The withering away of management enhances opportunity, Bailey believes, for the skilled worker who heretofore might have been relegated to a corner of the corporation, never having a say in how the business was run. "Today it's very possible to make money in companies not by supervising people but by being a contributor," says Bailey. He believes corporations will continue to evolve into smaller groupings of dedicated specialists. "Everyone will become a professional and be responsible for his or her own skill set. You need to be thinking of yourself at all times as a professional and be ready to offer yourself to the highest bidder. It's going to be possible to make good money in big companies in jobs that are more skill based. The trend is definitely toward paying less on seniority and more on value added."
The restructuring that George Bailey points to within major corporations is part and parcel of what others say is happening outside them, producing fertile conditions for the creation of small companies. Paul Reynolds, a professor of entrepreneurship at Marquette University, labels the phenomenon "disaggregation." He points out that the number of people working for large companies has been declining for 25 years. "It's much easier to start a business today," says Reynolds. "There are support systems in place that are much more attuned to dealing with small and medium-size companies." Much of that support is technological, he says. "One plant with 200 employees can turn out five times as many different products today as it could 10 years ago. And as the cost of transportation and communication declines you can serve a geographically larger area but a more narrow product or service niche."
Bruce Kirchhoff, a professor of entrepreneurship at the New Jersey Institute of Technology, echoes Reynolds: "The economies of scale in manufacturing have dropped dramatically primarily because of the automation of machine tools." Data from the Small Business Administration bear him out. Between 1988 and 1990 the country lost 974,000 manufacturing jobs. But manufacturers employing fewer than 20 people mitigated the carnage by adding 220,000 jobs.
Kirchhoff argues that small-business-survival rates are higher than commonly perceived. In a recent study, he followed 812,000 small businesses (with fewer than 100 employees) over an eight-year period. While 28% ostensibly survived, his research revealed that each year 3% of the sample changed ownership or type of ownership "at random or at the whim of the owner." That means that over the eight years, 24% of the sample appeared to disappear but, in fact, did not. Thus, 52% of the companies survived, not 28% as the data had first shown. "That's not bad," says Kirchhoff. "One of every two small companies actually survived." He concludes: "Small business is far more viable, and there's far less risk in starting your own business than people think. Entrepreneurs are far more hardy than we ever believed."
Kirchhoff's research also has shown that new-business starts often increase during hard times. Recent data from Dun & Bradstreet show that new-business incorporations rose 7% in the first six months of recession-racked 1992. That was after five successive years of decreasing starts.
What the work of academics like Kirchhoff and Reynolds suggests is that technological change has rigorously reshaped the economic landscape. Practitioners like Jon Bayless agree. A general partner at the Dallas-based high-tech venture firm of Sevin Rosen, Bayless sees technological change occurring in "waves" that "tend to be self-creating and that roll through the environment and change the landscape." Waves create what Bayless calls "discontinuity" between the status quo and new methodologies. "Typically, large companies do not react to discontinuities because they're so busy servicing the market created by the last wave," he says. "The new mind looks at the landscape and says, This doesn't make sense. That's why you get 22-year-old kids like Steve Jobs creating big companies."
Jeff Tarter, editor and publisher of Soft Letter, a Watertown, Mass., newsletter that follows the PC-desktop-software industry, considers it noteworthy that IBM, with all its resources, "has never internally created a successful software product." Contrary to conventional wisdom, he sees ongoing disaggregation, not consolidation, in his industry. "The popular wisdom is that big companies gobble up the little ones, but software is a niche business," he says. Market niches are often defined -- and protected -- by the imagination of the people who create them. "I see $1-million software companies that own two-thirds of a $1.5-million niche," says Tarter. "They have no competition, and they have very close relationships with their customers."
Because of ongoing technological change, Bruce Kirchhoff argues, opportunity today will occur in unlikely places. He cites retailing, where economies of scale, embodied by hugely successful companies like Wal-Mart, seem critical to success. "The wave of opportunity I'm watching for now is in the link between retail and wholesale. I'm looking for a creative wholesaler that can link into small retailers so they can deliver personalized service to the local community at the same cost and savings as Wal-Mart." Kirchhoff says that a decade ago running a sophisticated cash-register system tied into inventory control at a Wal-Mart store cost $1 million and required a minicomputer. Today that amount is closer to $5,000 or $6,000. "Inventory control is everything in retail. It represents 90% of the assets of any retailer. Small retailers do not have that kind of control -- yet. Most people think the issue is scale. It's not; it's the ability to control inventory. Clearly, an evolution is coming. A lot of people are not happy wandering through Wal-Mart."
Tarter and Kirchhoff find an advocate in David Birch, president of the Cambridge, Mass., economic consulting firm Cognetics. He notes that in 1954, about 117,000 U.S. businesses started up. In 1992 that number approached 700,000. Birch says there are currently 500,000 small U.S. companies growing at 20% a year. Meanwhile, Fortune 500 companies now lay off 400,000 people a year on average, and one-third of Fortune 500 companies fall off the list every five years. "It used to take 20 years for that to happen."
