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Why Small Is Big in the Digital Age

Big companies used to easily squash their smaller competitors. They used to have the best technology — which small businesses couldn’t afford — and they used their human workforce more efficiently by breaking up the value chain in a way small businesses could not.

But that’s a lot of “used to’s.” These big-business advantages have largely dissolved.

All of those formerly expensive tools and strategies that used to give the big firms an edge are now available to the small-business CEO at the click of a mouse or the swipe of a finger. In today’s world, it’s not just that big businesses no longer have a leg up. It’s also the case that small businesses have a few important advantages over their much larger peers.

One such advantage is on the left side of your Business Model Canvas. The other is on the right. When you leverage both sides, your business is in a position of strength relative to competitors of any size, shape, and location.

 

David and Goliath

It can be frightening to compete with a huge corporation. For one thing, every corporation sits atop complex infrastructure. They boast enormous office buildings that house hundreds of workers with intricate, custom IT systems. They have entire divisions for HR and legal to keep talent coming in the corporate door and to prevent lawsuits.

That infrastructure used to underlie the big-business advantages. It was precisely that expensive infrastructure that allowed corporations to make use of the very best technology and to design the most efficient internal workflows.

But the consumerization of technology changed all that. Workers at the base of the corporate pyramid now come to work carrying iPads that are more powerful than their employer’s sprawling and costly IT systems. At the same time, small businesses can now use cutting-edge tools to design internal workflows every bit as efficient — or more so — than those of big corporations.

That infrastructure that used to be a valuable advantage has morphed into a considerable disadvantage. Big corporations have spent millions on systems and infrastructure, and that means integrating new technology and keeping up with the rapid pace of change is a lot more difficult than at a small business.

The story of Hewlett-Packard and Dell is a famous example of this. Before Dell’s arrival in the PC market, companies such as Hewlett-Packard relied on big-box stores as the essential distribution channel for their products. Then Dell showed up with a different way of doing things. Dell went straight to the customer and built computers to order.

It was revolutionary.

Meanwhile, HP saw what its smaller competitor was doing, but it had a vast infrastructure designed for an entirely different kind of product delivery, and couldn’t change overnight. By the time HP execs tried to compete on these new terms, Dell had carved out a sizable share of the market.

Today, few companies symbolize market dominance better than Apple, whose products are literally everywhere you look. Yet Apple is scared. Apple is continuously buying small companies because its executives don’t want anyone to get big enough to become a threat.

Despite its seemingly unassailable dominance, Apple knows that a nimble startup could change the game. So Apple buys them up and shuts them down. Google and Facebook do the same thing.

There’s also the human side of that corporate infrastructure. A big company has layer upon layer of management, which brings with it inertia. Each manager has a particular domain to oversee, and everyone falls into a mindset of protecting his or her own fiefdom, rather than focusing on the business as a whole.

This is precisely why you see companies like Microsoft participating in the Lean Startup Conference. Microsoft and other big shots realize that if they can’t develop a culture that mimics the nimbleness of startups, it might be the end of them. For that reason, plenty of Fortune 500 companies create subsidiaries and spinoffs with an intentionally different kind of culture. They want to keep their big steamships from hitting the iceberg.

Meanwhile, your small business zips across the water like a speedboat, and turns on a dime. You should feel empowered.

It doesn’t matter if you’re a tech company with sights on a billion-dollar market or if you’re a local pizza shop. In either case, there’s a Goliath after the same market you are — and you have valuable assets to bring to the table.

On the top of the list is your ability to keep your operation efficient and lean, since big-business infrastructure represents a whole lot of costly overhead. In today’s world, overhead adds increasingly less value while draining the bottom line, whereas you have the ability to utilize the best technology, and design your workforce and workflow with razor-sharp efficiency.

Successfully competing against a much larger competitor means exploiting all the advantages of being small and agile. This strategy is as old as David and Goliath, and as new as the latest app. Your job is to harness all the cutting-edge resources and processes that we’ve covered in the last couple chapters, so that you’re truly the speedboat zipping past the ocean liner.

That may sound far-fetched if you’re at the helm of a business that has just a couple employees, but the trends are on your side. In industries as vast as media and law, and from hotels to transportation to international shipping, the rules are rapidly changing. The old guard is terrified. You can ride the digital wave and outlast not only your small to midsize competitors but also vast corporations by making your small business as nimble as it can be.

 

 

David and … David

Everything we’ve discussed so far has had to do with the left side of your Business Model Canvas. We’ve focused on the value of small-business efficiency in the Digital Age. But perhaps the greatest advantage of a small business over a much larger one has nothing to do with efficiency and, instead, lives on the right side of your canvas in the value that you provide to your customer.

Ever needed assistance from a big company and gotten lost in a maze of automated recordings? Of course you have, and it’s maddening. As a small-business owner, you can provide your customers with an alternative to such big-business agony.

Your small business offers a value that’s entirely separate from the product you provide. You have the ability to create one-on-one customer relationships in a way that large companies absolutely cannot. However much your big competitors love to talk about customer service, sheer volume has forced them to do things like set up offshore call centers. When a customer is lucky enough to get an actual human being on the phone, the person on the other end of the line — however competent and well meaning  — cannot offer a personal connection or establish an ongoing relationship based on mutual trust. That matters.

There are piles of research on this issue, and it squarely indicates that people prefer doing business with others from their own community. Without straying too far into the weeds of sociology, studies suggest that in business as well as other areas of life, we prefer to use local networks rather than relying on outsiders. Sellers and buyers in local markets follow their own specific social norms, and long-term associations subsequently emerge, fostering strong ties between them.

The reason isn’t abstract. We share interests and values with our neighbors. We have the same ideas about how business should be conducted, and we may even know some of the same people. These things create a sense of trust, and that’s the basic recipe for forming acquaintanceships and relationships. It’s our natural preference to turn to people like ourselves when we need a product or service, and that preference and mutual exchange serve as the basis for ongoing connection.

Your small business is the perfect environment for building trust capital with your customer base. It’s something that customers will pay for, and it will keep them coming back again and again.

Big corporations can’t compete with that.

Let’s say you own a small-town pizza shop, and I live down the street from you. When I walk into your shop, you say hello and remember my name. You’ve also prominently displayed a photo of the local little league team that you’re supporting, and I see my friend’s kid in the picture.

What’s more, you’re working with a local food bank to provide dinner for local food-insecure families. So when I pay for my pizza I have the option of putting a couple dollars toward dinner for a nearby family who otherwise might go hungry.

These people are my neighbors, and that has value to me. It’s not the same value as providing a delicious pizza. It’s a social value, and I’m willing to pay for it. I have a relationship with you, the shop owner, and through that relationship I feel more connected to my community.

The upshot? When Pizza Hut opens down the street and says they’ll deliver — and their pizzas are five dollars cheaper — I don’t care. I’m not willing to go to the chain establishment. The social value of going to my neighborhood shop is well worth five bucks.

As a small-business owner, you have the opportunity to create a niche experience for your customers. You can create an experience that’s designed for, and shaped by, their specific tastes and interests. This doesn’t have to be geographically focused, either. If your business is entirely online, you’re still serving a particular group of customers.

In both cases, it’s essential to ask: What’s unique about my customers, and how can I — as their peer — deliver a product that has social value in addition to functional value? What social value can I offer that a larger competitor could never provide?

 

Remember that big businesses are scared, and that you’re in a strong position.

Indeed, you’re uniquely positioned to form long-term bonds with your customers by creating a personal and meaningful experience for them. That fosters loyalty and will put your business in an enviable position of sustainability and security.