Small companies can thrive, even against Goliaths
By Edward Iwata
USA Today
Corporate Goliaths tower over small businesses. They enjoy more money, more marketing, more customers, more brand recognition.
But despite long odds, small-scale companies can survive and even thrive amid the megacompanies if they play it smart, according to business-management experts.
"A lot of people throw up their hands and say 'How can we possibly compete against Wal-Mart?' " says Wally Bock, a business consultant in Greensboro, N.C., and author of "Performance Talk: The One-on-One Part of Leadership." "Well, a lot of proven things work against big businesses."
Take Paige's Music, a mom-and-pop store in Indianapolis founded in 1871 that sells instruments to school bands and orchestras. Despite stiff competition from national chains, Paige's Music — with $10 million in revenue in 2005 — has grown 8 percent to 10 percent annually in recent years.
"There are plenty of opportunities for the small local store to succeed against the big boys," says Mark Goff, owner and president of Paige's Music. "But you've got to hit 'em where they ain't."
'KEEP IT SIMPLE, STUPID'
Paige's Music and several thousand independent music-product stores in the U.S. are enduring sweeping changes in their $8 billion industry. More online sales, national chains such as Guitar Center, Sam Ash Music, Wal-Mart and Costco, and cheaper instruments from China are forcing many retailers to slash costs and lower prices.
For instance, good saxophones that once sold for $1,800 can be bought for half that price now, Goff says. That's good for consumers, but brutal for a small business owner's profit margin.
"If history is a guide, there will be a shakeout in our industry," predicts Goff, who also heads the National Association of School Music Dealers.
But rather than expand and take on giant rivals, Paige's Music stays focused on its strength: the market for 400 school bands and orchestras and 36,000 student musicians in Indiana.
Paige's Music shuns "the cookie-cutter approach" used by national chains, Goff says. His sales people often visit band teachers and directors, building loyalty.
While rivals have dozens of stores and offices scattered around, Paige's Music and its 50 employees stay lean and mean, working from one site in Indianapolis. Goff calls it a "hub-and-spoke distribution system," with sales, order processing, accounting and instrument repairs in one location.
"My advice: 'Keep it simple, stupid,' " says Goff, who joined Paige's Music in 1985 as a salesman and bought the company a few years ago.
MAGNIFY STRENGTHS
Small businesses can pursue many David-vs.-Goliath strategies. Like Paige's Music, they can focus 100 percent on products, services and markets ignored by corporate juggernauts. They can innovate and communicate more quickly than big companies. They can lure talent and entrepreneurs tired of working at large corporations.
The experts also advise small business people to:
Small companies lose when they compete with a chain's breadth of products and marketing might. But nimble ones do well when they use their strengths against the weaknesses of slower corporations.
"Small units move and think faster than big units," says Bock, a former U.S. Marine sergeant. "You can always outmaneuver them."
In technology, emerging companies appear to be outgunned by the technical talent and resources of big corporations, according to Scott Maxwell, a venture capitalist and founder of OpenView Venture Partners in Boston.
But small groups of computer scientists and engineers actually create the best high-tech products and finish their projects sooner than large groups, says Maxwell, whose blog, at scottmaxwell.wordpress.com, offers tips on how small companies can magnify their strengths while warding off corporate giants.
Create companies that "sell services and products in a highly differentiated way from everybody else," says Michael Gerber, founder of the E-Myth Worldwide business-education company in Santa Rosa, Calif., and author of the "E-Myth" series of best-selling business books.
Starbucks, for example, markets coffee as a unique product that consumers are willing to pay a huge premium for, Gerber notes.
"You're not buying a large cup of coffee, you're buying a 'venti.' " Gerber says. "They've designed their company to sell an ordinary commodity in a way that is unique."
Bock calls this the "Captain Jack Strategy." Captain Jack was a Modoc Indian chief in 1873 whose band of warriors fought off a much larger U.S. Army force for months by retreating to lava beds and caves on the California-Oregon border.
A neighborhood store or small regional chain will have closer long-term ties to local shoppers than a conglomerate. Play off that strength in customer service rather than battle a chain's army, Bock says.
Whether a medical-device firm or a local pizza parlor, small businesses must thoroughly study the market to see what products they can sell best and to learn who their true competition will be, says Bill Schlegel, a veteran entrepreneur and chief executive of E-Myth.
"A fatal mistake is thinking your competitor is Company A, when Company B is eating your lunch because you misdiagnosed the market," says Schlegel, who founded Airfone, an air-to-ground telephone company, and MarketTools, an online market research firm.
Gerber says small business owners can focus on "things that customers will remember," such as clean facilities, friendly employees and delivering the same first-rate business transaction each time. McDonald's, Disneyland and FedEx — all small businesses at one time — excel at that, he says.
"That's at the heart of your brand," Gerber says.
