Thought Leadership

February 25, 2021

Big Data Challenges: Is big data a problem for SMEs?

Big data challenges small companies and benefit large ones. SMEs have, in fact, a poor starting point in the big data race and how to profit from it.

Large companies have access to much more data and are able to improve their position in the market as a result. Very often, the SMEs don’t and it’s one of their Big Data Challenges.

One of the issues that have become key in recent times in business strategy and in the design of marketing, advertising, or product strategy has been big data. Data, the “oil of the 21st century”, helps companies to know their consumers much better, to have more accurate profiles, and to launch much more effective campaigns that connect much better with their audiences. The data tells you what people want and how to sell it to them. 

Therefore, it is not surprising to discover how, progressively, data has become an obsession and also the great hope that decision-makers rely on to try to position themselves in a much more favorable and much safer way in the market. Are you aware of the Big Data Challenges?

Big data benefits large companies, but it does not benefit small ones. SMEs have, in fact, a poor starting point in the big data race and how to profit from it. This is one of the Big Data Challenges SME’s are facing.

This has been discovered by three researchers from MIT Sloan, the Stanford Graduate School of Business, and the Columbia Business School. Maryam Farboodi, one of the authors of the study says:

"Older firms have a lot of data available to investors that makes them much more willing to finance them, whose capital costs fall as investors get better at processing data".

Larger companies have it easier when it comes to Big Data Challenges.

big data challenges

Why are things more difficult for SMEs?

The researchers analyzed how big data impacts the finances and growth of large firms. Their findings suggest that larger amounts of data make it easier for large companies to avoid investor uncertainties and also reduce the cost of capital for those large firms. As we said before, it is much easier for large companies to grow than it is for small ones.

Compared to them, SMEs have a much lower data throughput, so they do not have the same support. "There is not much to learn about young people and small companies", explains the expert, which makes investors more reluctant to finance them. This makes accessing capital much more expensive for them, which makes their day to day much more complicated and that surviving and not just growing is much more difficult.

To break this dynamic, the study concludes that small companies would need to be able to generate much more data in order to give potential investors much more to analyze. This is one of the hardest Big Data Challenges.

SMEs not only have a much smaller volume of data to offer in financial terms, but they are also lacking in consumer information, in data to analyze the market, or in information sources for trends. It is not the same to have 3 million consumers from which to obtain data and 1,000 points of sale than ten stores and a few thousand consumers.

For this reason, large companies position themselves from a much more advantageous starting point, in which they are able to understand much better how things work and what they have to do. For SMEs, the data war can be lost.

As they pointed out in the study's conclusions, big data is simply making large companies bigger.

Case Study from Arkusnexus
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