There’s a middle class of businesses that are the backbone of the economy. Professor Saras Sarasvathy coined that term, and we’re pleased to adopt it.
These businesses sit between the big corporations of the major stock indexes and the VC-funded gazelles and unicorns of Silicon Valley and Silicon Hills. The watchwords for these backbone businesses are duration and durability. They last and prosper because they are well-run, following the entrepreneurial method.
Entrepreneurship is usually portrayed from the perspective of ends: identifying unmet customer needs, creating new and innovative solutions, taking them to market, making a success.
That’s all true. However, there is another perspective that comes from actually running a business, ensuring that operations are smooth and efficient, monitoring daily cash flows and monthly P&Ls, and managing people’s performance.
Often, running a business requires an intensified focus on means. Cash flow, operations, employee performance — these are means, and running a business is a science of managing means. Business advisor Andrew Frazier helped us focus on means in this week’s Economics For Business podcast.
Key Takeaways & Actionable Insights
Knowledge is an entrepreneurs most important means. Accumulate it purposefully (but not by losing money).
The more you know, the more you grow. That’s a mantra from Andrew Frazier. He advises thoughtful accumulation of knowledge. One way to learn is to lose money — you learn what doesn’t work, and what not to do. Avoid this form of learning by purposive knowledge gathering. This includes truly knowing your purpose — at least part of which is to build the business resiliency that delivers durability and duration.
Knowing your numbers is a critical component of durability and duration, and of shepherding your means.
In his advisory and consulting roles, Andrew encounters many business owners who don’t know their own numbers intimately — their daily cash inflows and outflows, the precise identification of fixed and variable expenses, the condition of the P&L and the balance sheet. Some, he says, fear the numbers. They delegate accounting to an outside service, or even to an internal “back room” employee. Don’t delegate “knowing your numbers” to anyone. Be on top of them every day. They tell you your means.
Sales and marketing are the most important means of lasting business growth, and not necessarily expensive.
There is no business without the sales and marketing activities that identify the right customer niche and tell your story to those customers in a credible, warm and persuasive fashion. Many business owners and entrepreneurs see sales and marketing as an expense to be incurred only if there is cash leftover from other variable and fixed costs that take precedence. This is wrong-way thinking. Sales and marketing are job #1.
Hiring employees is the biggest change you will make to your business and to your role in it.
You want to hire employees for the growth of your business. As you do so, you are changing your business. You change its structure: it now needs organizational design. You change your role: you are now a leader. You change the business’s operational flow because it now needs detailed processes and systems. You change the culture: it becomes more indeterminate and therefore requires more of your attention. You stop working in your business and start working on it.
Duration and durability require sacrifices from you.
One aspect of the entrepreneurial ethic is personal sacrifice today for market reward in the future. Sacrifice is part of your means. You’ll work harder and longer hours. Your business and social and family lives will become inextricably intertwined. Your business will become your identity. Realize this and embrace it.
A lasting business requires an exit plan.
A business that prospers over an extended period needs an exit plan for its owner or founding entrepreneur. This can range from an IPO or sale to an acquirer to leaving it to your kids or turning it over to employees. Whatever the case, the owner needs to plan ahead for exit, almost from the beginning. For example, if you have a professional services business, what will make it saleable when you want to exit? Is there asset value over and above revenue flow? Will customers stay after you leave? Are your kids even interested?
https://hunterhastings.com/wp-content/uploads/2021/06/e4b-cover-122.jpg5321250Hunter Hastingshttps://hunterhastings.com/wp-content/uploads/2021/03/hh-logo-blk.svgHunter Hastings2021-06-16 04:39:442021-10-11 10:38:35122. Andrew Frazier on Running Your Business
[postintro]There are many reasons to elevate entrepreneurship as the institutionally-approved and institutionally-accelerated pathway to economic success for everyone. Community flourishing through self-help is one of them. I’m supporting the team behind Entrepreneur Zones, focused efforts for enhanced performance of small businesses in targeted locations in economically under-performing geographies [/postintro]
2020 witnessed small businesses across the country struggling to adapt and survive during the government-imposed pandemic lockdowns. And while some were able to pivot their services and business model to serve an increasingly digital market, many were forced to shut down for good, leaving thousands jobless.
