Technology Entrepreneurs Empower Smaller Businesses To Compete With Big Businesses
Big companies have the advantages of scale: can tech do the same for SMEs?
For the last couple of decades, there has been a popular narrative that innovative smaller companies can leverage tech in a way that larger and less agile companies can't. Sadly, this is not always true. A study conducted just before the pandemic revealed that in 2000, 15-20 per cent of small businesses grew to become medium or large enterprises each year. By 2017, this percentage was cut in half.
If large and small companies are examined separately, studies have shown that bigger companies have continued to grow while SMEs have tended to stagnate. This has been the case for centuries, but the digital revolution and the pandemic have exacerbated the issues. The problem is highlighted when one considers that SMEs are the biggest employers and the backbone of any economy.
However, as we emerge from the pandemic, there is a quickening revolution among small and medium businesses as they embrace the advantages of digitizing their operations. It is David versus Goliath, but this David has a mobile app and not a slingshot.
Technology is helping SMEs catch up and compete
COVID-19 hit smaller businesses hard, and to survive, many have shifted the way they operate. This has led to a surge in cross-border e-commerce through platforms such as Alibaba or Amazon.
However, what is really evening the odds in favor of the underdog is the digitization of supply chains in the B2B space. Supply chains are messy, informal and inefficient. Given its size, scope and need, it was poised for a major disruption, and that is exactly why regional startups are springing up in this sector. A great example of this is Retailo, a B2B startup that is digitizing retail supply in the Middle East, North Africa, and Pakistan (MENAP) and has expanded to 12 cities in KSA, UAE and Pakistan within 18 months.
Retailo co-founder Talha Ansari explains, "The digital revolution was supposed to change things for SMEs and allow them to compete against big corporations after decades of stagnation. Unfortunately, that didn't happen, but it is starting to, and we want to be a leading catalyst in this dynamic scenario."
"The initial problem, especially in the developing world, was simply getting connected to the internet, but that is only part of what is needed. SME operations are still fragmented, and their retail supply chains have been operating manually for centuries. This makes them inefficient. However, after the digital revolution, many of these inefficiencies can be resolved," Ansari says.
"One of the main issues facing SMEs is that they lack the advantages, technology and logistical capabilities that come with scale. Consequently, smaller businesses worldwide face tighter margins while bigger firms benefit from logistics and bulk purchasing favoring larger enterprises. This is an old problem, but it was something we could help with."
"Retailo is a B2B marketplace that digitizes retail supply chains and provides the advantages of scale to SMEs," Ansari explains. "The platform works as a one-stop-shop giving retailers access to over 5000 stock-keeping units, which can be delivered in under a day, and at very competitive prices. We also help by providing services such as deferred payments through our buy-now-pay-later product and making growth capital available to community stores. This gives them more purchasing power, adds to their bottom line, and also brings them into the formal financial system.
"What we have done is to take archaic or outdated ways of operating, modernize them and bring the advantages of scale. Retail supply chains have been operating manually for centuries, making them inefficient and complicated for SME retailers. It was a situation that was only getting worse. So, we helped these underserved and struggling businesses with solutions made possible by technology," Ansari says.
Investment is flowing into the sector's startups
Platforms and startups leveraging technology to provide solutions for small businesses are proving popular, and investors are keen to get involved. Retailo is an excellent example of a company providing a needed service at the right time and place.
Ansari says, "We chose MENAP as we know the area well, and there is a lot of potential here. Retail in the region is a $500 billion industry with more than 700 million consumers. So there was a lot of demand for our optimized logistics, data analysis services, smart fleet management solutions, warehousing operations, cross-border distribution, and so on. But even we have been surprised by the speed at which we have grown."
Retailo knew there was a strong need in the region for the solutions they offered, so they took the unconventional step of starting with a multi-market model. The approach paid off, and in just a year and a half, the company had expanded operations to over ten cities in three countries – KSA, UAE, and Pakistan.
"Our approach was different from the way these things are typically done," Ansari says. "But it wasn't just unconventionality that led to our success; we were also fortunate enough to have attracted some major talent to our team. We have had everyone from MIT graduates to ex-Amazon and Goldman employees seeing what we are doing and wanting to be part of it. Today we have a diverse team with multiple nationalities and backgrounds, working together and using technology to serve an underserved market."
Retailo's rapid expansion was made possible by investors, who have seen the demand and the potential of bringing economies of scale to SMEs through digitization. For example, Retailo recently raised $36 million in its Series A investment round and a total investment of $45 million in under a year and a half of operations.
The investors involved in Retailo's latest investment round have a strong track record of spotting market trends and demand. The round was led by Silicon Valley-based Graphene Ventures, which had previously backed Snapchat and Lyft.
Investment in digital startups that target the SME sector is booming. Giving smaller enterprises tools such as cross-border payment platforms or the ability to digitize logistics and operate at scale allows them to compete against larger corporations. Time will tell, but all signs point to SMEs finally being able to level up.