By Monica Mehta
About two-thirds of businesses survive for 2 years, half of all businesses survive for 5 years, and one-third survive for 10 years, according to the US Bureau of Labor Statistics. Meanwhile, International Data Corporation (IDC) predicts that small-to-medium businesses (SMBs) will spend nearly US$602 billion on information technology (IT) in 2018, an increase of almost 5% over 2017.
So, what are successful SMBs doing to scale up, and how should they be spending their valuable IT dollars? One of the industries facing major disruption as SMBs reshape the consumer landscape is consumer markets—a convergence of consumer goods companies, which make products and go to market, and retailers, which own the stores. Increasingly, brands are doing both, as retailers create more and more of their own private labels and consumer goods companies are selling directly to consumers with the help of technology. Profit spoke with Oracle Global Director of Consumer Markets Mario Vollbracht, who has more than 25 years of experience in this industry.
Profit: The new rule of scale seems to be that there’s no longer a rule of scale. How are consumer goods companies and retailers handling this disruption?
Vollbracht: The rule of scale used to be that if I’m a big consumer markets company, I own the markets and can do a lot of things with that scale. That’s no longer the case. It’s still important—scale still plays to a great advantage for certain segments and geographies. But we are seeing so many smaller players come into the market. Barriers of entry have come down tremendously, and small companies have come in and are realizing things that big, established companies either couldn’t do or didn’t anticipate. They are reading and responding to the market in ways large companies aren’t able to.
As a result, it’s an extremely tumultuous time in the consumer market space. The mass production, mass marketing, mass retail model that companies have set up since the 1960s no longer works. The smaller players have really answered the call from consumers who want to tell companies what they like and what is important to them, such as sustainability and health concerns, and who want those to be represented in the products they buy. The big companies were very slow to respond to that, because they were used to coming up with a new product in their R&D darkrooms, with very little input from the outside world.
Profit: What obstacles stand in the way for successful small companies looking to scale up?
Vollbracht: There are three major reasons it’s still very hard for a small company to get traction in traditional retail. First, this whole mass model was all about the big-consumer-brand company having a relationship with the big retailer and buying the shelf space. Second, because of their size and acquisitions, these big-brand companies were able to drive more and more product into traditional retail, to the point where they then became category captains in the world of category management. They have an advantage as a big player, because they can start influencing things. Third, retailers really like their own private label, because it has a lot of benefits for them and their end shoppers. With private label, they own the whole thing, they can build the brand, and they can build trust with their shoppers directly. A small player has to compete with those private labels, and it’s a crowded space.
We all talk about people, process, and technology. These small organizations are able to make all three components gel.”
Profit: What are some of the strategies small companies are employing to scale successfully? What are they doing right?
Vollbracht: We all talk about people, process, and technology. These small organizations are able to make all three components gel. When you look at the people aspect, large-brand companies can make the mistake of hiring people who are fairly far removed from the market, so they are often executing the what and the how—and not so much the why. Small companies tend to be passionate about their products and customers. The answers to questions such as “Why am I doing this?” and “Why am I bringing this particular product to market?” are so much stronger and deeper. It’s ingrained in their DNA, because they’re a small operation. They’re being entrepreneurial, and they have a mission that is very close to their heart.
We all know how pervasive technology is throughout business operations today, but it is still only an enabler. If you don’t have the why, the passion, the business process, and the people defined and aligned, you can put as much technology in play as you’d like, but it will not make you successful. However, once you have those components and you look at the technology today, it’s just phenomenal. You can stand up an environment with any system you want in the world, be it an ecommerce site, an ERP [enterprise resource planning] back end, or anything in between. You don’t have to hire a small army of people to manage those systems and worry about security or maintenance. You just sign up for a cloud service, and then you can start building the things that give you an edge. Without the technology we have today, it would be so much harder for small companies to scale. It’s just tremendous.
Profit: How should small companies looking to scale approach technology so that it enables them to grow in a fast, yet sustainable, way?
Vollbracht: The advantage smaller companies have over big companies is that they don’t have to deal with huge, complex legacy systems that are difficult to change. They are digital natives, so they can sign right up for cloud systems that will help them with all aspects of their business, such as finance, ecommerce, people management, and supply chain. But how do they figure out what to sign up for, with all the overwhelming choices out there
The major strategy is to sign up for an integrated software-as-a-service system from a company that can help them grow. One of the key advantages today in business is having one version of the truth throughout the entire organization. Small companies shouldn’t buy a finance system here and an ecommerce system somewhere else and then figure out how to have the data flow. With an integrated cloud application solution, the data will be at the foundation and logically fuel all the applications needed. When I talk to SMBs, I say, “Do your homework, and make sure you find that solution suite that can grow as well as shrink with you, because that’s the benefit of the cloud.”
Profit: If you could look into a crystal ball, what would you see for the future of SMBs in terms of scaling and how things will change? What should be top of mind if they want to grow larger successfully?
Vollbracht: It’s an extremely tumultuous time in consumer markets, and we’re seeing an incredible revolution. Companies that had a hold on markets for decades are being upended by small upstarts that are delivering razors and eyeglasses to your door, and at much lower prices. The large companies don’t even see these competitors coming. And those competitors started so small—in a garage or an apartment, shipping out a few orders at a time. I think you’ll see the same with some of the SMBs that are starting up right now. The World is Flat is the title of a book that came out a couple years ago. I believe that’s true. You can be an SMB and scale globally.
Smaller organizations—the “ankle biters,” as they’re called—will continue to have the advantage of being nimble, being passionate about why they exist, and having low barriers to entry. These ankle biters will become bigger, and the danger is that they will become exactly the kind of big companies with the same disadvantages they disrupted years ago. So, make sure you stay nimble and stay true to your core values. Even if you’re bought by a larger company, make every effort to keep your entrepreneurial spirit, a passion for your products, and an authentic consumer connection. Many have figured this out and continue to scale with speed and success.