Today, competitive advantage for small businesses, in some ways, looks like it always has. But in other ways, getting and keeping small business advantage today is a whole new ball game. Because of technology, small businesses can gain competitive advantage more easily by accessing global markets, finding new and better suppliers, and streamlining their financial processes with tools like QuickBooks and Veem.
Before we take a look at some of the more recent ways small businesses are gaining advantage in a global economy, let’s take a look at some of the age-old secrets of how small businesses have been thriving for millennia.
The age-old secrets of small business competitive advantage
A broad skill base
Small businesses owners have always worn multiple hats and it’s no different today. The cobbler didn’t just make shoes. He designed shoes, dealt with leather suppliers, helped customers, and kept the books. Today’s small business owner typically shares a similarly broad skill base. He develops, or oversees, product design and development, the business strategy, the marketing plan, and profitability. And his employees typically wear multiple hats, too, from running the eCommerce engine to supply chain management.
An organization made up of employees with broad skills is resilient. When it loses employees, there is typically another person in the house that can step up to the plate. Small business employees are more fluid, able to be plugged into this role or that as needed. This is what makes small business labor very efficient, and it’s a key advantage over enterprise-level competitors. Organizations are much more resilient when information on exactly how to do business is widely held across an organization. There’s also much more collective insight and understanding about how the business works, so they tend to be more innovative.
In other words, when more heads are in the game, the team wins more often.
Unafraid to take risks
Entrepreneurs come in all shapes and sizes, but one of their most common traits is that they aren’t afraid of risk. An entrepreneur is defined as “the owner or manager of a business enterprise who, by risk and initiative, attempts to make profits.” Only a risk taker would grow an untried crop in the hopes of better profit, or quit a job and jump into managing a new business with no successful track record to lean on. Being unafraid of risk has always been a must-have for small business owners and it’s very much the same today.
Risk is also a key component of innovation. Without taking a chance on a new idea, there would be no new ideas. Innovation is an age-old component of all competitive advantage, and small businesses run by risk-taking owners can often be far more innovative than their larger competitors.
Adaptability has always been a huge part of small business competitive advantage. Small businesses can pivot and capitalize on new trends far easier than larger companies. Consider what happened in the 1970s when US automakers were slow to see that consumers wanted smaller more fuel-efficient cars because the price of gas was so high. Because of their inability to adapt, US automakers lost a big portion of the US market to Japanese automakers.
Because small business are small, and because small business employees often wear many hats, they can be more adaptable. They don’t necessarily need to fire employees when ideas don’t work out, or hire new employees every time a new market opportunity presents itself. They can more quickly regroup and attack any problem anew.
Few successful entrepreneurs start businesses just because they want to make money. Traditionally, small businesses have always been more committed to societal needs than large companies, as well as more apt to consider community when defining their business purposes. Because small businesses are small, and often managed by their founders and owners, they are also more likely to be more committed to those purposes. Maintaining a commitment to purpose is much harder in large, public companies.
Small company employees tend to know each other, and are well-known to management. The close interpersonal relationships that naturally form in smaller companies give them a “family feel” – something large organizations try to cultivate but can never quite pull off because of their size. Their interpersonal relationships also bleeds out into community involvement and a sense of social responsibility for many small companies, and it pays off. A greater commitment to business purpose, better employee quality of life, and a chance to get involved in the community have always made small businesses competitive employers.
Secrets of small business competitive advantage today
It’s true that the ability to innovate quickly has always been a small business competitive advantage. But the pace of innovation has become so fast, small businesses have to up their innovation game. Today’s knowledge has a short shelf-life. If we can’t capitalize on an idea quickly, it could very well become worthless. Not only do small businesses have to continue to have innovative ideas, but they have to bring them to market quickly. The good news is that because small businesses have lower overhead, multi-skilled employees, are more adaptable and more efficient internally than large corporations, they are in a great position to gain competitive advantage through accelerated innovation.
Leveraging social change
The adaptability of small businesses helps them in many more ways than just with product innovations. As corporations begin to wind down in America, their past allure for employees is disappearing. They don’t offer the pensions or job security they used to and are less welcoming of social change than small business are.
Today, small businesses actually provide easier access to the American economy. They’ve been more embracing of minorities, women, and older employees, which gives them access to a much greater labor pool. And their owners are made up of a new class of immigrants, women, baby boomers and the digital generation – those best prepared for success in today’s economy. The number of female-owned businesses rose 89% from 1987 to 1997. Americans aged 55-64 – those with enormous skill sets – start businesses 28% more often than any other group.
Small business are quicker to support trends like working from home, work-life balance and job sharing. America’s population is rapidly aging, which means we are in for a labor shortage. Small businesses with more flexible hiring policies will be in a better position to gain and keep competitive advantage in the future.
Doubling down on technology
Without access to the big resources of big business, the full benefit of technology has traditionally been out of reach for most small businesses. But today’s technology has changed all that. Small businesses now have access the same powerful tools for global trade used by large enterprises in order to compete—and win.
Cutting-edge technology used to cater only to large companies. But today, there are countless tools small businesses can use to develop in the same ways large companies do. Today’s digital technology is so inexpensive, so powerful, and so accessible, small businesses can now:
- Have a web presence as sophisticated as any large enterprise
- Engage in e-Commerce
- Design and source products for international markets
- Manage complex foreign taxes and regulatory compliance
- Tap into online lending sources
- Deliver on payment security
Timeless Small Business Competitive Advantage
Veem works with small businesses every day, helping them to simplify their international wire transfers. Our mission as a business is to champion the new American small business. And while small business has always had a number of distinct advantages over large corporations, there are important new advantages that we believe are crucial to competitive advantage today. Here they are in a nutshell.
- Cultivate a broad skill base
- Don’t be afraid of risk
- Make adaptability a priority
- Be community-minded
- Accelerate innovation
- Leverage social change
- Double down on technology