Pretty much any business owner – from startup entrepreneur, through to small business owner, all the way to multinational CEO – wants to grow their company.
Conventional wisdom dictates that the bigger you are, the more powerful you become. Bigger companies are better placed to beat-up suppliers on prices, and their larger marketing budgets mean that customers are falling over themselves to give them their business. At least that’s how the story goes…
Not so long ago such assumptions weren’t too far off the mark. Today, however, digital technology has fuelled a marked change in customer behavior to the point that being a big company isn’t necessarily an advantage – and may even be an impediment. In many industries the game is a lot more evenly matched between the big-name players and the smaller, younger upstarts. Startups that didn’t exist five years ago can become billion-dollar businesses (think Uber, Airbnb, or Xiaomi) while established brands (Kodak, Woolworths, Tower Records) can end up as shadows of their former selves – if they survive at all.
Old “Big Business” Thinking Isn’t Working Any More
This sort of thinking is deeply scary for business owners, since it’s often been the basis of all decisions throughout their working lives. Yes, there are still some advantages in being bigger, though the list of disadvantages seems to be growing.
If you pardon me stating the obvious, the problem with being a large company is one of size. Traditionally, being a big business means having lots of customers, a substantial workforce, and a bunch of risk-averse/dividend-driven investors that you need to keep happy every fiscal quarter. With all that baggage it’s of little surprise that big companies can’t fight their way through the paperwork, budgets, and politics to create real innovation – probably the very thing that got them to that size in the first place.
So if many of the “old” rules of the game have changed, what’s the plan? We need to come up with a new set of rules. Rules that make sense in today’s economy. Rules that we can play by – that give us a chance of winning.
Bigger (No Longer) Equals Better
For the past 50-odd years companies have worked on the principle of lowering all forms of transaction costs – manufacturing, information dissemination, salaries, suppliers, support, whatever. Optimizing the value chain reduces your cost of sale. The bigger the business, the bigger that optimization potential.
That assumption no longer holds true for most businesses.
The problem with building a gigantic, complex system that allows you to vomit out widgets all day is that you’re assuming the demand for those widgets will never wane. But that day will surely come – just ask Sony, or Microsoft, or Nokia. Today, the innovation opportunity lies in the ability to address more transient commercial opportunities. The revenue potential might not be around in fifty – or five – years. But it’s here now, it’s real, and it’s lucrative.
You’d think that big companies, with their limitless resources and huge R&D and marketing budgets, would be best placed to react to such opportunities, wouldn’t you? Clearly, looking at recent history, that hasn’t been the case. But why should that be?
Of course corporate culture has a role to play. But I think there’s also the fact that the easy access to strategy-building information has become both less proprietary and more universally accessible. In the old days it was Big Business that had the best facts and figures, or could forge strategic alliances. Today, ‘access’ and ‘scale’ are no longer as linked as they once were.
Tools such as big data, the internet of things, and technology interdependencies are better interpreted/handled/applied by organizations who think less in terms of “why?” and more in terms of “why not?”. When all of us – regardless of size – have access to the same tools, then being bigger doesn’t just cease to be an advantage. It can actually be a drawback.
Don’t get me wrong: I’m not saying that being big is a bad thing. It’s just that being big doesn’t provide the same set of benefits and protections that it used to. If you think about it, this trend isn’t just limited to the world of business. Think about how the so-called advantages of scale are being rewritten for governments, religions, and even military prowess.
Less About The Win. More About The Win/Win.
There’s no denying that the world today is more fluid – and more volatile – than it used to be. Regardless of our size, we’re all obliged (and bound) by the links, effects, and dependencies resulting from increased connectivity. We’re all linked to each other – when China catches a cold, the West reaches for a Kleenex. Companies, markets, or even countries can no longer exist in a vacuum.
The economic status quo has increasingly become an environment of uncertainty rather than permanence. Being big isn’t as attractive as it once was, especially when your only options for real growth are mergers or acquisitions.
It’s no longer a contest about who can make the most widgets for the lowest price – that ship has sailed. Today, competitive advantage isn’t achieved by looking at how to reduce transactional costs. It’s about how to create new informational value for the entire network.
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