Small-Business: How to Survive Big Competitors (Whitepaper)

Small businesses fear the big players. This is common across industries.
Aspiring and existing small business owners have many misgivings about how to survive.

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Small businesses cite limited resources in assets, capital and manpower as the major drawback
in the midst of very big companies. This can be overcome.

Many of these SMEs give up at the slightest sign of turbulence.
Other intending promoters with good ideas simply shy away, from founding their own enterprise.

However, there is an advantage in the size of a small business.
Big businesses have their own peculiar challenges too.

SUMMARY

This paper will remove the misgivings and reveal how SMEs could have their own breathing space
and survive into the future, even in the presence of the big market leaders.

This paper will show scenarios of a few small and big businesses,
on how they have fared across some industries; to highlight some issues.

The paper also gives the basic action points that small businesses should apply for success.
For clarity, the action points are further categorized into internal and external environments.

Other cautionary points are identified to minimize errors and failure.
Credible sources and references are supplied to buttress relevant points raised.

1. WHAT IS SIZE?

What is meant by size?
Does size matters — either big or small — in business survival and profitability?

The size is of a business is determined essentially, by the number of employees,
the amount of revenue it generates as well as the size of its assets, rights and obligations.

However, these attributes differ from industries to industries. In some countries, the definition differs, slightly.

Micro-enterprises have one or less-than-ten employees.
According to the Organization for Economic Co-operation and Development (OECD),
small enterprises would have less than 49 employees.
The medium sized would be between 50 and 249 employees.
The big companies would fall into the category of 250 and more, as their workforce.[1]

The U.S. Small Business Administration (SBA)
posits that size could also be defined by the monetary value of government contracts,
set aside for different sized businesses, by the government.[2]

While being attractive, big size comes with its load of responsibilities.

However, the personal goals and the philosophical posture of a small business owner
would determine which direction he or she would over time.

Some choose to remain lean and yet are perpetually profitable.

Others aspire to be big.
As an aside, in some industries, being big is a safer option to take.

Here is a case of two smaller banks that chose to be big but came out with different results.

In Nigeria, a small bank, as at 1990, Guaranty Trust Bank (GTB) was founded at a turbulent period.
By the year 2011, it had become the biggest bank in Nigeria,
by market capitalization displacing even century-old competitors.[3]
As of 2018, it still ranks amongst the 10 topmost banks in the country–with outposts in some countries. [4].

Across the shores, in the UK, an erstwhile smaller Royal Bank of Scotland (RBS),
founded in 1727, had acquired all it could just before 2008.
It briefly became the biggest bank in the world, but post-2008, it ran into big trouble.

Quoting a BBC documentary in 2018.
“Ten years on… the Royal Bank of Scotland collapsed and
almost took the entire UK banking system down with it.
[5] [6]

Sadly, the bank’s huge assets couldn’t help its precarious liquidity situation amongst other causes.[7]

Small-medium businesses that desire to scale must realize
that it demands high responsibility, disciplined leadership and top-notch management practice.
There must be a sacred respect for the unseen future.

This must temper decision making in business.

The latter, the more serious for SMEs, that rarely have any support,
that could get them out of the woods in case of any eventuality.

 

2. SMALL BUSINESSES VERSUS BIG COMPANIES

 BIG COMPANIES [1]SMALL BUSINESSES [1]
STILL IN BUSINESS*ICBC, China

*China Construction Bank, China

*JPMorgan Chase, USA

*Berkshire Hathaway, USA

*Agricultural Bank of China, China
*Bank of America, USA

*Wells Fargo USA

*Apple USA
……………………..

