The Risks of Generative AI on Small Businesses and How to Mitigate Them

Small businesses have dramatically increased their use of generative AI tools like ChatGPT,  Bard, Pi, Co-pilot, Grok, Claude, and others, as they recognize their potential to significantly enhance business operations. However, this surge in adoption also brings a myriad of risks that could endanger not just individual businesses but the survival of small businesses as a collective. By adopting simple measures, we can learn to reap the benefits of generative AI while safeguarding our businesses, customers, partners, and loved ones.

The Small Business Backbone

It’s no exaggeration saying that small businesses are the backbone of America. According to the Small Business Administration, the 33.2 million small businesses in the U.S. make up 99.9% of all businesses in the country. Those small businesses, which are categorized by the IRS as having less than 500 employees, employ 61.7 million Americans, or 46.4% of private sector employees, accounting for 62.7% of net jobs created since 1995 and 43.5% of gross domestic product (GDP).

Kinks in New Technology Introductions

During the rise of the automobile, we saw the same thing. From the moment the world’s first car production began in 1886, they helped to reshape the way we do everything. By the 1910s and 1930s, they were everywhere. Seatbelts, however, weren’t an option until the 1950s, and the first law requiring safety standards like having steering columns that didn’t impale drivers wasn’t introduced until 1967.

This isn’t something relegated to the past either. In 1991, CERN introduced us to the World Wide Web, and by the end of the decade, everyone was on it. Yet it wasn’t until almost 20 years after Facebook was founded in 2004, that we received an advisory from the Surgeon General of the overwhelming evidence that our children’s use of Internet social media is causing them mental health issues.

Small Businesses Drive Innovation

Don’t get me wrong. I’m not here to discourage anyone from being an early user of new technologies. I pride myself on being an early adopter. Throughout history, small business owners have been the main drivers of innovation, not only in adopting them but also in creating them. Steven Wozniak and Steven Jobs had no employees when they designed, built, and sold the first Apple I computer. Larry Page and Sergey Brin also had no employees when they first developed Google. Jeff Bezos and his wife MacKenzie had just two employees before launching Amazon, just to name a few on a very long list.

The GenAI Explosion

Like many of you, I’ve spent most of the last year fixated on ChatGPT, Mid Journey, and other GenAI tools. I’ve been using them to make unique images, help come up with ideas, write emails, marketing copy, training outlines, and computer code. I’ve dabbled in building a couple of apps to make them easier for me to use, and I even used GenAI to help me in researching for this article. I’m a huge fan of the technology, and I’m not alone. This year we saw something that’s never happened… a new technology gaining over 100 million monthly active users within just two months!

The explosive and record-breaking gain of over a million users in five days and 100 million in two months was just Open AI’s ChatGPT, not including similar GenAI tools like DALL-E, Mid Journey, Stable Diffusion, Bard, Bing AI, Soundraw, etc. Having received 2 billion website visitors in May 2023 alone, ChatGPT has not only attracted global attention it has highlighted a clear trend… companies are getting better at attracting more people to use their new technologies faster.

The Risks of Using Generative AI (GenAI)

At first glance, charts like this draw excitement and provide motivation to millions of small business owners who dream that one day their company will be on a chart like that. Over the last few months, however, many of us have started noticing that, while GenAI is amazing and will surely give those of us who use it a massive leg up, there are evolving risks, some glaring and some not so obvious, that are barely being discussed, if at all, that could have dramatically negative effects on small businesses.

I’m not referring here to the risks we may see manifested on the silver screen; AI taking over humanity, for example, taking our jobs, being used to create deepfakes, or any of the many other nefarious purposes taking up everyone’s attention. There are many risks like those being discussed in the media yet they have mostly to do with AI in general and relate to the people in charge of creating, training, and maintaining AI technologies. You may have already heard of the “AI boot camp” government officials have recently taken part in to better understand AI and the implications of its use. These risks are all extremely important and valid and need serious study and scrutiny; however, they are not necessarily the same risks that are affecting small businesses that are using GenAI right now.