The closure of these businesses is one of this year’s biggest tragedies. The economic impact of these closures will continue to be felt for many years to come. If we have collectively learned anything this year, it’s that America relies on small business entrepreneurship to flourish and prosper.
Entrepreneurship is empowerment
Nowhere is the empowering potential of small business entrepreneurship more prominent than in our small-town Main Streets and local communities. Even through the pandemic, we’ve seen small businesses all across the country step up and change the way they operate in order to help their communities. Via a quick search around the internet, you can find dozens of examples of small businesses doing their part: from local pharmacies doing Covid testing to distilleries manufacturing hand sanitizer and restaurants providing free meals.
These entrepreneurs and workers were faced with an existential crisis like they’ve never seen before. Their response? Do good for the community. There’s something about small businesses that is just so inspiring.
Ultimately, entrepreneurship is the backbone of these communities, and provides both residents and the local economy the opportunity to grow as these businesses grow. What’s more, entrepreneurship is not just for the rich, it is for everyone. Building a business from the ground up is no small feat, but it is something that’s achievable by anyone, regardless of background. Through entrepreneurship, people can pull themselves up and bring new economic value to their communities and to themselves.
The potential of Entrepreneur Zones
Heading into 2021, we need to place a renewed focus on encouraging entrepreneurship in our small towns and cities. The key to this could be Entrepreneur Zones – targeted areas within economically-distressed communities where new entrepreneurship-focused initiatives can help local business get their start, and help those that have already started to thrive. Policy initiatives can include relaxed regulations, tax incentives to encourage investors, focused education and training, and the kinds of mentoring and interconnection that help businesses integrate into larger value-creation ecosystems.
Dale G. Caldwell of Fairleigh Dickinson University’s Rothman Institute of Innovation and Entrepreneurship notes, “To accelerate small business employment, government could provide entrepreneur grants and issue small business bonds through the Small Business Administration specifically for the businesses in federally approved entrepreneur zones. These programs would not be a burden on taxpayers and potentially lead to an injection of billions of dollars into businesses…that desperately need a lifeline to survive.”
As more than 11 million people look for new opportunities, these small businesses could help provide the jobs needed to both keep food on the table for struggling families and spur economic growth at the national level.
Further, many in the growing pool of unemployed Americans are skilled workers who have been through the training and education for their jobs. The talent is there, what is needed is the capital to invest in these businesses.
The future lies in small businesses
We’re dealing with a once-in-a-lifetime crisis, and we need to work to establish apolitical policies that support our nation’s small businesses. Nearly 50% of America’s GDP output and nearly 50% of all American workers are employed by small businesses. It’s time that we began to recognize and reciprocate the values and utility that small businesses provide to this country.
And it’s not just local, it’s global. For example, Scott Livengood of Arizona State University is part of a team offering Education For Humanity – a program of education, and entrepreneurial skill training for conflict-displaced refugees in countries like Uganda and Lebanon. Entrepreneurship provides a pathway out of not only America’s distressed inner cities, but out of distressed environments of all kinds, all over the world. Over the past half-century, we’ve seen that entrepreneurial and educational expansion into underdeveloped regions and markets is one of the best ways to raise people out of poverty and equip them with the skills and resources they need to prosper.
Across the world, we see just how important creating avenues for entrepreneurship is to keeping economics vibrant and resilient. In 2021, one of our top economic priorities should be to create more of these avenues.
https://hunterhastings.com/wp-content/uploads/2021/02/shutterstock_634282571-scaled.jpg19492560Hunter Hastingshttps://hunterhastings.com/wp-content/uploads/2021/03/hh-logo-blk.svgHunter Hastings2021-02-08 09:29:252021-02-08 09:29:25Empowerment Through Entrepreneurship.
