While large companies and governments are stressing about the threat of recession, small companies just get on with it

Every day the news brings us more threats of a double dip, a currency crisis, a lending squeeze and another dose of economic pessimism. And where does all this bad news come from? It comes from big businesses. At the first hint of an economic squeeze, the large corporates cancel business travel, delay their push into new territories, and begin squeezing all the costs for what they’re worth. The government and the media pick up these loud noises and they feed them to us.
However, below the radar screen and unseen to the media and governments are millions and millions of small companies that carry on as always. A recent survey by B2B International of thousands of small businesses across 10 countries shows that 90% will carry on unscathed and untouched by the vagaries of big business.

Small companies, those employing less than 50 people, account for over 99% of all businesses in any country. They are run by people who know their trade. Most of them have been in existence for more than 10 years compared to the job hoppers in large companies who switch positions like musical chairs. The owners of small businesses have seen the good times and bad times and they know how to deal with them.

At a micro level, boom times and recessions are irrelevant to the small business. Small businesses are chameleons and able to adjust quickly to change – positive or negative. Small businesses by their very nature are optimistic. No one would ever set up in business with a view to failure. This is not to say that the small business person is a risk taker. Once their business is up and running, the proprietor will look after it like a baby.

Small businesses rent properties, buy utilities, spend their money at local wholesalers, and require the services of lawyers and accountants. People selling to a small business do not need a purchase order number. The decision maker who writes the cheque is very often the person that picks up the phone. Things happen quickly and easily in small businesses.

Governments and large corporates do not understand small businesses. Their culture is completely different. Big businesses speak and sell to big customers and do not comprehend the culture and language of small businesses. They are missing a huge opportunity.

Understanding small businesses is the starting point of doing business with them. It is not enough to think about their trade and activity. Knowing whether a company supplies accounting services or makes X-ray machines is not particularly helpful. It is more useful to know if the company has plans for growth or cash flow problems, or if it is traditional or modern in its business methods. This type of segmentation will ensure that communications aimed at small businesses resonate.

If we want to do business with small companies, we have to understand them. We need to understand how they are different, what drives them, how they behave and most crucially what their needs are. Small companies are the Cinderella of the business world and if we can find a glass slipper that fits them, they make excellent partners.

Read more about this topic in our white paper, Small Businesses – An Anthropological Insight

In this week’s Thursday Night Insight, Nick Hague explains why, in his opinion, there will always be a place for small businesses.

Every day, when working in the office, I walk through the precinct close to where our UK office is located to go to our local deli to get my lunchtime sandwich.  I have been furrowing this same path for the last 12 years and it still fills me with joy every day as I am greeted and welcomed by the local shopkeepers as if I was part of the family.

I feel highly privileged to work in close proximity to such a thriving local community where the local precinct holds many such shops that vary from clothing, homeware, aromatherapy and shoe shops through to grocers, fishmongers and butchers (and I defy anybody to show me a better butchers than Corrys).  However, as our towns and cities are continued to be overrun with the marauding retail giants of Tesco and Walmart, I think it is refreshing to see how our local community (in the face of adversity with the current economic climate) is utilising its owner-managed enthusiasm to deliver a passion and engagement that is now lost from many of the faceless giants of the corporate world.

We have recently completed a piece of research for Business Link in London, speaking to small business owners in the UK’s capital city to find out what impact the credit crunch has had on their business and their future business plans.  As expected, a fifth of businesses have been extremely affected by the recession, with 4 in 10 respondents stating that their overall budgets and expenditures have been significantly affected, especially the adverse impact on cashflow, reduced investment and funding, and a decline in national sales.  However, even though businesses have been affected, optimism still remains high for the next 12 months with a half of business owners looking to fuel growth through ramping up marketing activity, 4 out of 10 looking to diversify into new markets, and a third looking to launch new products.

Like the local shop keepers where our office is based, I see many smaller business owners putting in superhuman efforts to make their businesses stand out and succeed against the competition in this difficult climate.  In these uncertain times, small companies do hold many advantages over larger organizations, with lower central costs and greater awareness of changing trends allowing new ideas to thrive, and flexibility to react quickly to shifting demands.

