One of the reasons the Victorian English were annoyed by Charles Darwin is because he challenged their idilic view of the countryside; that animals were not always joyous but, instead, in a constant, brutal, struggle to survive.
That perfectly describes most small businesses. But why is it true for most SME’s while the others take off?
First a diversion…..
The world is currently seeing an enormous shift of wealth to the few at the very top, in some ways mirroring the 1920s. This time share buybacks seem to be the big game in town. Who else are the banks going to lend to? Is it all going to crash like the 1920’s? Is it like the 2000 tech bubble all over again, with stupid PEs? Or is it the new normal? Are things different this time? Obviously some things are different and some ain’t. Which ones? What matters most? Will central banks stop a crash, or cause it? They are currently tipping buckets of vodka in the punchbowl, but only in the VIP room.
None of us know what’s going to happen. Certainly not the markets. Where else could all that money go but into markets? As Marylyn Monroe said in Some like it Hot… “”I’m not very bright, I guess…just dumb. If I had any brains, I wouldn’t be on this crummy train with this crummy band..”
The best advise I heard was simply “don’t bet against the Fed”, but they also said “if people loose faith in the Fed watch out”.
So, mad or sane, sky-high or crashed, the markets will do as they please and the, better informed, wealthy will continue to crave more and more wealth. What does that mean for you?
Traditional wisdom is to seek a market as big as Texas, be a need not a want, have high fixed costs and low variable costs, look for barriers to entry, be ahead of the curve. If that’s all true then it’s probably not selling underwear on Instagram, more likely some capital intensive, mass consumer market. You’ve most likely heard all this before. You have also probably heard that Levis jeans and Wells Fargo Bank were the only companies to survive the California gold rush long term – apparently its better to sell buckets and spades. Chances are, if you are reading this, you will probably not be able to compete in B2C markets with the big boys, who have access to all that cheap money, and selling to SMEs is tough, because they are doing it tough. The ones I have seen work are extremely efficient machines indeed. So, in a nutshell, you need to find customers that want, and can afford, to pay you.
Back to the point of the blog, regardless of market, why do most SMEs struggle for decades but some take off fast? I have seen many of both types over the years. People will tell you it’s leadership and entrepreneurial skill (the people that did well will tell you that). Some might even admit luck had a hand in it.
My take on it, for what it’s worth, is that, like the markets as a whole, there are always some things that are different while some things are the same (and will probably always be so). The many combinations of these factors make it too complex to draw conclusions. What look like patterns are probably better explained by chaos theory. Sorry if that seems like a cop out, but, what I will say, what I have seen often, is that successful companies mostly resemble one another while the others all seem to be unsuccessful in their own way. That is, poor organisational hygiene is common and, I think, mostly absent in successful companies. If you read this blog you will know that I think weekly margin reporting is one of the biggest hygiene factors. But, alone, the best hygiene in the world will not make you successful.
Most of my clients have one thing in common, they have very large clients. Usually top 100 companies. They provide specialised support services to these big corporates (they probably used to work in one). The services they offer would be difficult for a large corporate to do in-house for a some reason (usually speed, politics or cost). And the services almost always share another quality, they are made more valuable by exisiting outside of a large corporate’s infrastructure. These nimble firms are able to work for more than one corporate and bring in new ideas. It might be specialised advice, systems design, AI, sales and marketing, or a portal for their markets, suppliers, or employees. It might just be a small but vital piece of software.
In a nutshell they are of great use to their clients, by doing what the client struggles to do.
And, if done well, a large corporate will want to buy them because some business analyst did a spreadsheet.
Perhaps, no matter who you serve, that’s the best question you can ask… “what’s the use in that?”
If you are planning to look for new clients this year, think about what they need most from you.
Make sure they can afford you, because you’re special.
Photo by Yoav Hornung on Unsplash