E-mail, networks, and easy-to-access databases are enabling small businesses to play ball with the big boys
Can information technology (IT) make a David seem like a Goliath? According to the CEOs and company presidents we spoke with, the answer is an unqualified yes. In today's world of networked databases, E-mail, CD-ROM subscriptions, and teleconferencing, success is determined less by size than by technological muscle. Even companies of 15 or 20 can gather market data in all parts of the world, establish long-distance strategic partnerships, advertise anywhere via the World Wide Web, or hold international sales meetings -- and their employees never have to leave the office.
Competing with big business is easier than ever now that IT is so affordable. Ten years ago, purchasing a high-powered computer system could set a small company back half a year's revenues. Today, $2,000 for a PC is a small -- perhaps minuscule -- investment, even for a one-person operation. Marketing dollars, too, go much further with technology. With a $2,600 laser printer, a two-store grocery chain can create ads that rival those of Kmart Corp., and for just a few hundred dollars, a storefront company can throw up a home page on the World Wide Web.
With the odds evening out, it's lack of brains, not brawn, that poses the real threat for small businesses. As U.S. Secretary of Labor Robert Reich tells us, the biggest handicap for small businesses that are trying to compete is not revenues or global reach but a shortage of people trained in IT.
Herewith the thoughts of five entrepreneurs on how IT helps them mind the store, keep up on the latest news, stay on top of a busy household, and live in the boonies while conducting business halfway around the world.* * *
CEO of 20-employee Spectrum Diagnostix Inc., a manufacturer of process-control and emissions-monitoring instrumentation in Andover, Mass., with more than $1 million in sales
Information technology lets small businesses communicate with customers and suppliers without regard to time, place, and sometimes even cost. Historically, that capability was limited to large companies because only they could afford to have worldwide marketing teams. Even though Spectrum has only 20 employees, E-mail allows us to communicate with customers all over the world -- without having to travel. That's important because we sell one of our products in Europe and Asia -- and one of our strategic partners has offices in Munich and Singapore.
Using teleconferencing, we held an international sales meeting with our Canadian partner and gathered marketing information from customers around the globe. The data told us we needed to add performance capabilities and modify some features in our emissions-monitoring instruments that we had not thought were important. With the help of the Internet, E-mail, and other types of technology, we've also been able to form stronger partnerships. And with strategic partnerships, small businesses can develop vertically integrated teams, like ours with the Canadian company, teams that have the flexibility and versatility necessary to compete with large businesses.
Another tool historically limited to large companies is the networking database. We now have access to those databases simply by paying an on-line fee. Through those databases we can get basic research-and-development information. For example, our business is based mainly on the use of a tunable diode laser, which produces light that travels across a fiber-optic link. It's how your phone system works. Until 1990, lasers were very expensive to use. But over the past 10 years the industry has conducted research on lowering the price of using lasers. That research has been published on the Internet and in large databases maintained by the Small Business Innovation Research program in Washington, D.C. It's helped us develop our products.* * *
CEO of Amy's Ice Cream, a chain of 10 ice-cream stores, headquartered in Austin, Tex., with $2 million in sales
When employees in a small company take time off -- to have a baby, say, or for medical reasons -- it's hard to fill in the holes while they're out. In a larger company, of course, plenty of people can pick up the slack. My office manager and I both had babies this year, and I didn't know how we would manage. Technology has given us the edge the larger companies have as a matter of course.
With my Macintosh PowerBook and a StyleWriter ink-jet printer, I can do everything at home. Using Quicken, I handle all of my company's accounts-payable transactions. I can also modem the payroll information directly to my payroll company. When we applied for a loan from the Small Business Administration, I was able to compile all the historic information I needed for the application without going into the office. We got the loan -- $450,000 -- in August. I even designed a new bonus plan at home for our managers, using the fax modem on my computer to send and receive information from the office. I go into work only about once a week, to pick up a stack of bills. I worried that I would sacrifice time with my new daughter, Emma, but everything has worked out wonderfully because of technology.
Another technology that's made a huge difference in our company is voice mail. At first I was resistant to it because I wanted employees, not a machine, to answer the phones. But we installed it, and it's actually increased personal contact. For example, our catering manager not only manages the administrative part of our $150,000 catering business but also oversees events. Thanks to voice mail, he doesn't have to worry about missing the three or four calls he might get for catering jobs while he's out with a client.* * *
President of County Fair Food Stores, a two-store grocery chain in Mitchell, S.D., with $18 million in sales
When it comes to technology, we're right up there with the big boys. We pay only $30 a month for a satellite system that receives broadcasts from manufacturers -- including commercials and discount information specifically designed for products sold in our stores -- and then plays them over our speakers. The broadcasts help push items in the stores that otherwise might not move off the shelves fast enough. And the system saves us money because we don't have to pay to produce the broadcasts. Kmart has the same system.