Recently, on the Human Action Podcast, Jeff Deist and I discussed the Rothbardian theory of the entrepreneurial economy in chapter 8 of Man, Economy, and State, titled “Production, Entrepreneurship, and Change.” In this article I will illustrate just how this Austrian theory is applied effectively in the business world.
In chapter 8, Rothbard establishes the principles of what he calls the progressing economy, one in which gross investment in capital goods is increasing, productivity is growing, and firms are making profits, indicating social affirmation that they are deploying resources in the ways best adjusted to the most urgent and evolving consumer needs. Specifically, firms are making an economic profit—returns higher than the going rate of interest derived from social time preference.
Importantly, economic profits (returns higher than the cost of capital) are hard to achieve and even harder to maintain. Rothbard points out that, to succeed in this challenge, entrepreneurs must demonstrate superior foresight and judgment, and practice continuous dynamic improvement in their assembly and reassembly of assets to serve the consumer. This urgency is sharpened by the competition of new entrepreneurs who see the high returns that the pioneering entrepreneur has achieved and are willing to enter the same space for lower margins so long as returns remain higher than the going interest rate. Eventually, all the superior returns will be competed away—unless the first entrepreneur keeps changing and advancing to serve more and higher-valued consumer needs.
More specifically, Rothbard’s construct is that economic profit is the result of entrepreneurs identifying discrepancies in the capital structure where capital is overdeployed in the service of less acutely felt consumer wants and underdeployed in the service of some more acutely felt consumer wants. The function of entrepreneurship is to make the adjustment that consumers are demanding. Entrepreneurs buy factors that are underpriced because of the discrepancy and recombine them to serve currently underserved needs. The adjustments are always in the direction of higher and higher productivity. The prices of the new consumer goods and services generate a profit and a return that is higher in the new, adjusted arrangement of factors than in the prior arrangements.
Rothbard also deduces that the economic profit margin will erode over time because more entrepreneurs, seeing the high return for the new arrangement, will enter the economic space and compete away the high returns, pulling them down toward the going interest rate. Entrepreneurs must continue to find more new urgent consumer needs to address, rearrange their capital structure even further, and maintain a continuous dynamism both in their capital structure and in their consumer offerings.
Man, Economy, and State is a treatise of Austrian economic theory. To what extent is it translatable to and applicable to the realities of business in 2020? The answer is that Rothbard’s acute theoretical insights can be applied directly in business strategy to great effect.
A recent McKinsey Insights article confirms every one of Rothbard’s theoretical points in real-world analysis.
First, the McKinsey consultants confirm the challenges inherent in the effort to achieve economic profit. Their S-curve distribution (they call it a “power curve” for marketing purposes) illustrates how very few firms make high economic returns and most hover close to, or in some cases below, the break-even (i.e., zero economic profit) line.
The McKinsey consultants conclude that:
Market forces are pretty efficient. The average company in our sample generates returns that exceed the cost of capital by almost two percentage points, but the market is chipping away at those profits. That brutal competition is why you struggle just to stay in place. For companies in the middle of the power curve, the market takes a heavy toll. Companies in those three quintiles delivered economic profits averaging just $47 million a year.
The curve is extremely steep at the bookends. Companies in the top quintile capture nearly 90 percent of the economic profit created, averaging $1.4 billion annually. In fact, those in the top quintile average some 30 times as much economic profit as those in the middle three quintiles, while the bottom 20 percent suffer deep economic losses. That unevenness exists within the top quintile, too. The top 2 percent together earn about as much as the next 8 percent combined. At the other end of the curve, the undersea canyon of negative economic profit is deep—though not quite as deep as the mountain is high.
With further data analysis, the McKinsey consultants identify the strategic actions that need to be taken to place a firm in the highest echelons of economic returns in their industry—and they confirm all the implications of Rothbardian theory. They propose five strategies of adjustment that effectively derive directly from Austrian theory.
First, they confirm the importance of continuous dynamic reallocation of resources by firms in order to achieve high returns.
