The shrinking gap between big biz and small biz

The Great Divide

Shall we discuss size first? Big business is, well, bigger! And that brings resources, and muscle that a small business cannot match. There is a sense amongst small biz that they can’t compete. This has been borne out by small biz being shut out of major contracts – they seemingly would be biting off more than they can chew, and more importantly disqualify themselves because they could not or would not comply with all the rules of the tender – health and safety documents, quality procedures etc. that big biz has at its fingertips but small biz would have to document specially. Small biz often seemed to find this too much trouble for an uncertain result.

That is changing. Government (in the UK) actively encourages small biz to bid on elements of contracts and has made it easier. Also some big biz helps small biz act as subcontractors thus fulfilling big biz tender requirement for contracts, which often now incorporate small biz conditions.

Small biz is sitting down at the same table, some of the time.  So, there is a levelling of one playing field in favour of small biz.

But I am more interested in the other great divide – how big biz and small biz thinks and acts. In this respect the digital globalisation of economies has had a profound effect. This is not simply the ability of small biz to find markets it didn’t know existed let alone reach, and thus compete with larger and more local businesses. It has more to do with the way big biz deals in existing markets, which have changed or are changing fast as customers become more demanding.

Closeness to customers

Historically, companies have produced products and services and found markets for them. Hopefully market research came first, but frequently “me too” products didn’t need too much of it – they needed better advertising and sales methodology. Old ways still abound – a louder sales pitch wins over floating customers. So many firms still think. Just tell the customers more frequently and in more ways that our product is better for them. Note – I said “tell” them. Some pretty this up with asking carefully designed sales questions, but still working towards closing the sale – of what they are already making. Customers have had to compromise with whatever served their purpose best, even if that wasn’t very well.

Small biz, when it wasn’t trying to ape it’s big biz cousins and making a hash of it through lack of resource, knowledge etc., used their ability to have shorter production times and more tailored products and listened to customers and made a better fit with their wishes. Big biz didn’t often have this sort of flexibility, as economies of scale predicated mass production to keep costs down. This closeness to customer usually meant geographic closeness for small biz, as few exported or had customers in the furthest reach of the country of origin. So big biz and small biz could get along – one had small markets and could adapt products to meet customer needs; the other had economies of scale and a price and resource dominance.

Mind sets

Big biz mind-sets worked for big biz methods – economies of scale, and an ability to tap into internal resources for subject specialist –marketing, HR, finance etc. So a mind-set which was logical, analytical and detailed, with plenty of supporting data was needed to control, manage and sometimes change how the big biz worked and responded. Plenty of functional specialists produce departments that operate in ways that can easily resemble siloes. Plenty of systems designed to accommodate the majority of interactions failed once a human dimension was added. Plenty of time spent in internal navel gazing, when customers were plaintively trying to get heard - described in more detail in the elegantly entitled Arse Time. Plenty of MBA students were implicitly promised that their fast track careers depended on a big biz operation so they could move between functions, absorbing how the detail contributed to the whole, before senior management beckoned. Plenty of business schools, with an eye on the ranking tables, produced courses that emphasised and accelerated this trend. “Management by objective works - if you know the objectives. Ninety percent of the time you don't” to quote Peter Drucker. And given the increase in complexity and more complicated systems of management, then objectives become increasingly obscured.

Small biz mind-sets worked differently. Decisions were seldom based on enough evidence, or sometimes even adequate evidence, but gut led, as there was, and still is, an imperative to respond fast to changing situations. Small biz commonly doesn’t have functional specialists, although ad hoc assignments generally poorly understood and perhaps not well specified or followed through happen frequently. How can the small biz owner get the knowledge to understand, say, marketing if this is undertaken sporadically, results not measured, and confused with advertising? He or she can’t, as the underlying knowledge is absent, and thus cannot be tested in the real world. But in spite of that, the business person has been and is aware of what existing customers want and need and the business is adaptive in approach. They also tend to have a more loyal and focused workforce, as everyone knows everyone else. For example, slackness impacts on everyone. But resulting peer pressure often accomplishes what a traditional HR department would do more formally.

