sup­port, infor­ma­tion and resources they need to inno­vate, diver­si­fy and adapt, they may be able to weath­er what­ev­er incom­ing storm is on the hori­zon.

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