Winning companies reallocate capital expenditures at a healthy clip, feeding the units that could produce a major move up the power curve while starving those unlikely to surge. The threshold here is reallocating at least 50 percent of capital expenditure among business units over a decade. When Frans van Houten became Philips’ CEO in 2011, the company began divesting itself of legacy assets, including its TV and audio businesses. After this portfolio restructuring, Philips succeeded at reinvigorating its growth engine by reallocating resources to more promising businesses (oral care and healthcare were two priorities) and geographies. Philips started, for example, managing performance and resource allocations at the level of more than 340 business-market combinations, such as power toothbrushes in China and respiratory care in Germany. That led to an acceleration of growth, with the consumer business moving from the company’s worst-performing segment to its best-performing one within five years.
They also identify an accompanying strategy for dynamic allocation of resources in the form of frequent M&A (mergers and acquisitions) activity—buying new assets and selling old ones. They call this strategy programmatic M&A: continuously buying and selling capital assets and turning over factors to dynamically manage capabilities.
You need a steady stream of deals every year, each amounting to no more than 30 percent of your market cap but adding over ten years to at least 30 percent of your market cap. Corning, which over the course of a decade moved from the bottom to the top quintile of the power curve, shows the value of disciplined M&A. Corning understands that doing three deals a year means it must maintain a steady pipeline of potential targets, conduct due diligence on 20 companies, and submit about five bids.
Beyond reallocation and M&A, strong capital expenditure is required to maintain profits.
You meet the bar on this lever (strong capital expenditures) if you are among the top 20 percent in your industry in your ratio of capital spending to sales. That typically means spending 1.7 times the industry median. Taiwanese semiconductor manufacturer Taiwan Semiconductor Manufacturing Company (TSMC) pulled this lever when the Internet bubble burst and demand for semiconductors dropped sharply. The company bought mission-critical equipment at the trough and was ready to meet the demand as soon as it came back. TSMC had been in a head-to-head race before the downturn but pulled clear of the competition after it ended because of its investment strategy. That laid the foundation for TSMC to become one of the largest and most successful semiconductor manufacturing pure plays in the world.
In addition, it is critical to maintain a strong productivity program.
This means improving productivity at a rate sufficient to put you at least in the top 30 percent of your industry. Global toy and entertainment company Hasbro successfully achieved the top quintile of the power curve with a big move in productivity. Following a series of performance shortfalls, Hasbro consolidated business units and locations, invested in automated processing and customer self-service, reduced head count, and exited loss-making business units. The company’s selling, general, and administrative expenses as a proportion of sales fell from an average of 42 percent to 29 percent within ten years. Sales productivity lifted, too—by a lot. Over the decade, Hasbro shed more than a quarter of its workforce yet still grew revenue by 33 percent.
The fifth strategic lever is improvements in differentiation. Modern Austrian economics identifies the importance of differentiation in Per Bylund’s islands of specialization theory and our focus on brand uniqueness as a source of superior profits. McKinsey uses gross margin as a proxy for differentiation, and their consultants say:
For business-model innovation and pricing advantages to raise your chances of moving up the power curve, your gross margin needs to reach the top 30 percent in your industry. German broadcaster ProSieben moved to the top quintile of the power curve by shifting its model for a new era of media. For example, it expanded its addressable client base by using a “media for equity” offering for customers whose business would significantly benefit from mass media but who couldn’t afford to pay with cash. Some of ProSieben’s innovations were costly, sometimes even cannibalizing existing businesses. But, believing the industry would move anyway, the company decided that experimenting with change was a matter of survival first and profitability second. ProSieben’s gross margin expanded from 16 percent to 53 percent during our research period.
Each one of these Rothbard-derived strategies can be effective in driving superior returns. Even more effective is to combine them, a recommendation with which Rothbard would concur.