Over the last 12 years of running B2B International I have experienced the difficulties and tensions as a company rises from humble beginnings into an organization that now has a global presence on three continents.  I remember very early on, speaking to one of our research executives, and her saying “Why do want to grow?  It is nice to work for such an intimate, family run company.”  The problem is, if you always do what you always have then you always get what you have always got – if you are lucky!  From our inception through to our current position we have continually fought to be adaptable, innovative and personal as we believe that customer service prevails in today’s competitive environment and that the future belongs to the smaller company.  Of course, larger corporations will always enjoy economies of scale along with greater brand awareness and only large companies can carry out industrial production in the industries of automotive, steel, pharmaceutical and utility provision but, as typified by the example of General Motors, even with their large resources, things can still go horribly wrong.

A contrast is the John Lewis Partnership, the British department store and grocery chain. Here the staff really do own the business, and behave like enlightened capitalists rather than bloody-minded union members. It offers world-class service and a lesson in how important it is to keep the customer happy, and herein I think lies the answer.  Smaller companies are continually looking to innovate and deliver customer service.  They punch above their weight and force larger companies to up their game.  In these uncertain times, the smaller business owner will continue to succeed.

STOP THE PRESS! Calling All Small Business Owners In London

We want to know the challenges you are facing as an SME in the current market conditions. Take part in the Business Link in London SME survey and tell us your opinion.

Business Link in London along with B2B International is kicking off its second wave of surveys for its Diverse Business Confidence Index Project. This research will provide an in-depth analysis of how the recession is having an impact on London’s small and medium-sized businesses (SMEs).

This survey will be the voice of over 3,000 small businesses in London and the Index will provide a timely and statistically significant insight into how different types of SMEs continue to be affected by the recession and what actions they have taken to combat its effects.

If you are a London business owner and would like to take part in the survey of the Diverse Business Confidence Index then please e-mail dbci@b2binternational.com and include your name, company name and London borough where your business is based.

The findings of a survey into the confidence of business owners in London have just been released.  Conducted for Business Link in London by business-to-business market research and intelligence consultancy B2B International, the research highlights how the effect of the economic environment varies significantly by type of business, location and personal characteristics of owners.

The survey, commissioned to examine how to meet the business needs of a diverse marketplace, is the first of its kind and the ‘Diverse Business Confidence Index’ has been created to represent minority groups including women, ethnic/faith groups, the elderly, the disabled, and those of a particular sexual orientation.

B2B International director Nick Hague, in charge of the survey, says the survey uncovered perceived discrimination and prejudice in the business world.  “This diverse business confidence index for BLIL is a great step in finding out how business owners are coping during the recession.  Companies in the industry sectors of recruitment, property and construction have been hardest hit during the economic downturn, whilst least affected are in the health and beauty sector.  As a bonus to developing such a robust index, we also gained real insight into diversity issues in business which may be mirrored across the country, not just across Greater London.”

London’s SMEs Defy Recession

As London’s small businesses bear the brunt of the recession many are still looking to grow, according to Business Link in London’s new Diverse Business Confidence Index (the Index). The first of its kind, the Index surveyed over 3,000 small businesses in London and found that 84 per cent are planning on expanding and growing their business over the coming year. Nearly two thirds of entrepreneurs surveyed said that the recession is still affecting their business with 39 per cent saying the recession has significantly impacted overall budgets and expenditure.

Patrick Elliott, chief executive of Business Link in London, said: “This Index gives a significant insight into how London’s small businesses are impacted by, and responding to, the recession. These results are an encouraging sign in these turbulent times – but they don’t come as a surprise to us.  We regularly survey our clients on how they’re managing through the recession and we’re seeing a clear trend emerge of a sector that is refusing to get bogged down in the doom and gloom. But what’s telling from this index is that this confidence is across the board – many entrepreneurs across regional, industry, and demographic groups are responding to the recession by aggressively seeking out new market opportunities.”

Mayor of London, Boris Johnson, said: “It is extremely heartening and will inspire confidence in the strength of the capital’s economy that so many of London’s small and medium sized firms are planning to expand in the coming year. Making up nearly 99 per cent of our business sector, they create half of all the capital’s jobs and are therefore critical to its success. I will continue to do all I can to support these firms and ensure they get all the help they need to get through the downturn – they will, after all, be our spring board to economic growth and prosperity when the upturn comes.”

