There are many unwritten assumptions in business. One is that big is always better. We talk about ‘big business’ as if it represents some higher echelon of commercial activity. One of the key measures of success for any operation is growth, which implicitly suggests that getting bigger is a desirable goal for all.
But based on their contributions to the economy, there is nothing small time about SMEs. Businesses with up to 500 employees account for half of total private sector turnover in the UK, and employ 60% of workers. What is more, they account for 99% of all private businesses.
The assumptions around size in business are largely based on considerations of scale and financial muscle. The bigger a company grows, the more resources it has to invest in things like marketing, recruitment, technology and development. Enterprise-level operations can reach out to new markets, buy out competitors or complementary businesses, and have the brand recognition and connections to forge beneficial partnerships with other big-name players.
But size has its downsides, too. The bigger a company is, the less agile it becomes. Especially once a business is floated on the stock markets and becomes a PLC, it is constrained by the profit motive to keep shareholders happy. Big businesses can struggle to respond to rapid market changes – altering the strategic course of dozens of departments operating across multiple countries is a bit like trying to turn around an oil tanker. And they often take a lowest common denominator approach to keeping mainstream markets happy, struggling to connect with disparate niches.
Independence and agility
So the question is – is the pure might of the enterprise heavyweights what will drive the future evolution of business, or will it be the agility of the smaller hordes that holds sway?
There are several good reasons for believing that the future of business may lie with the smaller players. We’re not suggesting we’ll get to a point where large operators will deliberately aim to downsize so they can keep up with their thriving smaller counterparts, but it is entirely possible that the relative strategic importance of SMEs could increase.
For one, in these uncertain times for economic globalisation, the facts are that the bigger you grow and the more markets you seek to enter, the more you expose yourself to risk. As the 2008 banking crisis showed, the ripples of disaster originating in New York were soon bringing down international financial institutions around the world. The smaller you are, the greater the level of independence you can maintain, which helps to ride out troubled times.
Secondly, small businesses have long held the advantage in terms of innovation over their larger rivals. Whether it is selling a new product or service to a new market or approaching operational organisation in a new way, SMEs are free from the institutional inertia that can hold large enterprises back. They can turn ideas into action much faster, capitalising rapidly on opportunities as they arise, and therefore change direction quickly as needed.
The best example of this is the phenomenal rate of development we have seen in digital technology over the past two decades. Many household name tech companies didn’t exist 20 years ago. In areas like cloud computing, internet services, mobile technology, e-commerce and many, many more, ideas that have literally re-shaped the way we conduct our daily lives and do business with one another have been born out of entrepreneurial start-ups with a fresh idea.
The influence of technology, and the emphasis it places on speed, agility, inter-connectivity and evolution, is not going to disappear any time soon. And as the old institutional orders of capital economy continue to look creaky and tired, we are also seeing a growing hunger socially and politically for a different way of doing things.
A vigorous small business economy, with jobs and profits kept in local communities but with ideas and innovations shared globally, could be just what the doctor ordered.