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The Modern Small Business

One of the most destructive mistakes a small business owner can make is running their business like a smaller big business. This common mistake seems paradoxical – shouldn’t a small business owner model their firm after industry leaders? If a change worked for Crate and Barrel, shouldn’t the same tactic work just as well for my home decor shop? Perhaps.

However, copying a competitor may lead you down a treacherous path. The realities and resources of a small and large business differ substantially from one another.

Big businesses have access to massive lines of credit, decreasing the urgency of managing their revenue. Many of them are busy with maintaining existing functionalities and surface-level modifications. Small businesses have no such luxury—for them, a static mindset will eventually become a death knell. They must innovate and adapt to market conditions to turn a profit.

The realities and resources of small and large businesses differ substantially from one another. A big business generally prioritizes management and incremental changes. Their sprawling operations necessitate a vast bureaucracy that disempower individual actors. Meaningful change is difficult for such a system to swallow. Innovation is inherently risky, yet corporate culture often funnels blame for a failed initiative on those who proposed modernized change. As such, internal incentives lead mature corporations to watch haplessly as upstart competitors seize market share and terrorize their bottom line.

Small businesses have also experienced a significant decline in numbers. The 2010-2020 decade was the first time in modern American history that more small businesses closed their doors than opened them. The recent tragedy of owning a small business in America is disheartening, but the numbers do not have to be the prediction of your business story.

Big business is undoubtedly applying incredible pressure to the market. Their economies of scale allow them to demand low prices from suppliers and favorable terms from shipping partners. To out-compete these well-funded competitors, small businesses must heed Sun Tzu and “avoid what is strong to strike what is weak.” Many businesses today take their directives from corporate competitors and mimic their actions. In doing so, they unknowingly strike where the armor is thickest thus taking on a losing position.

Having that said, one can still gain a lot of valuable information from studying the achievements of large businesses. But an obsession with matching your competitors will turn your business into a life-like imitation. A copy of an original can be nothing more than a duplicate. Fixation on the competition prevents your business from differentiating itself from the competition and unlocking the full potential.

Today, more resources, information, and technologies exist than people know what to do with. The modern potential for innovation has no historical parallel -- and neither does the capacity for creative destruction.

According to Joseph Schumpeter, who is considered the father of modern entrepreneurship, creative destruction is the “process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one” (Schumpeter 1942). In less words, creative destruction is the mechanism by which an economy says, “out with the old, in with the new.” Disruptive firms (such as Amazon and Netflix) with disruptive ideas enter the market and outcompete established businesses (such as 20th-century style retail, Blockbuster). Today, this business churn is occurring more rapidly than ever. Consider the following graph:

By 2025, the average lifespan of a company as a “market leader” will be 75% less than in 1960. The statistic does not mean that these companies fade from existence -- even Blockbuster has a remaining store. What the statistic does imply is that even businesses with international prestige can become obsolete if they fail to adapt.

Such was the case of General Electric (GE). At the turn of the new millennium, GE’s pioneering work in incandescent light bulbs, vacuum cleaners, and electric stoves seemed to make their market position unassailable. Considered a titan of industry and praised for representing the potential of the American entrepreneurial spirit, one could not predict that the incredible progress made from the beginning of the new millennium would eventually shatter such a successful narrative. After trading at $57 in 2000, General Electric has plummeted to only $7 a share today. GE looked down from their entrenched position and scoffed at upstart firms with disruptive business models. Soon, they were looking up at those same business models. GE’s managerial complacency led to shunning new technologies, new business models (ex. software-as-a-service), and new products. The result was perhaps the greatest fall from grace in the history of the American economy.

The story of General Electric is being repeated across the country. The business practice is the parable of a frog in a slow-boiling pot—by the time the frog is cooked, the time has run out for action. Finding a similarly well-known tale in the realm of small business is difficult -- although small business owners are more numerous, failed small businesses generally fade into obscurity.

How can your business avoid such a fate? The key is resisting a fixed mindset. All business owners carry certain preconceptions about what their business is and is not. Some of these notions and values, should never be violated – if you cannot respect yourself, your customers will not either. However, knowing that the name of your business is merely a label for the resources contained within the business is critical. Your expertise, your values, your storefront, your customer service, your products. All these components combined create an entity greater than the sum of the individual parts. One of the keys to small business success is utilizing differentiation to gain market traction and reduce competition. How can your business renovate and recombine the resources to enhance your value proposition? The answer, of course, will be unique to your business. Let us provide you an example by using one of our clients.

Pacific Trading Co. (PTC) is a locally owned women’s boutique with locations in Santa Cruz and Capitola. For over 30 years, the store has offered an array of premium clothing, jewelry, accessories, shoes, and lingerie. Before Coronavirus hit, they were considering opening a third location in Aptos. The store carries some of the most well-known women’s fashion brands in the world. Pacific Trading Co. is dedicated to serving their customers beyond simply providing brands they know and love. Rama Zoe Heinrich, who co-owns the store with her sister Anandi and her mom Carolyn, selects only the best of luxury brands such as Mother, Eileen Fisher, and Citizens of Humanity to be sold in-store. The owners actively engage with their customers to find items that fit their needs, leading one employee to call the store “a more casual and friendly Nordstrom.” PTC also pays special attention to sustainable brands that make a difference in their community through their “Look Closer” campaign. Pacific Trading Co.’s curated experience, customer service, and vibrant values have differentiated their business in the minds of customers and made PTC a paragon of small business success.

To succeed in an increasingly competitive market, the key is to assemble your business’ resources in a way that separate the business from competitors small and large. Your business has certain resources – the winning personality of the owner, strong values, excellent service, etc. Doing business in the same way is simply no longer an option. How can you curate your offerings to delight your customers? How can you customize your products to better fulfill needs of your niche customer segment? Can you create unique in-store experiences? Can you utilize your expertise in a distinctive yet meaningful way? Asking yourself these questions will put you on the path to creating a unique, high value offering that will send customers stampeding through the door.


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