Small is the New Big
Nearly all of what happens in business is too small and ordinary for Wall Street to care much about. Same goes for investors, business reporters and politicians. Even economists don’t pay much attention. What they see are the waves and weather on the surface of the world’s economic ocean, when what matters most is the mass of water below.
To dive below the surface, here’s a brief story.
Last week my friend Patrick, the contractor who built our house, helped me haul home a new 55" Samsung TV from Costco. The TV was too big for my car, but it fit in Pat’s truck, and he was already heading over to that part of town. On the way back we stopped at a hardware store so Pat could pick something up. There we ran into several other guys who had worked with Pat over the years: a roofer, a mason, a landscaper. Then we stopped at one of Pat’s job sites, a home owned by the dad of Julie, my dentist. After dropping off the TV in our garage, next to the boxes of Samsung surround-sound speakers I got earlier at Best Buy, I drove to an appointment with Bob, my ophthalmologist, while my wife worked with Rebecca, the accountant for our business. Later, while my wife went out to an appointment with Fay, her hairdresser, I began setting up the TV and speaker system in our living room.
I’m telling you this not to brief you on minor details in our ordinary lives, but to draw a distinction between two kinds of characters in stories about business.
One kind of character is brands we all know; in this case Costco, Best Buy and Samsung. The fact that we know them is what makes them brands. Their names have been burned into our brains, much as rancher’s symbols of ownership are burned into the hides of cattle. In fact “product branding” is an idea borrowed from the cattle industry in the 1930s, when broadcasting took off as a mass medium. It also turned into a huge marketing obsession when the Internet became a thing. You can see both happening in this graph:
The other characters are people you don’t know: Pat, Fay, Julie, Rebecca, the mason, roofer and landscaper. All those are people with small businesses. None of them want to grow their businesses any larger than they need to be. None thought about an exit when they started up. None call themselves “entrepreneurs,” or go to expensive conferences. Instead they socialize at bars, clubs, gyms, restaurants, churches, city parks, beaches, ball games and on the street. They tend to have roles rather than jobs. When you need one, you look for a mechanic, a painter, a lawyer or a driver. All of them also help each other out, side by side, face to face, in the physical world.
Now let’s dive back into my story.
The biggest issue in setting up our new TV is getting the old one off the wall and the new one put up. So I started with the two brands in a position to help: Costco and Best Buy. Costco said the fee for putting up the new TV was $200. Best Buy’s Geek Squad told me their fee was $99 to show up and evaluate the situation, then a labor charge above that. So I called Pat again. He said he’d be glad to do it. He’s out of town right now, but will come with a couple of guys and do it next week at a time that works for both of us. We didn’t talk price, because we’ll probably all do it together, and he’ll take care of a couple other things that need doing around the house while he’s here. That’s how he’s getting my business, and the two brands aren’t.
There are also a lot more Pats than there are of Costcos and Best Buys. By whatever definition (they vary), SMEs: Small and Medium sized Enterprises comprise a sum that rounds to nearly everything:
- 99% in the EU (Eurostat)
- 97% in Australia (Xero),
- 99.7% in the US (Small Business Administration.)
Xero also says (at that same link) small business accounted for about 43% of all private sector employment in Australia. The Small Business Administration (at their link) says 48% of all US employees (56.8 million people) work in small businesses, and that 97.7% of US exporters are small businesses — and generate 33.6% of known export value. They add, “firms with fewer than 100 employees have the largest share of small business employment.” They also say (and show) how the ratio of startups to exits for firms with at least one employee has been looking good:
In the less developed world, according to the World Bank, “there are between 365–445 million micro, small and medium enterprises (MSMEs) in emerging markets: 25–30 million are formal SMEs; 55–70 million are formal micro enterprises; and 285–345 million are informal enterprises.” Also,
- “Most formal jobs in emerging markets are with small and medium enterprises (SMEs), which also create 4 out of 5 new positions.”
- “Formal SMEs contribute up to 45 percent of total employment and up to 33 percent of national income (GDP) in emerging economies. These numbers are significantly higher when informal SMEs are included.
- “According to estimates, 600 million jobs will be needed in the next 15 years to absorb the growing global workforce, mainly in Asia and Sub-Saharan Africa.”
- “In emerging markets, most formal jobs are with SMEs, which also create 4 out of 5 new positions.”
But stats are boring. That’s why it’s so easy to look at business through the prism of what the big brands are doing. No shortage of great stories there, especially when you can cover fights between giants using sports metaphors. Here’s one example: Google Home vs. Amazon Echo — a Face-Off of Smart Speakers, in The New York Times.
Having a talking cylinder in your house has its charms. So does living as vassals to corporate lords (which we do with our Apple or Google/Android phones). But most of what we need is simply practical, especially when it involves our business dealings. As a small business person, here’s my wish list of convenient capabilities:
1) To-do list. One that is flexible, works on mobile and desk or laptop, and is tied in with the next two items.
2) Calendar. One that, like the to-do list, knows something about what needs to be done, and what’s been done already, going back as far as I want. I also want one that ties in well with the many other people and companies I deal with.
