What Small Business Does Better Than Corporations

Small firms are better communicators and know their customers better.

Small businesses – those with 500 employees or less – remain an essential piston of America’s economic growth. After the number of startups dropped to record lows in 2009,they bounced back 12% in 2011. Small businesses accounted for 42% of US private sector payroll in 2012 and 63% of new jobs, according to the Small Business Administration. And as business professors, we three have recently watched entrepreneurship programs sprout like dandelions in American business schools, partly in response to students who no longer aspire to an organization-man (or woman) career.

Despite this surge in interest, running a small business remains a bumpy road. About 10% to 12% of small businesses close each year and there’s only a 50/50 chance a new small business will survive to see its fifth birthday. As the success of behemoths like Google GOOG -0.28% , Wal-Mart WMT -0.51% and Amazon AMZN 1.50% shows scale confers many advantages in business. Which should prompt every small businessperson to ask: How can I compete with the big boys in my industry?

We debated this question endlessly as we traced America’s blue highways researching our book, Roadside MBA: Backroad Wisdom for Executives, Entrepreneurs, and Small Business Owners. Over the past four years, we’ve driven 4,200 miles, visited 27 states, endured bitter cold (Oklahoma) and drenching heat (Arizona and Iowa), and interviewed around 100 small business owners. We visited with a mixer manufacturer in California’s High Desert, a flying orthodontist in Arkansas, a doggy day care in Georgia, and even a composting plant in Montana. And in all cases, we probed on the crucial questions of competitive strategy: Who are your competitors, and why do your customers choose you over them?

We learned that small businesses thrive by taking on activities that big businesses aren’t good at. As we’ve seen again and again on the road, size is a double-edged sword. Big firms have squads of salesmen, massive marketing budgets and loads of leverage at the bargaining table. Size makes many important business activities easier, and big companies dominate the market segments where these size-advantaged activities are especially valuable. However, size makes other valuable activities harder, and smart entrepreneurs can drive a wedge into these big-business cracks to create profitable markets for small business.


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