Small Business Labs

Market Economics, Deregulation and Small Business in Yemen

Two underlying, but very powerful, long term trends are driving the growth of the global small business sector.  The first is the broad adoption of market economics.  Capitalism won its contest with communism and most countries have moved to market-based economic systems.  The second, related trend is business deregulation.  Most nations are lowering trade and business barriers and joining the increasing integrated global economy.

Many debate the merits of these shifts (my favorite book on this broad topic is Supercapitalism by Robert Reich).  But one clear outcome of these changes is the combination of market economics and deregulation is creating new small business opportunities around the globe. 

A good example is a recent article in the Yemen Times titled Small Business - The way to the future.  Yemen is a small country (population roughly 23 million) located on the Arabian peninsula due south of Saudi Arabia.  One of the poorest Arab countries, Yemen has limited oil reserves.  According to the CIA Factbook, Yemen's per capita GDP is $2,300 and 45% of the population lives below the poverty line.

The article discusses the importance of the small business sector to Yemen and the government's attempts to improve the small business climate.  Key quote:

"In 1998, the law of supporting small business enterprises was enacted and put into effect. The law aimed at removing all obstacles hindering the growth of small businesses, including limiting any taxation or fees paid by these businesses, while creating government agencies such as the Social Fund for Development, aiming at providing access to credit and technical assistance. The Social Fund for Development mainly aims at helping the growth of small business and the creation of new ones."

Yemen has a long way to go before it truly has a thriving small business sector.  But the recognition of the importance of small business in Yemen is part of this broader global shift towards encouraging and enabling the growth of this increasingly important economic sector.

Lessons From the Inc. Fast Company SMB Market Summit

I had the opportunity to participate in the Inc./Fast Company SMB Summit last week. The summit was a highly interactive event focused on exploring ways to reach and communicate with small and medium sized companies.  What made the event so interesting was the group combined executives from both big and small companies in a format designed to encourage discussion and interaction.  While lots of good stuff was covered, two key lessons jumped out at me:

1.  Defining and segmenting the small business market is key.

The summit started with Mansueto (the publishers of Inc. and Fast Company) providing an overview of their detailed, quantitative research on the small business market.  This was followed later by a great discussion between the small business CEOs and the larger company marketing executives around how well big companies understand small business needs.  The view from the small business CEOs was that their businesses and business needs are not well understood by big corporations.  The big company execs did not disagree.

No great surprise here, but a lot of the issues seemed to come down to segmentation.  As the Mansueto data showed, the SMB market is very diverse.  But it seems to the small business execs that too many big companies offer undifferentiated "small business" products and programs without thinking through the needs of the wide variety of small business segments and types.   

2.  The increasingly quantitative nature of marketing.  Execs from Netsuite and Intuit presented on how they market to SMB's.  Both companies use a mix of quantitative methods to design, test and track their on and offline marketing programs with a strong focus on clear, measurable results. 

Online marketing in particular allows for the use of analytics and Jay O'Connor, SVP of marketing for Netsuite, provided some great examples of how they test advertising and marketing offers to improve campaign results.  They do this, of course, using their own Netsuite product line.

We're constantly amazed by the number of small businesses we see using advanced marketing analytics.  The Internet provides the opportunity to take advantage of marketing analytics, and companies like Netsuite are providing increasingly sophisticated marketing tools to small businesses.

It was a great event and look forward to the next one.

   

 

 

 

Will Large Corporations Survive?

Our view is yes, or at least yes for the the next couple of decades.  Despite the growing role small businesses are playing in the U.S. and global economy, size and scale will continue to provide competitive advantage in many industries.

Two interesting posts on this topic last week.  PSFK - one of my favorite trend watching blogs - has a post called "How Long Can P&G Last?"  The post questions whether or not large consumer products companies like P&G and Unilever can continue to compete when consumers increasingly are attracted to local brands and brands that reflect consumer values.  Key quote:

"Travel through Europe looking at new ‘local’ brands made the team at PSFK wonder about modern brands and whether ‘holding companies’ like P&G and Unilever can really last doing business the way they are."

The other related post is from Always On and is called "The Studios are Back."  Key quote from the CEO of online video start-up company Quarterlife on the role big media companies play in online video:

"...the days of user generated video success, with a hit on YouTube, are essentially over.  The real power for online video success comes from the studios and big media companies who produce and distribute viable content."

The death of large corporations has been a popular prediction since the early days of the Internet.  In the mid to late 90S it was commonly believed the Internet would quickly kill both large retailers and large brands.  A decade later Walmart, Pepsi, P&G and other big retailers and CPG companies are doing just fine.  And as PSFK's post points out, big CPG companies are not going away anytime soon.   