Revenue Range: $102B - $247B
Employees: 123,000 - 487,000
…………………………………
World’s Largest Public Quoted Companies (2018) [8]
*StickerGiant.com Colorado: $10.2M – 39 ee

*HED Cycling, Minnesota: $10M – 48 ee

*Motawi Tileworks, Michigan: $3M – 33 ee

*OnceLogix, North Carolina: $4M – 15 ee

*Menlo Innovations, Michigan: $4M – 43 ee

*Turnerboone, Atlanta: $21M – 24 ee

*Barefoot Books, Massachusetts: $5M – 20 ee

*OptiFuse, El Cajon, California: $4.5M

………………………

Forbes Small Giants 2017:
America's Best Small Companies [9]

ee: means Employees
OUT OF BUSINESS*Compaq

*MCI WorldCom

*Eastern Airlines

*Enron

*Trans World Airlines
………………………………
Five Fortune 500 companies that no longer exist [10]
*Sedna Wireless

*Backfence

*RealTime Worlds

*eCrowds

*Imercive
…………………………………………………
Business Insider: 33 Startups That Died Reveal Why They Failed [11]

The table or matrix above is only for illustrative purposes.
The verifiable and credible resources that were found
are skewed towards main businesses in the United States.

Other countries could make their own inferences.

The table gives a simple picture of realities of success and failure
in any business of whatever size—small or big.

No size of any business is immune to any of the two extremes.

A business may continue to enjoy longevity whether it is big or small.
Any business could also close shop whether it is a day old or decades in existence.

Some of the companies picked for these illustrations are well known, public, private or unknown.

Detailed financial performance and the workforce are not being investigated here.

A business could make a lot of revenue but its costs of doing business over time
may deplete the profits which could result in bad cash-flow; that’s a disaster waiting.

A small enterprise could have a good and repeatable positive return
on its limited assets/resources,with a disciplined philosophy on costs management,
going for it.

3. ACTION POINTS OF SUCCESS FOR SMEs

This will be broken into two sections.

The Internal and External environments of a business.
It, however, may not be clear-cut, but for the sake of clarity.

These action points are in no way exhaustive and are in no particular order.
They simply highlight what should be done from a vantage position.

·    INTERNAL

  1. Unique Selling Proposition

    What is the USP of the business?
    An SME to a large extent shouldn’t generalize at the growing stage.
    It is better to be known for one singular attribute that sets it apart in its industry.
    Big businesses tend to have more things to deal with
    and this can be challenging to handle in terms of human and material resources.

  2. Innovation

    SMEs should be innovative. It doesn’t have to be radical.
    Their relatively small size gives room to quickly try new ideas
    and validate if such would be profitable or not.
    Innovation can be either tangible or intangible.
    However, it takes a longer time for some big businesses to come to a decision;
    to innovate.

  3. Financials

    These are figures in the books that shows how alive the business is.

    Asset velocity, which is how fast a business uses its asset
    to spurt out net profit must be given due consideration.

    A net asset that yields impressive revenue with quick turnaround
    of the working capital or inventory.

    However, asset velocity ratios defer across industries. [12] Working capital and cash-flow management must not be neglected. [13]

  4. Goals and Metrics

    The business must have a set of relevant objectives which must be measurable,
    such that the attainment and otherwise would give a clearer picture about what is going on.

    Adjustments would be made immediately if the metrics
    as designed are not being met, when and how it should be. [14] [15]

  5. Processes and Systems

    Every activity should be documented across the different units of the business.
    These processes are thereby arranged to build a system.
    These two factors are some of the pillars of ensuring
    the business could stay as an entity outside the presence of its founder or manager.

  6. The Power of Small Size

    The nimble nature of a small business is an opportunity
    to walk around the flanks of big companies, to increase its market share.

    Big businesses get slowed down because of bureaucracy,
    internal politics and misplaced ego of some of the leaders.
    These make them complacent and vulnerable over time.

    The small size makes for quick action and reaction.

  7. Measured Pace

    SMEs must try their business activities at a “slow and steady” pace
    in to avoid an unpleasant outcome.

    The smart idea is to be focused and inch gradually into the marketplace.
    At the growing stage, the onus is not to compete directly against the leaders.

    When the financials and other indices are right –depending on the goals of the owners –
    the business could scale up. But speed without control could kill a business.

  8. The Business of People

    The bedrock of any business regardless of size is about giving due diligence to human beings.

