David vs Goliath: The Rise of Small Companies
Small companies and start-ups are playing an increasingly powerful role and challenging traditional business models. They are able to engage with those consumers who are cynical about big business and keen to seek out smaller companies with a personal and perhaps ethical touch. Furthermore, their small scale allows them to be more responsive and quick-moving.
How do small companies compete?
Small companies are leveraging their specific advantages compared to a larger company, rather than mimicking large company strategies on a smaller scale.
Embracing small values
Artisanal, small batch, local, personalised, wholesome, authentic: these can be exploited by a small company much more easily than by a large company.
Underexploited niches which are still too small/untested for large companies such as focus on a particular demographic or lifestyle, or a very new idea or technology.
Responsive with lean structures
Small companies can be more responsive and nimble with quick launches and often good use of new technology and young/unproven digital platforms.
Rebelling against the mainstream
Identifying as being in opposition to the mainstream is a key positioning: ethical, green, vegan, cult, indie, alternative science, alternative distribution.
Supportive environment for new start-ups
The powerful growth in small start-ups is encouraged by a fertile environment which makes entrepreneurship increasingly viable. Gaining initial funds, previously a process needing large bank loans or venture capital, is now facilitated by crowdfunding. Crowdfunding is moving into more specialist areas, with sectors such as gaming, music and sport forming their own crowdfunding rather than using generalist platforms. Shenzen-based company Makeblock is a STEM robotics company that raised a relatively modest USD185,000 in funds from its first campaign in January 2013 via Kickstarter. The company now employs more than 200 staff. Its latest project, a modular STEM drone, raised USD830,000 in December 2016.
Running a business is simplified by the availability of free apps to automate many basic admin roles, combined with an abundance of career freelancers and contractors. Social media allows a small company to establish a following and potential consumer base with little to no expenditure. New routes to market allow companies to sell without needing to invest in bricks and mortar.
Why are small companies attractive?
While some small companies grow into larger companies, others are quickly acquired by more traditional, larger-scale businesses. This is very common in technology fields, in foods (especially healthy or ethical foods) and in beauty products (specialist, ethical and locally-relevant brands, in particular). Acquiring small companies can give a large company access to a niche area, to technology that can be leveraged across the company. On top of this, it helps a company stay on top of disruption.
Outlook for small businesses remains positive
- The environment for start-ups is fertile and set to continue to be so.
- Trends towards flexible working among Millennials and Generation Y will help encourage the entrepreneurial environment.
- Lean, responsive, tech-centric small businesses have a strong advantage over larger companies that tend to have a less dynamic/innovative culture.
- Consumer cynicism over big business peaks among the under 30s and will continue to drive support of small business as this cohort ages.
- Mergers and Acquisitions among small start-ups continue to grow, as larger companies see the need to keep on top of innovative disruptors and benefit from their specialisms.