Maintaining and generating sales was identified as the single biggest challenge facing all businesses.  However, three quarters of those surveyed remain optimistic about their business over the next twelve months. Of those who are planning to grow, most planned to drive this through diversifying their business operation – 43 per cent plan to enter new markets, and 35 per cent are looking to develop new products and services.

Start-ups were more likely to have difficulties with accessing funding while established businesses tended to have more difficulties with generating new business.  A quarter of all pre-starts cited the falling value of the pound as the biggest impact and nearly half are revisiting their business plan projections as a result of the recession. However, despite being most affected by the recession, start-ups were the most optimistic about their business prospects with 89 per cent planning on growing their business over the next twelve months.

For more information on the Diverse Business Confidence Index please click here.

If you are a London business owner and would like to take part in future waves of the Diverse Business Confidence Index then please e-mail dbci@b2binternational.com and include your name, company name and London borough where your business is based.

Alaric Fairbanks this week makes our mouths water with the mention of some of his favorite local kebab stalls.  However, on a more serious note, Alaric is analyzing how street vendors of this relatively undifferentiated offering encounter many of the same problems faced by much bigger organizations in different markets around the world.

As almost anyone with a penchant for mutton and beer will tell you, one of the best things about living in Beijing, providing you don’t live right next to a stall (they can be quite smelly, and the lack of toilet facilities coupled with beer consumption of patrons can be problematic for neighbors), are chuanr, or kebabs.  Mutton, chicken hearts and tendons, washed down with a bottle or two of Yanjing beer are, for me at least, pretty much indispensable to life in China’s capital city.  But can this tell us anything about the business environment?  Interestingly, for me at least, this came up in a recent conversation I had whilst patronizing my favored stall.

This must be one of the toughest markets to be in, and in many ways can be seen as representative of the competitive environment in undifferentiated markets, especially in China.  Let us take, for example, a quick look at Porter’s Five Forces applied to this business model.

• The threat of new entrants: Obviously barriers to entry are low (an improvised barbeque is not a significant cost) and switching chuanr vendors is fairly easy. Similarly, adding to the product range, for example with ram’s penis, can be very easily copied by the competition.

• Supplier power: The raw material – mutton and other assorted parts – forms the substantial part of costs relative to total purchases, and there are almost no substitute inputs.  To make matters worse, these raw material costs have a huge impact on total cost.

• Threat of substitutes: Again a problem, as it’s not difficult for the customer to switch to ma la tang (numbing and spicy soup) or rou jiamo (a very distant cousin of the hamburger).

• Customer power: Price sensitivity of customers is pretty much a given in many markets in China, and chuanr are no exception.  Buyer information (in this case buyers know the going rate for the product as it is the same everywhere) leaves little room for incremental increases.  Backward integration by customers is, on the face of it, less of an issue as most of us will be pretty unwilling to invest in our own barbecuing equipment. Where there is a problem here, is when selling through a small restaurant, as there is little to prevent the ‘partner’ setting up their own stall.

• Rivalry or competitive intensity: Here we have a very fragmented market, almost entirely composed of sole traders.  Fixed costs are low, having a limited impact here on rivalry in some respects as they do not have a great role in the unit cost of chuanr; however, this does mean that entry barriers are low.  The nature of the raw material, mutton, does have an impact, as these perishable products must be sold immediately.  Fortunately, exit costs are low, as equipment is not highly specialized and no one is ‘forced’ to stay in the market.  This is also not a market that so far has lent itself to product differentiation or branding, thus almost commoditizing the market.

So what does this tell us?  Many of the markets we look at in China, and elsewhere, exhibit some of these characteristics, particularly in the areas of new entrants, substitutes, and low levels of differentiation.  There are, though, examples of companies growing or moving out of unattractive markets, and differentiating themselves from the competition in a seemingly commoditized market.  Equally, there are some examples of differentiated product and service, and expansion in the chuanr business: Xiao Li, arguably the best producer on Yong An Li East Street, has an embryonic brand, recently added a few plastic stools and a table to complement his offering, and has doubled his workforce with the addition of his charming sister.