    Business is simply about people.

    Any other factor of production cannot exclude human beings;
    granted there are in the offing, the use of Artificial Intelligence and other tools of technology.

    In the beginning, smart small businesses are more employee and customer oriented —
    for success – more than in big companies.
    This is not to disregard premium placed on capital, assets, technology, systems or tools.

    Because these factors of production might be few and far between at the growing stage.
    A carefully sourced team members – that the business can afford —
    must be well motivated and trained, every time.

    Small businesses need more care in hiring because human errors
    can be more costly for them.

    Big businesses can absorb this in a better manner.

    Hiring slowly and firing quickly uncommitted employee —
    within the legal terms of the agreement –
    are the philosophical foundations of good human resources management.

    The relationship between suppliers, customers and regulators must also be well managed.

·     EXTERNAL

1. Industry Analysis

To make an inroad into an industry deserves a good SWOT analysis
of the big players and the small ones. It has to be a continuous exercise.
But being customer-focused gives more power to feel their pulse. [16]

2. Barrier to Entry

Realities of the day and the resources at hand would determine
if a small-business could enter an industry and thrive within its own narrow lane.

Barriers to entry in different industries and geographical locations places
must be well understood if there is a chance to start or continue in that line of business or not.[17]

3. Trend and Timing

Determine the trend and the timing that beg for value.

What are the target customers really saying?

A bit of caution:
Timing in business may force a good idea to be shelved since consumers
would not appreciate the product or service at the material time if such is launched.

Big companies are slow to react.

Smaller businesses can capitalize on it.
(See the example of the Nigerian bank above.)

A small business could change the rules of service in an industry.

Though this takes more imagination than having surplus capital.

Accenture says disruption need not be complex; but simple.
They found that:
“While 93 percent of executives say they know their industry will be disrupted
at some point in the next five years, only 20 percent feel they’re highly prepared to address it.
It (disruption) has an understandable predictable pattern”
[18]

That would be a welcoming impetus for aspiring or existing small-medium enterprises.
They should initiate and test new sets of offerings within their niche market.

But a small business must find out before dabbling into an idea or industry,
must watch out for the inflection point in their respective industries and geographical location.
This to avoid failure after execution of new ideas.

According to Investopedia;
“Certain unforeseen events can include major economic downturns,
such as the financial crisis of 2008, or natural disasters that affect a particular business
or industry in a meaningful way” [19]

4. Technology Shifts

SMEs must be on the lookout for the evolving and turbulent world of technology.
To some extent, it is a leveler for small businesses and the big ones.
It could also be a catalyst that could retire some traditional businesses or suffocate them at the least.

As young entrants, Amazon and Uber had used technology to shake the publishing and
the transportation industries respectively.
And there are many ongoing examples.

5. Regulators

Government and regulators and their policies must be well understood as they affect all businesses.

Small businesses don’t have the power or the resources to lobby these powerful entities.
However, big businesses are more influential within the corridors of political power.

SMEs must work within the regulatory rules – ethically — to survive.
This needs more creative imagination for survival at different locale, towns, and places.

There are also the subterranean and infamous authorities –
who by their arm-twisting nature — must be well taken into consideration.

6. Sales and Marketing

The publicity drive of a young SMEs should be different, creative.
The approach should be under the radar from the prying eyes of the big players.
Small-businesses can’t compete with the big businesses on the heavy advertising budget.

This would work for two reasons.

1) The activities of the small enterprise wouldn’t be noticed at onset by the bigger players.

2) Due to this restricted approach and limited funds for advertising,
the situation stimulates a more creative approach that could impress the customer segment

6. Imitate the Leader

If some funds are made available, a small-business could experiment
and imitate the big leaders in some chosen aspects of value creation.

This would be done in a gradual manner to strengthen the small business
and thereby making it stronger than other smaller sized businesses.

7. Customer Relationship

The small business owner should initiate and build a good network of prospects,
both online and offline.
There should be a well-managed system of communication and engagement.