Market changes owing to digital globalisation

Joe Kraus, founder of search engine Excite put it well: “The 20th Century mass production world was about dozens of markets of millions of people. The 21st Century is all about millions of markets of dozens of people.”The difference has been digital globalisation. And big biz, being big and slow to react, has lost market edge to small biz because of it. Small biz, on the other hand, has woken up to the chances that a wider digital marketplace has brought. There is now much more overlap, both territorially and in market penetration, at all levels.

The key difference isn’t just that small biz has reach that it didn’t realise it had – it has reach to customers who are increasingly demanding solutions to wants and needs which fit exactly with those wants and needs. No more work arounds, no more being sold at. Customers will and do reject something, even if well known, that doesn’t quite fit, and will do their own research to find what does fit uniquely, their want. Customers use digital media to become as well or better informed about their buying choices as their suppliers. As has been described already – now it’s more caveat venditor than caveat emptor (seller beware, not buyer beware).

Big biz is not ready for millions of markets with tiny numbers of customers, neither organisationally, intellectually, or emotionally. But it has recognised the issue and is adapting slowly – oil tankers take a while to change course. More behavioural economics is being taught in business schools and universities, and understood throughout organisations. Also, becoming more prevalent is  an awareness of using big data better to predict social movements, even small ones, and recognition to develop faster decision making tools with elements of heuristics. In these respects, they are moving towards a small biz model, and becoming much more responsive to markets and trends.

Small biz has recognised that they have access to more data than they realise through digital media, and also mainly recognise that they can make much more noise compared to their size. They can compete. They are forging strategic alliances, without the need for fixed overhead, and can form and disperse teams for specific projects easily, quickly and cheaply. They are using heuristics for decision making, usually still without realising it, and not always appropriately. That can change and my research is producing ways of doing that. But, because they are faster into new markets, they can be faster out of them if they have miscalculated (as long as they can measure the results quickly enough). They are more aware of more markets, and are an increasing irritant to big biz.

Future perfect

How might this convergence in thinking lead to new ways of competing and addressing markets?

So far I have implied developed countries and markets (or more economically developed countries – MEDCs). For the less economically developed, the digital age is lapping at the edges but has yet to penetrate completely. Where food, safety and shelter are still imperatives, then discussions about customers’ wants and needs are less relevant. These areas need government intervention and are still appropriate for a twentieth century big biz approach. Small biz, unless local, is unlikely to reach them. Local small businesses can still apply twentieth century technology to address local needs. Little convergence in big and small biz thinking, except occasionally, is needed yet. When it does change, centres of population, with increased wealth, better digital communications and less need to simply survive, will change first.

In MEDCs, changes are happening now. Big biz is increasingly aware of it. Small biz is generally aware of the benefits but has not noticed the threat. The threat is that big biz will become much more agile in responding to markets and the dozens of customers in each market, and will begin competing with small biz on its own terms, but being better resourced, may win. MEDC customers are moving from wanting more “stuff” towards better experiences with the stuff that they have. They want a unique product or service – tailored to their specifications. Fulfilling these needs is the ultimate goal of any business. To do that a business has to get up close and personal – not just ask, but walk through what the customer’s experiences are, and how they use the product, so that the small (or big) biz can experience it themselves, then design a solution that matches the need. This lends itself to a small biz solution, but it should be an area that big biz would want to exploit. When big biz realises that existing management structures don’t just need tinkering with but dismantling, and replacing with more agile and locally empowered methods, then competition between big biz and small will become much more intense.

Small biz still has some advantages: concentration of effort and specialisation can bring expert status and the ability to fill small market niches. Big biz may find attempting this to be not cost effective, and leave small biz to it. Small biz is always likely to be more able to quickly exploit small opportunities that big biz will pass by. Access to information and the ability to form strategic alliances means that the old unknowns are disappearing, so small biz is closing the resource gap.

Everyone is slowly realising that Peter Drucker was right (again) “Business has only two functions – marketing and innovation.” And everyone is upping their game; there is no sign that will change. Customers should win, as they should. Ultimately so will those businesses that respond and anticipate them.

 

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