Big moves are most effective when done in combination—and the worse your endowment or trends, the more moves you need to make. For companies in the middle quintiles, pulling one or two of the five levers more than doubles their odds of rising into the top quintile, from 8 percent to 17 percent. Three big moves boost these odds to 47 percent. To understand the cumulative power of big moves, consider the experience of Precision Castparts Corp. (PCC). In 2004, the manufacturer of complex metal components and products for the aerospace, power, and industrial markets was lumbering along. Its endowment was unimpressive, with revenues and debt levels in the middle of the pack, and the company had not invested heavily in R&D [research and development]. PCC’s geographic exposure was also limited, though the aerospace industry experienced enormous tailwinds over the following ten years, which helped a lot.
Most important, however, PCC made big moves that collectively shifted its odds of reaching the top quintile significantly. The company did so by surpassing the high-performance thresholds on four of the five levers. For mergers, acquisitions, and divestments, it combined a high value and large volume of deals between 2004 and 2014 through a deliberate and regular program of transactions in the aerospace and power markets.
PCC also reallocated 61 percent of its capital spending among its three major divisions, while managing the rare double feat of both productivity and margin improvements—the only aerospace and defense company in our sample to do so. While nearly doubling its labor productivity, PCC managed to reduce its overhead ratio by three percentage points. It lifted its gross profit-to-sales ratio from 27 to 35 percent.
The combination of a positive industry trend and successful execution of multiple moves makes PCC a showcase of a “high odds” strategy and perhaps explains why Berkshire Hathaway agreed in 2015 to buy PCC for $37.2 billion. Could our model have predicted this outcome? Based on the moves PCC made, its odds of rising to the top were 76 percent.
McKinsey’s reputation in business strategy consulting is second to none. To see these consultants apply Austrian economic theory so directly in their recommendations is a strong confirmation of its value.
https://hunterhastings.com/wp-content/uploads/2020/08/shutterstock_1028158363-scaled.jpg14312560Hunter Hastingshttps://hunterhastings.com/wp-content/uploads/2021/03/hh-logo-blk.svgHunter Hastings2020-08-06 09:02:012020-08-23 11:38:36How Murray Rothbard’s Theory of Entrepreneur-Driven Progress Can Be Applied to Modern Businesses
FinTech sounds like the latest over-hyped tech bubble. But it has a much more fundamental importance in entrepreneurial economics. It brings entrepreneurs the best-priced capital in the marketplace. Dusty Wunderlich explains on the Economics For Entrepreneurs podcast #63.
Consider these findings from a 2017 report from the G20 Global Partnership For Financial Inclusion, titled Alternative Data: Transforming SME Finance.
Access to financing remains one of the most significant constraints for the survival, growth, and productivity of micro, small and medium enterprises (SME’s).
Digital SME finance, using alternative data, offers an extraordinary opportunity for addressing…this problem.
The world’s stock of digital data will double every two years through 2020. Every time SME’s and their customers use cloud-based services, conduct banking transactions, make or accept digital payments, browse the internet, use their mobile phones, engage in social media, buy or sell electronically, ship packages, or manage their receivables, payables and record-keeping online, they create digital footprints. This real-time and verified data can be mined to determine both capacity and willingness to pay loans.
A rapidly growing crop of technology-focused SME lenders are putting the use of SME digital data, customer needs and advanced analytics at the center of their business models, setting forth new blueprints for disrupting the SME lending status quo.
The report refers to 800+ innovative digital SME lenders. Colloquially, we can refer to them as FinTech.
Dusty Wunderlich, a subject matter expert and seasoned investor in the FinTech field, discusses this lending landscape.
Entrepreneurs need capital in the present to deliver goods and services to consumers and customers in the future.
Entrepreneurs take scarce resources and apply them to what they believe the consumer will want at a future date. In order to do that entrepreneurs need capital in the present so they can deliver on those goods and services to the consumer in the future in the hope that their forecasting is correct.
That’s why entrepreneurs need to understand capital financing and modern day capital markets.
Access to capital has historically been difficult and expensive. Today, it’s becoming easier and less expensive, aided by the digital data revolution referred to in the report quoted above. It’s important for entrepreneurs to be familiar with the new field of FinTech and how to navigate it.
