Finding a competitive advantage is often a necessity for many smaller organizations. Big companies have economies of scale that give them the edge. Since small companies cannot obtain the same economies of scale as their larger counterparts, how do so many small business compete? Through innovation. The creativity and ingenuity that so many small businesses cultivate provide them with a competitive advantage that big business just cannot compete with. Innovation can be the key to a small business competitive advantage.
A competitive advantage occurs when an organization develops or obtains a certain attribute that allows them to outperform the competition. A very simple example of this is the competitive advantage that large, "big box" companies have. These large companies are able to obtain products for a much lower cost than a smaller competitor. Large companies purchase larger quantities which drive down their costs as products are often sold at a lower cost for larger quantities.
In addition, larger companies are also often able to reduce distribution costs. In its simplest form, distribution is the process of how a product gets from the maker of the product to the store that it going to sell it. By establishing their own in-house distribution systems, larger companies can reduce their costs instead of relying on a more expensive third party to deliver the needed product.
So how is a small business supposed to compete when these large companies have all of the price advantages? The answer is innovation.
- Innovation in larger companies can be a very, very slow process. Take Starbucks for example. If Starbucks is interested in innovating their product line, they must innovate on a very large scale. Planning, preparation, testing, tweaking, and training must all take place before a new product can be rolled out. In contrast, a small local coffee shop could potentially roll out that same new product in just a few hours (or however long it takes to put the new item on their menu).
- Innovation doesn't always have to be related to the product either. Innovation in service, delivery, and atmosphere can occur much easier and quicker for a small innovation. The reason? Large companies are just too big to be able to "pivot" (or quickly change) like a small business can.
What innovations have you seen in smaller businesses that would just not have been possible in a larger business?