To clarify, when I refer to generative AI (GenAI), I’m referring to tools that use AI technology to produce an output for us. An output that we then use somehow in our business or decision-making. ChatGPT, for example, has conversations with us and helps us write emails, outlines, reports, websites, and much more, Mid Journey creates images based on your text input, Soundraw generates music using AI, or even Bing, which uses AI to output a more human answer to your search queries.

When it comes to GenAI, there is much less media attention on the subject of risks for the user, in particular, small businesses. That’s not to say that none exist or that the ones that do exist are less consequential. Confidentiality, privacy, and consumer protection issues, liability for IP infringement and contract violations, loss of IP protection for your creations, and being held liable for poor quality output, discrimination, or bias, are all just a few known examples of risks GenAI users have already been exposed to.

As with the introduction of any new technology, the risk landscape will continue to evolve over time as well and more and more people jump on the bandwagon. In the meantime, it’s important for business owners using or considering using new technologies to understand the risks associated with their use in order to make well-informed decisions about how to use them and how to protect themselves and their customers, partners, employees, vendors, and investors against the risks of their use as well as from the risks that may come from second-hand AI exposure, that is, being exposed to other people’s use of GenAI.

The Technology Adoption Lifecycle

According to the Technology Adoption Lifecycle, new technologies tend to be adopted on a bell curve, with innovators and early adopters leading the charge but only making up a small portion of the market, less than 16% combined. According to Geoffrey Moore, author of Crossing the Chasm, these innovators and early adopters are knowingly and willingly taking risks because they enjoy new and revolutionary things. The rest of the market, however, prefers to wait until the road is safe before taking any steps.

What’s Driving the Rapid Adoption?

The neck-breaking speed at which consumers are jumping onto the GenAI bandwagon leaves no doubt that some people who are generally more risk-averse are using ChatGPT and or other GenAI tools, whether knowingly or not. This begs the question: what’s driving this? Is the rapid adoption happening because people don’t see the risks in the sea of media attention surrounding AI, giving them the false impression that the technology is more stable and mainstream than it really is? Or do they see it but are driven to try them anyway for some other reason? Or is it a combination of both?

If companies have simply reached expert levels of targeting innovators and early adopters, or if more people are becoming innovators and early adopters, that’s great! Companies have learned to identify the people who are adopting new technologies based on their own passion and drive, who understand that there are risks in using new products and are either turned on by those risks or feel they are prepared enough to handle them. However, if products are simply moving through the adoption curve more quickly without sufficiently addressing the risks, then we may have a problem as pragmatists and conservatives are not prepared to be guinea pigs, and will likely feel they are being assaulted, forced to engage with these new technologies before they are comfortable with them.

The Fear of Missing Out (FOMO)

There’s no doubt that the launch of ChatGPT will go down in marketing history. Business students for generations will be studying and analyzing their launch for decades. Deeper analysis on this topic is needed and will one day expose whether today’s users understood the evolving risks surrounding their use or if something else was pushing them to use these tools despite their aversions.

Could the fear of missing out or being left behind, for example, be so great that it’s overpowering people’s aversion to taking risks?

Most business owners are well aware of the need to innovate and to try to stay ahead of the competition. Not all, however, are comfortable or able to do so. Most of those that aren’t will at least concern themselves with not falling behind the competition. Given all the hype surrounding GenAI, and the echo chamber reverberating constant talking points about how it will revolutionize everything, it’s not unlikely to assume that many of the small business owners who would normally not use something so new, could feel almost coerced into using it despite the risks.

Why is this a problem?

Back in May of this year, the “Godfather of AI” made headlines when he left Google and suggested at the MIT Technology Review’s AI conference that AI could someday take over the world and push humanity toward extinction. In June, 350 experts, including OpenAI’s Sam Altman, Google DeepMind’s Demis Hassabis, and Anthropic’s Dario Amodei, signed a statement warning of the AI extinction threat.

