Reader’s Questions on Contemporary Business Issues.

The following list was posed to me by a reader so I thought if this person had these questions others may also. Each refers to small business and the issue of growth. I left the questions as they were asked  

1. Are small to medium sized companies innovative needs, more crucial to their success than large companies?

The level to which innovation plays a role in any business can be huge so it is hard to say under which paradigm it is more important. Innovation allows for greater competitive advantage regardless of one’s size, industry, or market. That said I would say it plays a larger role in the larger business environment for a few reasons.

The first is that a small business by definition operates more on a service level. It is the speed and agility of a small business that give it an advantage. This service is generally not a cutting edge thing it is simply meeting the customers where they are to fulfill their specific needs. This means one does not have to be as innovative to bring customers in the door.

The second reason I would say larger companies rely on innovation a bit more than the smaller business is the nature of the large business environment. The large business environment by definition is mature and does not allow much room for profitability (per unit). The products or services have been ringed down to their bare bones so every last cent is off the table. It is here that innovation can truly shine. Taking the old model and throwing a new spine or innovating can produce huge returns.

2. Can you increase market share while staying small?

The short answer is yes but this question suggests that the ability to step into a larger space exists. If you have a niche carved out and want to grow within this niche then increasing market share and remaining small can be a reality. If on the other hand one would like to step outside of their niche and grow their business through other avenues additional investments and external help may be required. It boils down to how quickly one wants to grow.

Any business could grow to any level to serve any number of markets but how it does so depends on the paradigm it operates under. A small business has more of a flat organizational structure and generally has slower growth rate. A large business will likely have layers to their organizational structure, external investors and can grow quickly.
One’s growth is subject to the resources available. Small businesses generally don’t have a ton of money behind them and can’t make huge moves in a short amount of time. A small business would also lack the network and infrastructure to attack a world market whereas a larger business may have these things in place.

So, to answer the question; it depends on how you want to grow.

3. What are some advantages and disadvantages to having stayed small?

I have written two articles that I believe will answer this question.

Advantages; The Advantages of a Small Business

Disadvantages (realities); Small Business Volatility

 

4. Is the product/service of a small company more prone to imitability?

Everything can be copied, the value a business brings to the table is not simply the “What” but the “How”. A perfect example is McDonald’s. Most would say they could make a better burger than McDonald’s but very few can deliver their burgers around the world in less time than McDonald. By the time you drive up to the window your food is waiting for you.

Think of the best burger you have ever had from a restaurant… now, which company do you think makes more money, the one in your head or McDonald’s?     

5. What is the ideal size of your company and do you believe that growth is inevitable?

You need to be big enough to serve your customers yet small enough to keep your overhead low. Size is dependent on so many things that I believe it would be worthless to try and nail a head count or square footage down.  That said I think most would be surprised at how small a business can be and still compete on a big level.

Growth is inevitable if you want the business to outlast you. In the short run any business can tread water without growth. Think of anyone you know that is self-employed. They are their business and as long as they continue to offer their product or service the business will exist. The second they stop offering their services the business halts. I maintain that growth is required if you want to see prolonged monetary success.

I hope everyone got something out of the above and by all means if you have any questions let us know.
TJ

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TJ

About TJ

Engineer and Entrepreneur