For some businesses, this would involve physical engagements
within the neighborhood, town, city or state.

Not all customer relationship could take place on the internet.
The reason why customer care in the real world must be solid for some businesses.

8. The Zero Moment of Truth

There is an opportunity to provide content and dialogue with prospects on the web.
Many big businesses have not yet capitalized on this new consumer behavior.

Winning customers these days could be initiated from the internet
—irrespective of the business is online, a brick and mortar or a hybrid in service delivery.

Prospective customers roam the web even for physical products they desire to buy across the street.

With their ubiquitous phones or other devices,
they want to learn and review products and services – first hand–
on the web, before coming to a conclusion.

Google calls it the ZERO MOMENT OF TRUTH.
According to Google, 80% of consumers do this across all industries.

Quoting Google…

“At Google, we call this online decision-making moment the Zero Moment of Truth,
or simply, ZMOT.

The ZMOT refers to the moment in the buying process
when the consumer researches a product prior to purchase.” [20]

CONCLUSION

SMEs need to be more focused on goals they can achieve.
They need disciplined leadership, imagination to optimize their limited resources.

They also need to be aware of the business environment from the internal and external perspectives.

Small and medium businesses would go far in serving personalized services to customers.
Specialized and customized products are easier for them to churn out than big companies.

They have more of the advantage of flexibility and adaptability,
whereby effective and quick decision making could be made.

The big businesses struggle with these attributes.

SMEs as employers should be much closer to their fewer employees.
Therefore they can know how to motivate and build closer relationships; which would eliminate bureaucracy.

Small businesses can capitalize on their geographic specialization
since they tend not to spread too far and wide. [21]

Therefore with the aforementioned, they can hold their own
in the marketplace irrespective of the bigger players.

REFERENCES

Note 1  https://data.oecd.org/entrepreneur/enterprises-by-business-size.htm

Note 2  https://www.sba.gov/federal-contracting/contracting-guide/size-standards

Note 3 https://en.wikipedia.org/wiki/Guaranty_Trust_Bank

Note 4 https://rctom.hbs.org/submission/gtbank-a-different-kind-of-bank/

Note 5 https://www.bbc.co.uk/programmes/b0bmbhzb

Note 6 https://en.wikipedia.org/wiki/Royal_Bank_of_Scotland_Group

Note 7 https://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8496654/Royal-Bank-of-Scotland-investigation-the-full-story-of-how-the-worlds-biggest-bank-went-bust.html

Note 8 https://www.forbes.com/global2000/list/#tab:overall

Note 9 https://www.forbes.com/sites/boburlingham/2017/05/09/forbes-small-giants-2017-americas-best-small-companies/#59816ffd4c32

Note 10 https://www.investopedia.com/articles/investing/102115/5-fortune-500-companies-no-longer-exist.asp

Note 11 https://www.businessinsider.com/33-startups-that-died-reveal-why-they-failed-2013-6?IR=T#failure-6-my-billion-dollar-idea-was-described-as-tired-and-annoying-6

Note 12 https://www.investopedia.com/terms/a/assetturnover.asp

Note 13 https://youtu.be/ZUvjRNmml00

Note 14 https://www.cgma.org/resources/tools/essential-tools/kpis.html

Note 15 https://smallbusiness.co.uk/kpis-why-benefit-business-2541248/

Note 16 http://mci.ei.columbia.edu/files/2012/12/An-Essential-Guide-to-SWOT-Analysis.pdf

Note 17 https://www.cgma.org/resources/tools/essential-tools/porters-five-forces.html

Note 18 https://www.accenture.com/us-en/insight-leading-new-disruptability-index

Note 19 https://www.investopedia.com/terms/i/inflectionpoint.asp

Note 20 https://www.thinkwithgoogle.com/marketing-resources/micro-moments/zero-moment-truth/

Note 21 https://www.researchgate.net/publication/228548007_Competitive_Advantage_Strategies_for_SMEs_A_Case_Study_in_Tourist_Sector


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