Although all that sounds bad, the more immediate problem for small businesses isn’t necessarily that the technology is too powerful and will take over humanity. The problem lies in the fact that there are very real risks that exist today that are being buried in the avalanche of media attention AI is getting. It wouldn’t be such a big deal if the risks as previously discussed weren’t so obscured, hard to find, and so potentially catastrophic for our businesses. At the very least, these risks, if left untreated, pose another potential threat, that future consumers won’t trust companies that use these tools without having certain expensive safeguards in place; safeguards that may be unattainable for smaller companies.

360Factors, an enterprise risk and compliance intelligence and management technology and services company based in Austin, Texas, highlights in their “Five Steps of the Risk Management Process,“ that businesses that want to succeed must ensure stability as they grow. Managing the risks that are affecting the business is a critical part of this stability. Not knowing about the risks that can affect your business can result in losses for the organization. Being unaware of a competitive risk can result in a loss of market share, being unaware of financial risk can result in financial losses, and being unaware of a safety risk can result in an accident.

Major corporations know the importance of managing risks not only for the survival of their business but also for maintaining the trust of their shareholders, customers, partners, employees, and vendors, and are already implementing various risk mitigation strategies towards AI and GenAI. Samsung, for example, banned the use of ChatGPT and began developing its own AI for employees to use. They’re not alone either. Apple, Verizon, Bank of America, Citicorp, and JPMorgan Chase are just a few others that have made similar announcements.

Consequences

Most small business owners unfortunately don’t have the resources to protect themselves the same way these large companies do, nor the personnel dedicated to understanding and mitigating the risks. Failing to implement proper risk mitigation strategies, however, may end up putting these small businesses at a disadvantage when it comes to gaining and keeping the trust of their customers, partners, employees, and vendors, as those seeking to work with companies that are stable and have the resources to keep them safe during their interactions. This would be disastrous for small businesses, heavily tilting the playing field towards big companies.

As small businesses begin losing the trust of their investors, customers, employees, partners, and vendors, they risk losing access to capital to grow their business, losing sales, increasing customer acquisition costs, labor costs, and the overall cost of doing business.

Many small businesses may not have investors, partners, employees, or even many vendors to worry about, but all small businesses care very much about having customers. Gaining the trust of your customers is a major feat and accomplishment and losing it is devastating for any business. People buy from companies they trust and have confidence in. The more customers trust you and your business, the more they will buy from you. The opposite is true as well. So, if your use of GenAI could cause your customers to lose trust in you, doesn’t that pose a major risk to your business?

Steps you can take now

Again, this article isn’t meant to discourage anyone from using GenAI. Just the opposite. As you’ve heard countless media channels discuss, AI is the future. Luckily, although it’s not easy to find the information you need to use GenAI safely, it is available, and with a little ingenuity, patience, and elbow grease, small business owners can find that taking just a few steps could end up making all the difference in the world.

Gain a clear understanding of how GenAI can and cannot help your business.
Be honest with yourself about the level of risk you’re willing to take.
Based on your business goals and level of risk tolerance, decide what you want your business to do, and not do, with GenAI.
Define what steps users should take before using the new technology.
Set clear rules, boundaries, and guidance on its use.
Ensure all users are aware of what to do when something goes wrong.
Establish ways to track and monitor use to ensure compliance and for later analysis and review.

Conclusion

Before GenAI can become commonplace, there are many issues that will need to be worked out. In the meantime, those of us who are using them deserve to have the information we need to make well-informed decisions and to strengthen our businesses through proper risk mitigation strategies. Not only for our sake, but also for the sake of our customers, partners, employees, investors, vendors, and all those we interact with.

By doing so, we’ll be positioning ourselves as stable and responsible business partners, helping maintain a level playing field among businesses of all sizes, and supporting the continued stability and success of the world’s small businesses.