Dusty Wunderlich suggests that entrepreneurs map out the financing alternatives on the axes of their own business stage versus the cost of capital.
Cost of capital refers not just to interest rates and fees, but to the requirements that lenders can impose on entrepreneurial borrowers. At the very earliest stages, “friends and family” lenders, angel investors and seed stage venture funds will all require equity stakes, and ratchet up those stakes via deferred interest and debt-to-equity conversion requirements. These early investors perceive themselves as taking a high amount of risk, and the start-up entrepreneur typically has little or no collateral or leverage in negotiation. The best negotiation stance is to generate competition among investors with the quality of the customer value proposition and the business plan and revenue model.
Fintech financing is now available at the earliest of entrepreneurial growth stages.
Today, from the very outset of the business journey, start-ups and small businesses can access a range of financing types – debt, convertible notes, equity and SAFE’s (Simple Agreement For Future Equity) – via crowdfunding platforms like nextseed and others like it. Marketing your business to investors on platforms like these taps into your existing skills in marketing and social media, and doesn’t require you develop capabilities in pitching your business that you might not have mastered.
As you advance along the growth curve, FinTech options expand and may offer you the best-priced capital on the market.
As a result of the expansion of FinTech based on alternative digital data sources, the potential for connecting your particular business to a well-matched and well-priced source of capital is greater and more precise than ever. Dusty cited a couple of examples like Kabbage (where, incidentally, entrepreneurs can currently get help with PPP loans). There are several more. Because of the competition in the FinTech market and the quality of the information they utilize, capital from these lenders is well-priced – probably approaching Mises’ originary rate of interest, Dusty observes, in a testimony to Austrian free market principles.
It is when your business represents the least risk to lenders that big banks offer their high-requirements business loans.
At a later stage of your business journey, banks will lend money against collateral and will impose additional onerous requirements and loan covenants. The entrepreneurial embrace of uncertainty is not for them! Bank financing is at the top when it comes to cost of capital and is to be approached cautiously. It is with bank financing that entrepreneurs become entangled with the negative effects of Federal Reserve repression of interest rates, that can mislead them into making incorrect investment decisions.
The cost of bank financing for mature companies revolves more around terms and covenants than interest rate percentage points. Banks are transactional, whereas entrepreneurs are operationally minded. This can cause a lot of friction if covenants, terms and triggers are not properly set. Entrepreneurs must pay attention to every detail in the loan contract. Great businesses can be ruined because of draconian covenants and triggers banks put into their loan contracts.
Indicated action: Entrepreneurs will be well-rewarded for fully investigating and understanding the emerging world of FinTech and digital SME finance. Be sure to calculate the full cost of capital – not just interest rates – and weigh all options.
Small business generates about 45% of US GDP, provides close to half of the jobs in the US Economy, and, in a typical year, accounts for more than 60% of the new job creation.
That all adds up to big economic impact. And the news is that small business impact is going to get bigger. In fact, small business will grow to dominate and take over the economy as the problems of managing big business compound.
Big Technology Comes To Small Business.
We have become habituated to the idea that big business deploys technology at scale to achieve reach, coverage and efficiency that small business can’t match. Giant telcos have vast, expensive networks; cable companies have their wired infrastructure; amazon has warehouses and airplanes and unlimited computing power. Today, all infrastructure is variable rather than fixed. It can be rented by the minute and on demand, so that small business can use big technology at the time and in the amounts and for the highly targeted purposes it is needed. Big technology can be downloaded from the internet, and economies of scale are no longer the barriers to entry or to efficient operation that they used to be. Flexibility, agility and timeliness are far more important economic attributes for a winning business, and small business has a good shot at not just competitiveness but at superiority on those dimensions.
Science Comes To Small Business.
