SMEs are harnessing the power of digital, but continue to face regulatory hurdles

Working on his next Facebook advert. A Re:publica Digital Society conference attendee concentrates in a huge ball basin. Berlin, 8 May. [Filip Singer/EPA]

This article is part of our special report Cross-border business in the digital era.

Social networks present new opportunities for SMEs to grow. But some worry that privacy requirements are stifling that growth.

Victor Dik and Felix Ermer were a German duo hanging out in Brooklyn, New York in the summer of 2012 when they stumbled upon a gap in the beauty product market.

They wanted to look and feel good, without feeling bad about it. But they found that there weren’t any natural, plant-based and cruelty-free male grooming products on the market. They decided to make some.

At a time when big companies were going in big on investing in male grooming products, they decided to stand out by founding the Brooklyn Soap Company as a fair trade alternative. They offer organic vegan male beauty products with a particular focus on beard grooming. They had to find a way to reach their target audience – young millennial men who may not yet know they even want such a product. So they turned to Facebook and its targeting advertising.

“That was the only way we could actually achieve this goal because if you don’t have $10 million per year in media spending there’s no other way to do it,” Ermer told EURACTIV.com. “You have to be good with online marketing. It’s the only way you can spread the word.”

Ermer and 13 other European SME founders were gathered in Brussels on Thursday (29 June) at a Future of Business summit. The event, hosted by Facebook and The Lisbon Council, looked at the way online platforms are being used by small and medium-sized enterprises (SMEs). The attendees spoke with EU policy makers and politicians about how they are using e-commerce for their growing businesses, and how EU policy could make it easier. In some areas they wanted the EU to get more involved. In other areas, they wanted the EU to butt out.

EU copyright directive means trouble for our startups

Startups in Europe can only be successful if they have solid rules in the online space. But in an attempt to limit the power of tech giants, the European Union risks hampering the next generation of European startups too, writes Lenard Koschwitz.

Unhelpful legislation

Though it was born in New York, Brooklyn Soap Company is now based in Hamburg. Ermer says that digital platforms such as Facebook have been key to the company’s growth, particularly given its cross-border customer base, who largely encounter the product through social network advertising before ordering it. But he says that European regulation has sometimes gotten in the way of the company’s growth.

“We need to be very careful with our marketing budget, and us as a European company, we are at a disadvantage compared to companies in the US because of EU data protection rules,” he says. He worries that the strict EU data protection rules are giving European companies extra hurdles that are not faced by US companies, where data protection rules are much more lax.

Daniel Gorr, the chief marketing officer of the German tailored furniture company Holzconnection, also said his company has been frustrated by EU data protection requirements.

“Politicians don’t know anything about digital,” he said. “In Germany when you bring up data protection, it gets you votes. But it doesn’t help us.” He said the EU ePrivacy Directive, which requires users to be informed if websites use cookies to store information about visitors, has been particularly unhelpful.

Member states want looser data rules in draft ePrivacy bill

EU member states are divided over a proposal to change privacy rules for telecoms operators, with some countries calling for looser rules on when they can use consumers’ personal data.

Platform outreach

There are nearly 70 million businesses around the world on Facebook, and five million of them invest regularly in ads. Thomas Myrup Kristensen, managing director of EU affairs at Facebook, explained that this is opening a new world of cross-border opportunities. Over one billion people are connected to a business outside of their home country on Facebook.

“People think of Facebook as a place to share wedding and vacation photos…but we are actually a facilitator for business,” he said. But he also complained that overly burdensome EU regulation on issues like privacy can have the impact of stifling this growth. If legislation doesn’t have enough flexibility, he said, companies will spend their time and resources on legal compliance rather than grow their businesses.

“If they have a choice to hire a lawyer or an engineer, with all due respect to lawyers, I think they should hire the engineer,” he said.

All of the SMEs in attendance said social media engagement with their customers had proved crucial during their early growth phase.

Patrick Kelly, the marketing manager at Aran Sweater Market in Ireland, described how his company uses the platform differently from most. Unlike Brooklyn, which usually meets their customers online first, Aran meets them in person first and then follows up with them online.

“Someone who’s visiting Ireland, they experience our brand, they buy the product, then they go home,” he said. “Digital allows us to keep in contact with that customer and make a connection with them.”

Kelly noted that even cherished physical items like his hand-crafted traditional sweaters are now going digital. Whether its furniture, beard oil or sweaters, customers are engaging with products online.

Understanding the state of the economy is crucial to business success

A prerequisite for helping European businesses succeed in the new digital and mobile economy is understanding the economic environment in which they operate, writes Facebook’s Nicola Mendelsohn.