Also, because we have computers and laser printers, we can create signs and price tags in-house. Kmart contracts an outside source to make its signs, but ours look just as professional. We've programmed the computer so all we have to do is enter the product information to output a sign. For instance, if we're going to run a special on Coke 12-packs, we simply scan the bar code, punch in the price, enter the date the sale starts, and hit a button. The system then prints out signs that meet size specifications we've previously set. It used to take us hours to make signs by hand. Now it takes us a few minutes.
Back in 1984, when County Fair Food Stores was founded, we were probably 10 years behind the big stores technology-wise. Now we're only 1 or 2 years behind. We've closed the gap because the price of technology has dropped so much.* * *
President of Fuller Medical, a 15-employee medical-equipment and -supply company based in Gadsden, Ala., with $1.7 million in sales
We subscribe to a CD-ROM look-up system called Epic Plus, from Medical Data Institute Inc., in Langhorne, Penn. The system goes a long way in helping us compete with larger companies. Every two months we receive updated information in CD-ROM form on a wide array of medical equipment and supplies so we can easily learn about items we might not have in stock. For example, a rehabilitation hospital referred a patient to us who needed a specialized pediatric walker -- an item we'd never heard of. We consulted the CD-ROM system to learn about it, to find a vendor who supplied it, and to get pricing information. Without the system we'd have had to make dozens of phone calls, with no guarantee of finding the item. With the system we can often track down items in less than 30 minutes. That ability has given us a reputation for finding the unusual, and we've been able to pick up many customers that larger companies don't want to bother with.
Now that PCs are so accessible, I don't know of anything large companies can provide that small businesses can't. I'm currently working on a bid with an agent in Kuwait City. Before the information-technology boom, I probably would have had to live in a big city like New York, close to freight forwarders and other services, in order to get the job. Now I can live in Gadsden, where my overhead is low and the quality of my life is better, and still carry on business. With a telephone line, you can compete with anybody, anywhere.* * *
President of Create-IT Inc., a small-business consulting firm in Naperville, Ill., with more than $4 million in sales
One piece of technology that I think will really level the playing field for small businesses is the World Wide Web. In terms of advertising, the Web puts small businesses on equal footing with much larger ones. In the past the costs of advertising nationally have been prohibitive for small companies. Now, with a couple hundred dollars a month and a little knowledge about how to design a Web page, the small-business person can advertise to a national audience. I don't think the Web reaches significant numbers of people yet, but in three years or so it may be a very competitive advertising medium. In fact it may even surpass television advertising in popularity.
One thing that slows down traditional large corporations is the inefficient flow of information. Small businesses don't have that problem. They're champions when it comes to moving information -- and information technology lets them communicate even faster.
Once I had a major Fortune 500 company as a client. I had entered the company's name on my list of wanted topics in CompuServe's on-line news-clipping service, and one day, before a meeting with one of the company's divisions, I checked the latest news clippings. There I read that the division was being sold to IBM. At the meeting I said to the group manager, "So I guess you guys are going to be wearing white shirts pretty soon." He had no idea what I meant. When I told him what I'd read, he was shocked. The news had not filtered through the organization.
Small businesses used to be information poor, but that's no longer the case. Before the IT wave, small-business people were consumed by the day-to-day aspects of running a business, and doing research was difficult -- it usually meant making trips to the library or hiring someone to do it. Now the information is at everyone's fingertips.
KNOCKING DOWN WALLS
U.S. Secretary of Labor Robert Reich believes that technology is setting small businesses free
Information technology is obliterating the distinction between small business and big business. Big businesses are becoming collections of small businesses, and small companies are partnering with one another, creating virtual corporations for a given period. Many industries that have been dominated by large corporations, like the automobile industry, are becoming networks of small suppliers linked through IT. Take Chrysler Corp., for instance. For its latest-model car, Chrysler used a large company for its upholstery, which in turn drew on a whole network of smaller suppliers. Through IT, the suppliers all shared the same data on supplies and information on how to produce components inexpensively. The Boeing Co. used the same strategy to build the 777, using subcontractors in the United States and abroad.
In the past, one of the major barriers to entry for small business into fields dominated by large players was access to information. But large companies no longer have a monopoly on information regarding emerging technologies, consumers, capital markets, or even personnel. Today, small companies can rapidly form niche markets using all this specialized information.
During the 1980s all businesses -- large and small -- made a huge investment in IT, and that investment continues. But they didn't invest in the human side. For IT to generate value for small businesses, the businesses have to have people who can use it to identify and solve problems. There's a scarcity of people who can use the hardware and software that is piling up -- even applications as simple as spreadsheets. Big businesses can afford to train people or pay higher salaries to attract the people who have IT skills. To solve the problem, some small businesses are forming consortiums and teaming up with community colleges to develop curricula based on skills -- especially IT skills -- that small businesses need. And President Clinton is proposing a tax break of up to $10,000 for people who need to go back to school to learn those skills. The biggest handicap for small businesses is the shortage of people trained in IT. In every other way, IT is taking down the walls for small businesses and allowing them to compete more effectively.