We may traditionally think of small business as the product of hard work, super-specialization and local relationships rather than as a child of advanced science. Artificial intelligence and adaptive machine learning will change all that. Small businesses will be able to employ the cognitive assistance of software and robotics to personalize and tailor their services for individual consumers. Aestheticians will be able to offer and implement individually tuned facial treatments and cosmetic procedures. Landscapers can design and manage plantings and gardenscapes and irrigation systems customer by customer. Vehicle fleet owners will pick up and deliver at precise times door-to-door for their local and global clientele. Lawyers will have the searchable data from every relevant case, judgment and law text at their disposal with a robot paralegal who is smart and fast and productive: the best in the world at what they do. Personalized medicine can be practiced by the local doctor, and the local dentist will be able to implant the latest in dental construction and architecture into their patient’s mouth at the neighborhood clinic. Rapid prototyping and fast-turnaround micro-testing will be fully available to small businesses and keep them on the leading edge.
New Organizational Forms Favor Small Business.
The age of bureaucratic management is coming to a close. Bureaucracy has always been a problem for business. Big business needs it to exercise control over far flung organizational outposts, over budgets, over project management and resource allocation and HR policies. But bureaucracy slows response times down in an era when agile responsiveness is a requirement to maintain customer loyalty, and it alienates talented employees in an era where individual creativity is becoming the most important tool to manage in-market performance.
The replacement for bureaucratic management is small, agile, customer-obsessed networked teams with unrestricted autonomy for responding to customer requests and marketplace changes. There is no waiting for HQ approval. There’s no actual organizational model – every company is capable at arriving at its own form of organization that works best for its customers in its geography and its business. Therefore this organizational style is not mediated by business school-imposed standards or consultants’ print-outs. As a result, it’s hard for big business to adopt, which is one reason why small business will take the lead in organizational innovation.
Small Business Will Win With Humanity.
It’s remarkable how many people complain about their jobs in large corporation. Gallup’s global survey (2016 edition) on the subject of employee engagement (whether employees find their jobs meaningful and look forward to their work) indicates that only 13% of employees worldwide say they are engaged. The rest actively hate their jobs or merely put up with them. If they can’t engage with their jobs, how can they engage with customers? Gallup calls it an engagement crisis.
Entrepreneurial small businesses operate on empathy. They are tasked with understanding their customers’ needs and responsively designing services that meet those needs and are simpatico with customers’ values and are able to compete with every other offering that’s available. Small businesses depend on their humanity to succeed – their success in matching values with their customers in an extended and deep relationship depends on it. Digital tools can help in tracking the state of the relationship, but it is the subjective, emotional, and idiosyncratic elements in business exchanges that will be the mark of future winners. Big business will find that they can’t be successful on these dimensions.
People Prefer To Deal With Small Businesses.
We live in a time when people’s tolerance for unresponsive, insulated institutions is at a low point. This is true for political institutions like Congress and the Presidency. NPR reports that only 8% of Americans have a great deal of confidence in Congress, 19% in the Presidency, and 22% in the Supreme Court. The number for big business is 12%. If you let people down, and don’t act with humanity, you lose trust. Small business has a much greater incentive than a bureaucratic management team to be human, to engage, to respond and to earn customers’ trust.
In a 2017 Public Affairs Council poll, 41% of respondents expected small business owners to exhibit high honesty and ethical standards and only 5% expected them to have low standards in those departments. For employees of major companies, there was an expectation of high ethical standards among only 18% of respondents, and that number declined to 9% for big company CEO’s. (Only elected officials in Washington polled lower: 7% of respondents expected high honesty and ethical standards there!)
People prefer to deal with those they know, like and trust. Small business can win big on these three fronts. More and more customers will make the choice to buy from small business, especially now that technology, science, efficiency and organizational effectiveness are no longer reserved to big business.
https://hunterhastings.com/wp-content/uploads/2018/12/shutterstock_417862336-e1544205872512.jpg482995Hunter Hastingshttps://hunterhastings.com/wp-content/uploads/2021/03/hh-logo-blk.svgHunter Hastings2018-12-14 03:00:092020-08-23 11:43:21Here’s How Small Business Will Take Over The Planet.
