The Small Business Advantage in a Bad Economy

            One of the most common problems I face with new clients is getting them to understand that the issues and concepts they face as “small” business owners are almost exactly the same as those encountered by large multi-national firms:  the difference between the two is simply the number of zeros on the end of the deal value.   Indeed, all businesses, large and small, must deal with legal compliance, budget concerns, employee relations, market analysis and contract negotiations.

            However, in one key area there is a significant – and positive – difference between small businesses and their larger brethren:  a recent article in the Washington Post, cites small firms’  flexibility to be an asset in surviving the recent economic downturn.  While not universal, many factors enabled progressive and nimble small businesses to side-step the cumbersome bureaucracy and fossilized credit markets that toppled industry giants.  For example, small firms enjoy:

*  Alternative Funding Sources:  Venture capital and bank lines of credit nearly ceased to exist at the height of the recent recession.  For medium and large businesses with sizeable overhead expenses and high cash flow needs, this resulted in layoffs and company failure.  However, many small business owners self-funded ventures survived because of lower immediate cash needs and the ability to acquire smaller amounts of funding from informal loan sources;

*  A Modern Approach to Employee Relations:  Small business owners often closely monitor the bottom line (it is, after all, their money) and do not face institutional resistance to alternative working arrangements.  They significantly reduce overhead costs through flexible telecommuting and working hour shifts; and

*  Personal Responsibility:  In many small businesses, owners are often the first and only point of customer contact.  This enables them to develop personal relationships with clients to gain a strong understanding of what their target market values most.  That information may lead to quick value added changes to services to best satisfy and retain repeat business.

For these reasons, many smaller businesses have been able to adjust quickly and efficiently to the changing economic and market circumstances that doomed many larger and well-established firms.