Small Business Competiveness
How does small business (>5MM) typically find ways of dealing with competitive advantages like pricing, supply chain and talent that larger competitors have over them? Having a niche is great, but growing outside that niche makes a small business both susceptible to being crushed and/or bought out. In this day and age where price and lead time rule (quality is implied) the day, what are the strategic, never mind short term issues that a small business needs to deploy in order to gain market share and favor over their bigger competitors.
The main advantage of small business over larger and established market leaders should be nimble execution. Typically, a startup or new entrant can/should offer faster lead time, more nimbleness to customize an order tailored specifically to the client, and offer more personalized customer service and after sales support.
You must make this a key competitive advantage over the incumbent leader. It's easy for a customer seeking better customer service and support to get lost in the wheels of a large organization with cookie cutter answers, lead times, and catalog solutions. You should seek out these customers and offer them a lot more attention than they would get from larger competitors.
Today small businesses have access to world-class infrastructure providers that has been restricted to large companies in the past. Access to cloud computing, manufacturing, and distribution networks is allowing small businesses to scale like large companies without incurring huge costs.
Small businesses have the ability to gather and manage their own data; think big data cloud providers like AWS, Microsoft... This gives them deeper insights into customers and business decisions like never before.
The growth of the on-demand economy has given small businesses access to a larger talent pool where they can hire contingent workers instead of traditional employees for a variety of business tasks; think 3PL's, virtual HR services like Paycom, Workday; virtual revenue processing like PayJunction, Paypal, Square, Stripe...; virtual tax processing like Intuit, H&R Block...
Small businesses have the ability to participate in the many online marketplaces currently available gives them a wider customer reach; obviously the Amazon marketplace is a must (and, as we all know, how well Amazon is killing the traditional large retailers).
Online advertising is cost-effective but also allows small businesses to target specific customer demographics and deliver custom messages; not to mention all forms of Social Media (Facebook, Instagram, YouTube, Twitter, Snapchat...) that allows small business to get up-close and personal with their customer base.
The above comments are all valid and I agree with Raoul re. the technologies that are available to small businesses that allow them to compete with their larger competitors, however, a small business has to establish a clear path to competing because they are typically dealing with more limited resources. Establishing clear objectives and financial targets is key re. customer base, marketing and advertising strategies and management of key accounts is critical.
Their other advantage is being able to adapt to changing economic situations within their customer base provided they are not chasing business and adjusting their pricing strategies in order to compete. Small businesses typically operate on leaner budgets (depending on nature of business and product offering), and staying true to their cost structure, profit margins, brand strategy and vendor management and keys to success.
Agree with Amir, speed to market should definitely be one of the key advantages.
In addition, and because of that, often successful start ups offer sustainable innovation pipelines with higher frequency, attracting more customers if there is a clear unmet need.
last, org structures are flat and very lean.
As noted by others, small organizations can be nimble to the needs of their customers and trends in the market. Also, because they are smaller their line of decision making is also closer to the customer and can be more responsive to their needs. Overall, it points to an ability to focus on customer experience that some large organizations sometimes overlook.
dealing with competitive advantages like:
1) Materials: sometimes overlooked but, volume dictates. Commoditized pricing is a rock fight. least attractive advantage.
2) Labor: offshoring is the major driver. Small's have some advantages with quality, proximity, flexibility... that can create advantages especially for low volume; high mix product strategies. Building capabilities locally/regionally is happening everyday.
3) Design: always look here. This not only lowers manufacturing costs but has potential for generating new sales while improving margins. Includes new or overlooked materials.
1) implies working capital costs: leadtimes & inventory carrying costs- Volume shipping from overseas coupled with higher transport & labor costs does not always create a cost advantage for the bigs. If you have not conducted a total cost of ownership analysis you should reassess. You might see a previous overlooked advantage.
susceptible to being crushed and/or bought out- Appetite for measured risk.
Small businesses have speed of decision-making and flexibility over many larger competitors. They can out service, out hustle, out maneuver larger competitors. A small dedicated staff can develop new products and bring them to market, implement new ideas, develop strong working relationships with customers - all as or more effectively than larger organizations.