Can Small Really Become The New Big?

February 26th, 2014   •   2 comments   

Courtesy of Chorus + Echo

I just read an interesting HBR blog post by Hemant Taneja on The Economies of Unscale. In the post, Taneja claimed that the advent of global manufacturing, trade, and the Internet have created a new playing field for small businesses.

Quoting from the post:

“A series of breakthrough technologies and new business models are destroying the old rule that bigger is better.  By exploiting the vast (but cheap) audience afforded by the Internet, and taking advantage of a host of modular services, small becomes the new big. The global business environment is decomposing into smaller yet more profitable markets, so businesses can no longer rely on scaling up to compete, but must instead embrace a new economies of unscale.”

The first thing which occurred to me was that such an idea wasn’t totally new. Chris Anderson’s classic The Long Tail back in 2006 already highlighted how micro-niches could be served, spurred by the near zero inventory costs offered by the web.

Such a trend is further catalysed by the burgeoning growth of crowdsourcing, which allows small and medium businesses to target customers and business partners from far flung corners of the globe. Furthermore, crowdfunding platforms like Kickstarter allows micro firms to secure funds and customers even before production.

Two of my favourite thought leaders – Seth Godin and Hugh MacLeod – have embraced this concept with much gusto. Godin has written an entire book celebrating the cult of the small business, while MacLeod proposes that one can “create one’s own Global Microbrand”.

My question, however, is this. With traditional barriers of entry lowered so significantly by technology, global connectivity, and the hyper efficient web marketplace, wouldn’t competition be staggering for both small and large companies alike?

A global hyper-connected economy filled with a million micro-niches would may be attractive for small fledgling businesses.  However, wouldn’t it be equally attractive to large companies able to nimbly structure themselves to take advantage of this phenomenon?

Naturally, it wouldn’t be easy for MNCs to reap the economies of unscale due to cultural resistance, vested interests, and entrenched ways of managing and operating. Shareholders and board members may also be less willing to hedge their bets on uncertain nascent markets.

However, what the big boys have (which small businesses often lack) are talents, incisive market intelligence, extensive networks and deep resources. These factors help to reduce the risks involved in starting new ventures. I suppose this is why there are still so few success stories of garage start-ups overcoming incumbents beyond the overused examples of Google, Amazon, eBay, and their ilk.

What are your thoughts on this? Can the odds be stacked so much in favour of the new “Davids” that they can triumph over the “Goliaths” of business?

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  1. posted on Feb 26, 2014 at 10:04 PM

    I think you comment “…there are still so few success stories of garage start-ups overcoming incumbents beyond the overused examples of Google, Amazon, eBay, and their ilk.” misses the point.

    The original article was about the ability of businesses to succeed small. Previous barriers to entry to many markets have been removed by free and low cost technologies and the introduction of new business models similarly supports this. But it means that success is not necessarily viewed by size.

    These businesses can succeed at a very different size to the Googles of the world (which mostly started small anyway, and are in themselves examples of successful “scaling up”). The current opportunities are for businesses to thrive within their micro-niche, at a viable size, without having to reach global (or national) proportions to be considered successful.

    On your other point, about big business – they may have many smart tools at their fingertips but

    1) these tools (at a different scale) are increasingly available to small business (part of the point of the original article – in the past, small business couldn’t have done A/B testing, afforded professional graphics, websites, landing pages and email campaign tools etc – now they can)who can often use them in a smarter manner because they are more in touch with the customers than big business, and

    2) the thinking required to be a successful employee of an MNC is very different to that required to be a niche success – many disruptive businesses have been stunned by the lack of response or innovation from the big players in the market they were attacking. Old business models are often seen as “fact” and reliance on industry regulations etc as well as internal culture deter nimble niche responses from big business – plus the size of the pie is not always seen as worthwhile, whereas it can be for a small business, willing to stay small, viable, happy and true to its values 🙂

  2. posted on Feb 26, 2014 at 11:24 PM

    Thanks for your views Jacqueline! I like your thoughts on how small businesses can have equal access to technology tools and global markets, as well as the different employee attributes needed to succeed in a small versus large firm.

    While size may not be the ultimate arbiter of success (profitability and sustainability may be the goal), I feel that the current media focus is still largely skewed towards big is better. Hopefully, more small businesses could learn to leverage on the new found opportunities available to them to scale quickly in their new emerging markets.

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