The death of large media companies is another popular prediction. Many claim they will be replaced by user generated content.  While the media industry is clearly going through substantial change, it seems from Quarterlife's perspective that big media companies are not quite dead yet. 

In almost every industry we track we see consolidation resulting in fewer, but much larger, global corporate giants.  At the same time, in most industries we are also seeing growing numbers of small businesses and declining numbers of mid-sized businesses.  This industry structure will likely become increasingly common over the next decade (we cover this in more detail in The New Artisan Economy research report). 

While somewhat counter intuitive, very large corporations will continue to grow in size even as we move to a more decentralized economy with growing numbers of small businesses. 

Disclosure:  I've done work for P&G in the last year.   

   

ADP Says Small Business Employment Continues to Grow

Payroll provider ADP released their May employment report last week.  According to the report, U.S. small business employment (fewer than 50 employees) increased by 61,000 in May.  Their survey also showed overall employment up by 40,000, with larger employers shedding 21,000 jobs.

While the ADP data tends to mirror the official government statistics over the long run, they often have very different monthly results and May was example of this.  The official BLS stats had overall employment falling by 49,000.  The BLS does not break out their monthly employment data by firm size.

ADP data has consistently shown small business employment outgrowing large business employment since 2001. 

I saw this first on Matt Banyk's Risky Business blog.

The Next American Frontier - The Entrepreneurial Economy

Interesting opinion piece in the Wall Street Journal called The Next American Frontier by author and journalist Michael Malone.  The premise is the Internet is creating a new entrepreneurial economy.  The author links the new entrepreneurial economy to the American frontier period.  Key quote on statistics related to small business and entrepreneurship:

"The most compelling statistic of all? Half of all new college graduates now believe that self-employment is more secure than a full-time job. Today, 80% of the colleges and universities in the U.S. now offer courses on entrepreneurship; 60% of Gen Y business owners consider themselves to be serial entrepreneurs, according to Inc. magazine. Tellingly, 18 to 24-year-olds are starting companies at a faster rate than 35 to 44-year-olds. And 70% of today's high schoolers intend to start their own companies, according to a Gallup poll."

The author also points out never really has been a nation where entrepreneurship is the dominant economic system:

"In the past there have been trading states like Venice, commercial regions like the Hanseatic League, and even so-called nations of shopkeepers. But there has never been a nation in which the dominant paradigm is entrepreneurship. Not just self-employment or sole proprietorship, but serial company-building, entire careers built on perpetual change, independence and the endless pursuit of the next opportunity."

He goes on to describe this new world as "Scary, exciting, liberating, frustrating, infinitely ambitious and thoroughly amnesic."

 

6 Million Small Businesses Started in 2007

The Kauffman Foundation recently released their annual Entrepreneurial Activity report for 2007.  According to Kauffman, roughly 6 million small businesses were started in 2007.  Also, the entrepreneurial activity rate increased slightly over 2006.  Some of the key findings:

• Immigrants continue to start businesses at a much higher rate than native born and the spread is increasing.
• Men start businesses at a much higher rate than women and are now twice as likely to start a business.
• The entrepreneurial activity rate for Latinos increased substantially in 2007.

The report also has detailed data by state and major metropolitan areas.

Sparkplugging - From Moms at Home to Homepreneurs

Interesting Problogger interview with Wendy Piersall, the founder of the blog  eMoms at Home.  She has changed her site's focus and rebranded its as a small and home business resources network called  Sparkplugging: Thinking Big in the New Work at Home Generation. 

The first thing in the interview that caught my attention was that eMoms at Home started as a hobby business, but grew into a real business.  In our research we continually run across this progression - interests and passions lead to hobbies, hobbies lead to hobby businesses and hobby businesses lead to real businesses.  This is a great example of this evolution.

The second point that caught my eye is her audience often does not define themselves as owners of small businesses or entrepreneurs.  Key quote from the interview:

"Another factor is that our audience, while extremely experienced in business, doesn’t really have a standard ‘label’. They don’t really consider themselves ‘home business owners’ nor do they consider themselves ‘true entrepreneurs’. They are a vastly diverse group of amazing people that kind of fall in between those two stereotypes, and call themselves things like “author, blogger, consultant, freelancer, moonlighter, marketers, or tech geeks”."

