What place has an Owner Managed Business now and in the future? Part 2

What place has an Owner Managed Business now and in the future?

Part 2

In the first blog of this trilogy, we looked at who you are and some of your challenges and gave you some ways to address internal issues. You still need to know your place in the world, how that happened and where it is going, and where you fit and how to influence it. We will cover that in the next blog where we deal with the all-important issue of context.

Context is important if you want to see where things are going. You need to have a point of difference to attract customers but still relatable to them, so not worryingly different. Don’t worry, the history isn’t long, there are actions for you. Because owner managed businesses are the future.

The history of the corporation

The first 200 years – zero growth and trading

This properly came into being in the late 1500s with the formation of the British East India Company (EIC) whose fortunes mirror the first 200 years of how businesses worked. That was a mercantile period – trading – a zero sum game. From 1600 to 1700 world GDP grew about 10%. If I had £10 and you had £10 worth of textiles and we traded, we both still have £10 worth of stuff. Zero growth.

The EIC was excellent at marketing but didn’t follow Peter Drucker’s famous statement that a firm had only 2 purposes, that of marketing and innovations. The EIC marketed (or exploited) but it didn’t innovate.

This was the world of Adam Smith’s The Wealth of Nations, written just after the bursting of the East India bubble in 1772. It was characterised by trading.

The next 200 years – industrialisation and growth

Then came the world of Joseph Schumpeter and his concept of creative destruction, which we have lived with until the end of the 20th century. This colonised time by capturing the energy in coal and iron to make productivity gains. More output per person is a measure of time more than a measure of things. One of the spin offs from this was the movement to a universal measure of time. Before the railways, the time in Bristol was different from that in London. With an industrialised and railway driven enterprise that the UK (and America) had become, a standard measure was needed which was introduced in the UK in 1880, although informally in about 1844.

With productivity gains came huge rises in world GDP, which trebled in the period 1700 to 1870.

Why is this relevant?

Issues now

We are still expecting growth to rise year on year, although, at least in the developed world, this is nonsense. If we have all the stuff we need and want, we only buy to replace – we no longer need to acquire. Governments are obsessed with measuring something that should not grow unless there is a productivity gain or a new market needing to be addressed.

This means in your business you have to work harder to achieve the same result, and growth in existing markets is ever harder as they get saturated. It also means that in trying to preserve the status quo you tend to innovate less as its risky, and it pushes you back into the zero sum game that is trading. You need to fight against this tendency, otherwise your business will drift backwards.

The decline of the corporation

The good news is that big businesses are slowing down and over the next few generations, will become less relevant. Any large entity spends most of its efforts on self-preservation, not agile changes. And all entities have a period of start-up, growth, maturity, decline and, whisper it, death.

As consumers have accumulated more stuff, our attention has been increasingly difficult to grab. It’s another way of describing how difficult it is to grow in existing markets. Rather like Peak Oil, we’ve hit Peak Attention, so it’s getting increasingly difficult and costly to mine new customers.

Large businesses have even more difficulties than smaller ones in attracting new customers. Particularly as they find it so hard to address us as individuals. Whilst there is plenty of data on us as customers, we still need a human to human interaction to convince us to deal with a business. Big companies can’t do that at the scale they need to thrive. They are still dealing with masses – enough people who have similarities, when they should be dealing with multitudes – a lot of individuals. This is where OMBs come into their own. OMBs can personalise the customer experience. Schumpeter’s corporation is in a slow but terminal decline.

Period of change

We are in a period of change described by Ronald Coase, who describes transaction costs as the cost of doing business. Lower costs of doing business at scale, passed on to your customers, gives the business time to interact with them and leads to better returns. This is because you have time to deal with more customers instead of more admin.

Our world has changed. People are keener now on experiences than things. We seek individual perspective – what works for us as individuals. And we have the Internet, which has levelled the playing field for small businesses who can now compete better, not just for customers but resources to run the business are much cheaper. Its fair to say that if any business is not digitally savvy, the Internet is an extinction level event for them. It certainly looks like that for big businesses who persist in old style thinking about customers and processes. Dead men walking.

If you want a longer history lesson on the corporation, it’s here.

The future is small - it’s Owner Managed Businesses

Whilst corporations face increasing difficulty addressing developed markets, small businesses – mainly OMBs – are better equipped to respond as human centred organisations.  The longer history lesson shows how businesses have moved from trading, to controlling time, with productivity gains and now enabling customers to gain perspective, an experiential measure. Cheap ways of dealing with systems and admin, and particularly marketing, have opened up new markets to OMBs, able now to compete directly with larger businesses who no longer have the same advantages of scale. This implies agility in thinking and responses to customer needs, explicit or not.

Business owners need to delegate to buy time, which means they need to train and trust, a topic we will revisit in part 3, with an example of perspective and more about H2H (Human-to-Human) businesses. We will describe some ways that you, as a business owner might exploit your advantages by exploring growth, innovation and the network effect.

If you would like to hear this in more detail, there's a free late afternoon seminar at Barclays Eagle Labs in Bournemouth on 3 March. Book here

Some of our recent blogs are relevant to this blog topic: Stop annoying your customers, and Why can’t we get our customers’ trust? As has this video What’s the job to be done?, with two here on Innovation.

And remember we offer free Energiser sessions to explore this more. Just contact us on 01202 520010 or email.

 

 

 

 

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