New research shows optimism among small business is falling, and the divide between small and large firms further widening.
According to 2degrees' latest Shaping Business study, Kiwi businesses were facing a hugely challenging environment with rising costs and inflation coupled with ongoing staff shortages.
But the impacts were not being felt equally, with small businesses feeling the pinch more than ever.
The study found rising costs had affected 90 per cent of businesses but large businesses were weathering the storm in a way smaller businesses have not been able to.
Of 700 business leaders surveyed, only 36 per cent were feeling more optimistic about their business compared to a year ago - a drop of four percentage points from 2021.
Just over 30 per cent said they were feeling less optimistic now, and 33 per cent said they were feeling about the same.
Larger firms were found to be much more likely to feel optimistic about their prospects.
Only 31 per cent of business leaders in small businesses reported being more optimistic, compared with 43 per cent for leaders of medium businesses and 57 per cent in large.
Large businesses were also found to be more likely to anticipate revenue growth than medium-sized and small firms.
Nearly three-quarters of large businesses were planning to increase investment in the next year compared to just 40 per cent of small firms.
2degrees chief business officer Andrew Fairgray said this year's report found lack of staff was the biggest concern for small business. Last year, cash flow was the biggest concern.
Fairgray said bigger firms were coping better with securing staff than small businesses were.
"Large businesses are starting to come out of Covid [disruption] and are confident, whereas the small businesses are still pessimistic. Because of this lack of labour, they think this is going to be an ongoing issue," he added.
A huge number of 18-30 year olds were now looking to go overseas and explore the world, Fairgray said.
"People leaving the country, and very restrictive immigration policy, is not helping people fill roles, which is ultimately pushing wage pressure."
He said work was needed to help increase the labour pool in New Zealand.
One in 10 business leaders surveyed said better skilled workers would help their business thrive, while 29 per cent said cashflow and 29 per cent more staff were still on their minds.
Nearly half of all business leaders surveyed said they had adapted working models since the start of the pandemic to include adjustments like hybrid and remote working, and greater online collaboration with internal and external parties.
Medium and large businesses were found to be more likely than small businesses to have adapted their working model, and the research showed that decision was paying off.
Fifty per cent of businesses who had changed their working model said their ability to innovate had increased since the pandemic, and 38 per cent said their productivity had increased.
"Attracting and retaining talent is crucial in the current business environment. We've heard from many of our own customers that it's all about people, people, people and the research backs this up," Fairgray said.
More than half of businesses surveyed were prioritising productivity planning to invest in employing more highly skilled people in the next 12 months.
Some were sweetening the deal by introducing perks such as leave and training options.