Tech services – a supporting role for SMEs in crisis and beyond
Hg has spent the past two decades investing in businesses that offer mission-critical technology services to SMEs. Hg’s Nick Jordan and Joris Van Gool explain how the Covid-19 pandemic has tested the resilience of this thesis.
In March 2020, as the UK and Europe went into lockdown, the business outlook was uncertain at best. For companies that provide services to small and medium sized business, many expected a reduction in economic activity across all sectors and corresponding pressure on our companies.
Now, looking back on the last 12 months, we see how the reality has proved very different. Tech services companies continued to provide mission-critical services to support safe and efficient business activity across the UK and Europe throughout the lockdowns, tiered restrictions and beyond.
While some sectors, such as hospitality, had to bring down the shutters immediately, others proved to be more agile and resilient than expected. Here many of our portfolio companies showed how they could enable their customers to not only survive through this incredibly difficult period, but to succeed and expand.
This was chiefly driven by their ability to enable digital migration of commerce and customer communication and the use of technology to replace more expensive or less efficient processes in order to thrive in a quickly shifting business environment. At the same time, businesses needed to quickly work out how to keep their employees safe and their businesses compliant in a quickly changing regulatory and employment market. So what will the after-effects of the crisis be?
Covid-19 has accelerated digital migration across sectors. Entrepreneurs who are starting a business will immediately focus on digital channels, changing customer engagement models and how these can be built into their businesses. Digital-first is increasingly likely to be a prerequisite to business, and so leaders will look for the support of business partners to provide this service.
New Customers, New Channels:
Observations and experiences of the Hg portfolio
The first Covid-19 lockdown brought an immediate change in consumer behaviour, with SMEs across Europe pivoting to meet increased online demand and expand their services via new channels.
At Hg, we saw March, April and May 2020 give rise to strong growth for our companies across some of the geographies which were most significantly impacted by Covid-19. Across the portfolio we saw increased use of services and a huge amount of innovation by customers.
This is illustrated by the experiences of three of Hg’s tech services companies: web-hosting service, team.blue, customer communications provider, Commify, and compliance support company, The Citation Group.
team.blue’s existing webhosting customers required support to expand their e-commerce offerings. Meanwhile, offline businesses moved quickly online and needed a wraparound service to help their digital transition. There was also significant growth in brand new business, as locked-down entrepreneurs took the opportunity to launch new ventures from home. The result of this was record new business levels for team.blue in Q1 and Q2 2020.
Commify’s software enabling SMS communications with customers proved vital to support the rise in click & collect transactions, with many businesses providing this service for the first time. This was accompanied by increased demand for online shopping and home delivery more generally driving increased volumes.
Commify also provides SMS communications in the education sector, and the lockdown and tiered restriction period saw drastic changes to usage patterns. Schools were communicating with parents more frequently on a wider range of issues, and the service was key to conveying the rapid changes in educational provision and processes, such as school or bubble closures and the transition to remote learning.
The Citation Group’s health & safety and HR compliance services experienced huge volumes of logins and calls as companies worked through the implications of Covid for their employees, including how to make their workplaces Covid-secure or furlough staff. Many crucial sectors had to keep operating throughout lockdown, while still meeting their regulatory and health & safety responsibilities, and Citation staff worked long hours to meet customer needs.
As well as a greater volume of calls to the company’s legal helpline, there was increased engagement with its digital channels – particularly its online information database Atlas, which provides training videos, articles and guides. These could be updated in real time as the situation – and the corresponding advice – developed. Usage of the Atlas platform increased 43% year on year during the first lockdown.
Citation saw significant new business and growth in its customer base throughout 2020, including in critical sectors such as care homes and construction. Dealing with Covid-19 has highlighted the value of on-demand, digital HR and health and safety services for SMEs and demonstrated the value proposition of Citation’s services.
Emerging from a crisis:
Hg’s data insights
One of the benefits of investing in a portfolio of software and technology companies is the richness of real-time data that can be derived and analysed from the portfolio.
This is where Hg’s Data and Analytics team brought valuable insight to Hg and our portfolio. Hg was able to observe many emerging trends in real time through a data tool created by the team. The insights derived from the data were aggregated into a dashboard shared with all portfolio companies in the tech services cluster and across the Hg portfolio, enabling them to improve performance, predict challenges and help their customers make difficult business decisions.
The tech services portfolio, with its millions of small business customers across Europe was able to contribute real-time data on business activity and customer sentiment to this effort. For example, data from Commify’s services in UK, Italy, Spain, France and Ireland allowed the Hg team to capture transaction volumes and track levels of business activity by sector across a broad geographic view on a daily basis, quantifying the impact of tiered and/or national restrictions on commerce and customer behaviour. These ranged from taxi journeys and optician appointments to sports facility bookings and grocery deliveries.
Being able to compare countries at differing stages of restrictions helped predict future demand and manage sector recovery expectations. These were by no means definitive answers, but rather a broad insight into where to spend budgets and sales time across our investments. They will continue to be in high demand post-pandemic as businesses are more aware of the value provided by an integrated service and the need to maintain the multi‑channel offerings and communication channels that customers will now expect.
As we move through 2021 and beyond, the experiences of Covid-19 will mean SMEs will be asking themselves an increasingly relevant set of critical questions:
- Am I able to sell my product and reach customers online?
- How can I access multiple fulfillment channels?
- Am I able to communicate with my customers over mobile?
- Do I have access to the latest HR, H&S and regulatory information and advice to stay compliant and efficient as I grow my company?
Our tech services companies are a simplifying layer between critical but complex technology services which businesses need to be successful. These types of technology services have helped UK and European SMEs to be flexible, innovative and resilient during what’s likely to have been the most challenging period in their history.
As investors, the Covid-19 experience has confirmed that these types of integrated services will be growth areas and will impact Hg’s decisions on the investments we make over the next decade.
Finally, whilst many of Hg’s portfolio companies have seen substantial growth and success during the past year, more importantly we are proud of how they are continuing to support their customers across Europe to keep trading and stay safe in an incredibly difficult context.