3) Contacts. One that knows about the prior two, and notes when and how I’ve kept up with them, and is easy to correct — or have others correct. Here I include password managers, and everything else that helps me keep track of who I know, who I deal with, and how. If I have a relationship with a supplier or a client, I want to be able to connect with them easily and in ways that work the same across all of them. I also want a way to remember what agreements I’ve made, and with whom.
4) Communications. I want one way to manage all the different ways I communicate with others: email, SMS, other chat systems (Apple’s App Store, last I looked, listed 170 of them), multiple audio and video conferencing systems, tie-ins between all of these with all the the functions listed above, including records of who I’ve talked with, how, when, and where to locate any files that may have accumulated in the process.
5) Records. Inventory doesn’t cover it, though that has to be in there. I’m talking about records of everything I own, I sell, have sold already, I rent or have rented for myself or to others… you name it. As more smart stuff comes into my life and onto my shelves, I also need to keep track of it. And if it’s smart only inside Apple’s, Google’s or Amazon’s castle (which together Phil Windley calls The CompuServe of Things), that’s no help.
6) Accounting. I want a dashboard that’s the center instrument panel in my business cockpit, whether that cockpit is on my desk, my lap or in my hand. Here the usual — payroll, inventory, payments, invoicing, expenses, quotes, shipments, purchase orders, credit data, currency tax stuff and so on — stays up to date with all the other stuff above, is easy to search, yields sense-making reports and the rest of it.
With the exception of #6, most of the rest are partial solutions from large and usual suspects. Which is a problem begging solutions, no?
To see what one investor thinks, check out Return to the Edge and the End of Cloud Computing, by @Peter_Levine of Andreessen Horowitz. It’s a good way to invest 25 minutes, because it helps your mind board history’s pendulum for a ride from today’s centralized technologies and assumptions back to the edge, also known as the small. Here’s the most relevant slide from his talk:
The edge intelligence that matters most is yours and mine. Not the central kind that already has the networked world divided into feudal fiefdoms that don’t get along. Yes, we do need clouds to do the big things centralized services do best — perhaps more than ever. But we need them to work for us as individual clients and customers. And we need tools of our own as well, since we’re the ones doing the actual work.
There will also be plenty of that to do, no matter how many robots take over jobs in big business. Houses still need to be built. Plumbing still needs to be fixed. Hair still needs to be cut. Code still needs to be written too. (Let’s not forget that Linux — perhaps the world’s most depended-on operating system— started with one guy doing his own thing. And it’s still maintained by thousands of expert individuals.)
When we look down the list of those six needs above, the only one that’s already ahead of the game is accounting software. To-do lists, calendars and contacts are all trapped inside the castle walls of Apple, Google and Microsoft. Email is universal and portable (you can move yours from Apple to Google to your own server, if you like), but messaging systems are fractured into hundreds of mostly incompatible competitors. Same goes for video and audio conferencing systems. And nobody is doing what I want for records under item #5.
It helps that the one instrument panel that’s ready for the dashboard of the future is accounting software. I think one reason is that double-entry bookkeeping, the foundation of accounting, was formalized by Fra Luca Pacioli —
— in 1474. In The Second Coming of Double Entry Bookkeeping, I quoted this from Pacioli’s Summa de Arithmetica, Geometria, Proportioni et Propotionalita:
…The bookkeeper will put everything in order before he transcribes a transaction in the journal. In this way, when the owner comes back he will see all the transactions, and he may put them in a better order if he thinks necessary. Therefore, this book is very necessary to those who have a big business.
…After you have proceeded on this way through all the accounts of the Ledger and Journal and found that the two books correspond in debit and credit. It will mean that all the accounts are correct and the entries entered correctly.
…After you have finished checking off the Journal, if you find in the Ledger some account or entry which has not been checked off In debit or credit, this would indicate that there has been some mistake in the Ledger… and you shall correct this error.
These verities are so deep and permanent that they have not changed in 543 years.
So I wasn’t surprised to find my report on Pacioli’s persistent relevance seconded by @RodDrury, CEO of Xero, which makes cloud-based accounting software for SMEs. Here’s Rod, talking about it at a conference last year:
What Pacioli was after in Summa is exactly what we need to take full control of our lives and businesses in the connected world: a way to keep track of what our business does, starting with money and other assets. This is why I see accounting software as the star around which the other five things listed above will orbit like planets, and start to work with each other far better than they do now.
Toward that goal, Joe Andrieu ten years ago wrote this post, which featured one of the most clarifying points I have ever read about anything:
When we put the user at the center, and make them the point of integration, the entire system becomes simpler, more robust, more scalable, and more useful.
That user can be the person or the business. What matters is control. Agency. The ability to get stuff done.
All the data about our lives and our businesses needs to be under our control, even if it lives in clouds somewhere. Realizing this will help us locate resources where they do the most good, and integrate them in ways that work for each of us, and therefore for everybody else.
You’ll read little if any about this in the business press. But you just read about it here. And you’ll be reading a lot more as the pendulum swings toward the edge where you live. Because putting the individual and the small business at the center is what will give all of us an edge.
Bonus link: The End of Big, by Nicco Mele.
