How Small Companies Can Think Big
Most economists seem to agree that the future of jobs in the United States resides with small companies, not big companies. Big companies have gone overseas, outsourced jobs, and see the United States as a mature market that is aging, lacking any real growth going forward. This raises a major challenge for the United States – namely how do we grow small companies so they can create new jobs? Unfortunately, there is a fallacy in this approach – most small companies do not think and act like big companies. And because so many small private companies fail to behave like a big company, they will remain small and not grow. There are a number of reasons behind this – three of which I will mention in this article.
First of all, small companies unlike big companies are not global. If you want to grow and create jobs, then you have to attach yourself to growing markets. The United States and Europe, both of which are riddled with enormous debt, are not high growth markets. Growth will take place where there is a large youth population (such as Africa) or where the middle class will grow (such as China). So if you expect to grow, you must connect to these markets, both of which (Africa and China) are extremely mobile centric.
A second problem with small companies is that they do not spend much time on planning and strategizing. Big companies spend a lot of time re-visiting strategies and plotting future moves. Small companies tend to be in a reactive mode, submitting to the will of the marketplace rather than trying to influence the marketplace with innovation. This is one of the reasons why I advocate competitive intelligence since it forces all companies to engage in strategic analysis.
A third reason why small companies remain small and big companies keep getting bigger is the fact that large companies are financially smart. They pay attention to value and apply Return on Investment (ROI) to almost everything they do. Contrast this to small business owners who are clueless about how to measure value – you are lucky if 1 out of 10 small business owners know what cost of capital is and why it’s important. So is it any wonder that we are not creating lots of jobs from our small businesses – they are not creating any real value since they don’t know what it is. This is one of the biggest concepts in finance, practiced everyday by all major global corporations – pay attention to value. This is the true indicator of successful business execution.
A final point worth noting is that the hole is extremely deep for the United States. This is due to the fact that over 80% of all small private companies are not entrepreneurial. Most private companies are run by someone who has a skill or trade and they have made a business out of their expertise – be it a dentist, construction company, bakery or dry cleaning store. So the real cure for this problem is to get more private business owners to become more entrepreneurial. This requires a massive investment in training, mentoring and support for small business owners across the United States. However, we can all start with three factors that big companies are doing: 1) Think in terms of Global Markets; 2) Spend time on Planning and Strategy; and 3) Become Financially Smart.
Written by: Matt H. Evans, CPA, CMA, CFM | Email: firstname.lastname@example.org | Phone: 1-877-807-8756