Dear Entrepreneurs: Small Is Still Beautiful
From Hewlett and Packard to Jobs, Wozniak, Page and Brin, the classic Silicon Valley startup narrative follows a common story arc: In just a few years, friends go from building something in a garage to capturing the world’s attention. Take Amazon, for example. Originally started as an online bookstore, it's now the world’s largest online retailer. With its recent purchase of Whole Foods, Amazon is inching closer in the race to become the world’s first company worth $1 trillion.
Stories such as these have convinced many aspiring entrepreneurs that if they don’t start off with global ambitions, they’re doing it wrong. In truth, most entrepreneurs find success and lasting satisfaction by staying small. There’s nothing wrong with realistic growth goals or even a desire to “go big." But you might just discover over the coming years that embracing your small size is the key to accomplishing more.
The 'barbell economy'
More than a decade ago, McKinsey Global Institute predicted what it called “barbell industrial structures.” These described a world with a few global corporations on one end and a large number of small businesses on the other. In this structure, mid-sized businesses would thin out and become nearly obsolete.
Those predictions largely have come true: Recent McKinsey research reveals that 10 percent of the world’s largest firms generate about 80 percent of all profits. Meanwhile, small businesses are showing movement in two critical areas:
- They're becoming smaller entities. In 2001, the average new small business started with greater than 6.5 employees. By 2014, that number had dropped to four employees.
- They're collectively booming. Intuit and Emergent Research forecast that U.S. small businesses will grow from just more than 30 million today to 42 million by 2026.
There is perhaps no clearer example of the “barbell economy” at work today than the beer industry. Small, craft brewers have increased their U.S. revenue share from 6 percent in 2006 to 21 percent in 2015, despite the top two beer companies owning more than 70 percent of the market. Microbreweries are popping up in cities across America, offering craft-beer connoisseurs seemingly infinite brew choices while instilling a sense of personal pride in “drinking local.”
Resources and risk
In this type of economic structure, small businesses not only are more numerous but stronger and more profitable than ever before -- and there are several reasons why.
New technology improves operations and makes business less risky. Technologies such as cloud computing, mobile and artificial intelligence are creating more opportunities for small businesses. Lower operational costs, streamlined processes and insights for better decision-making are giving small businesses greater assurances. And while technology adoption is typically slower for small businesses, it’s picking up momentum. A 2016 Intuit report found that most small businesses (70 percent of those surveyed) were leveraging cloud technology and relying on apps to run their companies.
The platform ecosystem creates accessibility. Businesses needn't hire an army of IT staffers to implement a new technology nor manage manufacturing and other complex processes internally. Today, small businesses can “plug and play” into large corporations' world-class infrastructures. Smaller organizations can access everything from talent and financing to huge customer bases and audiences. For example, many small-scale sellers leverage Amazon Marketplace for their warehousing, distribution and marketing needs. In fact, Amazon has reported a majority of the 2 million sellers on the platform are small businesses such as mom-and-pop shops running businesses out of their homes. Similar platforms also have enabled small businesses to tap into previously out-of-reach global markets.
Niche businesses are much more viable. From reclaimed wood furniture to homemade gluten-free bread, the artisan movement is alive and well in America. Today’s customers crave all things niche. Fortunately, two factors make it easy for small businesses to serve specialty markets with less risk: minimal startup/operating costs and quick access to a huge market of hungry customers via the internet. These niches are too small for big businesses to effectively serve themselves. But a small business with deep customer knowledge, minimal overhead and the tools to reach niche audiences can serve them quite profitably.
More people are seeking career independence. Self-employment is on a rapid rise in America as people look for more flexible working conditions, more control over their careers and supplemental income opportunities to weather economic uncertainty. A look into history reveals this is nothing new. The movement toward contingent work (i.e. freelancers, contractors and on-demand providers) has been in effect for the last 30 years. In fact, contingent workers made up 17 percent of the U.S. workforce 25 years ago. Today, they total 36 percent of all workers -- a figure expected to reach 43 percent by 2020.
David and Goliath: Partners in the market
Our economic structure is shifting toward one in which symbiotic relationships exist between large and small businesses. Global giants will provide small businesses with affordable infrastructure and instant access to millions of customers. Meanwhile, small businesses will create avenues for giants to reach specialized or niche markets and take risks innovating new product ideas through strategic partnerships.
Basecamp CEO Jason Fried is a vocal advocate for the “slow growth, stay small” strategy. He once uttered a quote now familiar to many modern startups: “There's nothing wrong with staying small. You can do big things with a small team.” Today, this quote holds even greater significance as small businesses become stronger than ever and able to fight well above their weight classes, thanks to collaborations with big enterprises and access to the very best in business infrastructure.
For the millions of small businesses around the world whose leaders are content in their smallness, the future looks bright. “Small” need not be a stepping stone to the future. It can be its own destination. If you’re running a small business today, identify your niche, find the best platforms and develop the right ecosystem. Your business doesn’t have to grow by leaps and bounds in order to flourish.