Small businesses need to up their game, not necessarily their budgets.
Refining campaigns can offer a much more cost effective solution, particularly if you apply traditional purchase models to the process (AIDA is a good starting point, but there are bunch of different web related models [en.wikipedia.org...]
Do you wait for a customer to need your product or convince them they need it? SEO struggles with this part of the process (people aren't searching at this point), but social media and display marketing can be effective.
Not just 1 phase, but many. Sometimes the customer can even start off not knowing what to search for ("um I need a guy to get my rankings up on Google"). These are your competitive phrases - high level generic stuff - "widgets". There needs to be a judgement call here to decide whether or not to expend budget here. In likelihood, clicks won't convert into sales right away - the customer isn't finished making a decision.
Need indentified and the customer knows what they want - now they are picking a supplier (and/or short listing different product options) - "fuzzy blue widget sales" - high converting keywords - but there isn't much time to convert them. Lots of things can happen here that can impact your sales - customer may check review sites, site could go down, competitor could post an offer, customer asks friends or family, etc.
SEO is effective and less competitive. PPC is cheaper, managable and measurable. Remarketing is practically free it's so cheap! ;)
The sale. Does it go smoothly? How many shopping cart drop outs? Can you get any back via PPC, remarketing, followup email? All very easy and cost effective to do. How easy is it to make them incredibly happy about their purchase (automated emails for delivery schedules, thank you, payment recieved, etc).
Free links, free reviews, free publicity, repeat business. What do you need to do to turn a customer into a brand champion?
The process is different for every product - car sales for example, the process could take 4-6 weeks from the point the person decides they want a new car to the point they buy. For hotel rooms, the process takes a couple of days with short list > action being a few hours.
The problem with SEO is the "one size fits all" approach. Identify your keywords and optimise pages for those terms. Little thought goes into where those pages fit in the decision making process, and for most sites, the call to actions tend to be standardised for each page.
"Next generation SEO", IMO, will be less about technical stuff like link building or on page optimisation (although a lot of tech stuff will still be important), and more about understanding the intent behind the search and delivering a good result for that query. Plan that out for an entire website, and map those objectives to your different marketing channels and you have a fairly tight strategy that should see a good return.