Small is different

by Michael Woodhouse. This article was written for an audience of business consultants, but it speaks directly to small business owners.

And now for something completely different: small business

Individually small, collectively overwhelming. Over 80% of all businesses in Australia are "small", a target market approaching two million. They should be the bread and butter of marketing services.

The need for management support is there; a common statistic is that four out of five business startups fail and surveys of small business failure identify lack of management as a major cause, even when it's self-assessed.

The competition is low. I work mostly with small businesses and it is a rare case where I find myself in direct competition with another management consultant.

The client attitude is right. I've heard it often enough that small business can't and won't pay and that they don't appreciate the need. We should study our own rules: if the market rejects the product, change the product, don't blame the market. In my experience, many small businesses can and will pay for the marketing services they want. And there's the rub.

Project flow analysis. Forward cash flow projections. Standards accreditation certification. These are a few of the marketing consultant's favourite things, which most small business people regard as, well –€“ let's say irrelevant.

Marketing theory is written for big business; those with the money and the time to buy and apply it. So we have a lopsided marketing literature and theory. Fine for big business, but not always useful to a small business.

Small is different

Over 58% of small businesses are home based and 31% are part time (less than 35 hours a week). This is hard to register and worth repeating. Over half of all Australian businesses are operated from home. Over a quarter are part time.

A world away from the text books with their marketing departments and management teams.

Some small businesses are big businesses that haven't grown up yet. Like childhood giving way to adulthood, it's assumed the successful business will grow. Eventually get itself an advertising agency. Then a PR company. And maybe a marketing consultant.

The picture is often true, but in my experience the vast majority of small businesses are not like this. They are qualitatively different from big businesses (even child-stage big businesses), and in fundamental ways.

What's most important to understanding small businesses is their attitude to profit. Recognising this differences is essential to developing the services they want from marketing consultants of all types.

Profit

Small business is mostly only marginally profitable.

Yes, there are exceptions, most of them future big businesses which haven't grown up yet.

Yes, many people make quite comfortable livings. But they rarely have percentage of turnover profits to match banks or software companies.

Overall, most small business owners work very long hours pretty much for what they would get as an employee if they got paid overtime.

A possible explanation is that they are all morons, in which case we better not enlighten them with our professional wisdom lest half the businesses in Australia suddenly close and a banana appears on our new national flag.

What I believe is that small business owners generally do not pursue profit as a primary goal.

Of course they have to profit enough to survive, but after that the heat goes off. They pursue other values. That's why most small businesses have very low growth rates.

The management texts start off on the wrong foot right here, at the beginning. They assume it's all about profit. (For big business it is. For public companies the primary pursuit of profit is mandated by law.)

The business is a person (or two)

The owners are always the key to a small business. To understand the business, find out what they are getting out of it.

In rough order, here are the answers I observe.

  • Independence. Most small business people are in it because they want to do their own thing. They want to be different. A significant proportion of business owners, especially in trades industries, are in business because they are unable to deal with bosses. It's the only way they can work.
  • Challenge. People start businesses because they are bored in their jobs. They get a taste for the cut and thrust of it and they can never go back.
  • Identity. Many people put a lot of store in running their own business. It's part of their identity.
  • Family. People start businesses to create jobs for their kids, and so they can work with their family.
  • Love of the product. People start businesses because they love the product or the work and they want to make sure they can keep on doing it in ways which suit them.
  • Lifestyle. For some people, their business is their life. Networking is their social life, business travel is their holidays, business issues are their hobbies, and that's how they want it.

Profit does not much enhance any of these objectives, once the needs of business survival are met.

And profit may be harmful to these objectives if it requires growth (which it usually does).

The harm that "profit" does

Suppose I deliberately chose my current line of business because I like what I'm doing (this happens to be true).

Then suppose I get a succession of big contracts which help me grow. Soon I've got ten consultants working for me. They do all the "work" which I love. And I have to manage the processes. The finances, the debt collection, the negotiations with suppliers. Which I hate.

In terms of my objective in starting the business (to do consulting work which I enjoy) this would be a failure.

This happened to me in a previous business where I was a provider of artwork for advertising and books. I enjoyed messing with pens and scalpels (yes it was that long ago) but then the business grew and I became a salesman (Monday to Wednesday) and a debt collector (Thursday and Friday). I hated it and envied my employees. I felt like their servant. I felt cheated and the profits I was making were an inadequate consolation.

Losing contact with the product is not the only way growth can detract from the satisfaction enjoyed by a small business owner.

Growth requires delegation and trust. It requires surrender of control. And many people start small businesses precisely so they can be in control.

They want the business to be an extension of them.

So when the marketing book talks about team effort, they know that's what they have to avoid.

Profit can also mean stress. I occasionally see small business people who have been successful and have expanded, perhaps opening more shops, but then have geared back. Gearing back is one of the most difficult management feats, so clearly these people are not incompetent. They've just reached a decision about the size of business they want, that maximises their satisfactions, and accepted the consequent profit limitations.

Read more on the harm that "profit" does.

What's better than profit?

Satisfaction beats profit hands down. Satisfaction comes from doing what you want to do and doing it well. That's the big promise of small business.

Ego also beats profit in most cases, though it's harder to detect. If your small business client refuses your sound profit advice for no good reason, he may be a moron or it may be that you are being a bull in the china shop of his emotions, satisfactions, self-identity and ego. (We assume that professional managers in large companies are above this kind of behaviour  – aren't they?)

How can we use this insight?

There is great scope to develop a range of marketing services to small business, including advertising, PR and consulting, but the first step is different.

Instead of starting with, How do we maximise profits? We must start with What do the owner/operators want to get out of this business?

Those values are what the consultant must seek to preserve and maximise. Recognising this is fundamental to developing a theory and practice of marketing which relates to small, owner-operated, mostly home based and often part time businesses.

Offer what they want and they'll pay. In that at least, small and big agree.