In our interviews with personal business owners (one person businesses) we hear this all time.  They will say "I'm not an entrepreneur" or "I don't own a small business."  This is one reason why we believe most surveys understate the number of U.S. small businesses and their economic impact.  We also think this is a key reason why most traditional small business segmentation models miss this market.

I also found it interesting that her blog network more or less naturally moved from a focus on moms at home to a focus on working from home.  Quote from the interview:

"But in order to really serve our readers, I realized that we needed to position ourselves as a resource for people who use the internet and technology to create flexible work for themselves - both parents and non parents."

This interview nicely points out a number of the trends driving the growth of personal and home-based businesses:  the growing interest in worklife balance; technology and the Internet; the evolution of hobbies into personal businesses; and the increasing supply of information and support services targeted at this segment. 

I first saw this mentioned on the Small Business Survival blog, which covers another really interesting small business sector - small businesses in rural areas and small towns. 

Gazelles, Cheetahs and Traditional Small Businesses

High growth small businesses are often referred to as gazelles or cheetahs.  These firms attract venture capital, grow very rapidly and hire lots of people.  They are very innovative.   Google and Facebook are gazelles, as were eBay and Yahoo before them.  Although they comprise less than 1% of all small businesses, gazelles are considered by many in business, government and academia as the key drivers of economic growth and innovation.   

I agree that gazelles are very important to the U.S. and global economy.  But our research on small business has convinced me that the economic contribution and importance of traditional small and personal businesses (one person businesses) is underestimated.  I also believe this sector of the U.S. economy will become increasingly important over the next decade. 

There have been two interesting posts on this topic over the last few weeks.  Jeff Cornwall's Entrepreneurial Mind blog has a post called "The Real Economic Hero." Key quote on the role of traditional small businesses:

"Those boring little entrepreneurs who toil away with only their own investment -- maybe with a little help from their family and friends -- is what really drives today's entrepreneurial economy. It is these small businesses that now generate about 50% of the US economy and have created 77% of new jobs for the past twenty years."

Tim Berry chimes in on this on his Planning, Startups and Stories blog with the post "Does Investment Make the Venture?"  Tim's point is that you don't have to have venture funding to be a real business.  From his post:

"However, when we're talking about business in general, let's give bootstrapping its due. There is a lot to be said for managing to get it going on its own power, scraping a lot at the beginning of course, but eventually building a business that doesn't depend on the big investment."

Gazelles will continue to be important, but traditional small and personal businesses will increasingly provide new jobs and economic growth. 

Media Fragmentation and the Growth of Small Publishers

The 24/7 Wall Street blog has a list of what they consider to be the 25 most valuable blogs.  The list contains indpendent blogs and blog companies and excludes major media company properties as well as blogs that are meant to promote other businesses.  Since all of these are private companies and do not publish financial data, they've based their valuations on publically available traffic metrics. 

Gawker Media is #1 on the list and valued at $150 million.  I was a bit surprised by #2.  It is MacRumors, which is valued at $85 million.  Number 25 is Travelpod, which is a travel scheduling and planning site.  They do not put a value on Travelpod, but it comes right after a site valued at $860,000This list illustrates the continuing growth of small online publishing companies and the ongoing fragmentation of the media industry. 

So does the increasing role search is playing in the consumption of online news and information.  Publishing 2.0 has a really interesting post on how search has transformed online news consumption.  The point of this post is that consumers are increasingly using search to discover news and information.  This allows small news and information providers to develop an audience.  This site, for example, gets most of its non-RSS traffic and new RSS subscribers from the search engines. 

Interestingly enough, a number of large media companies like Reuters and The New York Times are even using paid search links to attract readers to their stories.  I think this advertising arbitrage play shows just how effectively small publishers are competing with large media company. 

While large media companies are not going to disappear, the media industry is going to continue to fragment.  This will continue to create new opportunities for niche publishing companies. 

Magicians and IP Law

Really interesting paper on intellectual property law (never thought I would write that) called "Secrets Revealed:  How Magicians Protect Intellectual Property Without Laws."  It is on the Kaufman Foundation Top Research Downloads of 2007 list. 

Magic occupies what IP lawyers and researchers call an "IP negative space."  These are spaces where IP law does not apply or offers little protection.  Magic tricks simply don't lend themselves to traditional IP protection, so the industry has developed community norms for enforcing IP.  These norms work reasonably well. 

With knowledge, ideas and concepts becoming more important, businesses are increasingly finding themselves in IP negative spaces.  It is interesting to see how the magic industry has handled these issues through cooperation and community. 

The first couple of chapters are the most interesting and cover the history of magic and how magic innovation occurs.  The rest talks about IP and IP law.