Regardless of Marcellus, WPA’s Small Businesses Are Still the Best Game in Town
Ponder WPA’s small business history and prognosis before Marcellus. Pre-1980, Big Steel and other corporations paid big and fast–in 30 days. By doing so, big business financed their small-business suppliers’ growth and success. But in the early eighties, steel’s meltdown soured Western Pennsylvania’s economy and delivered the main blow that knocked small businesses out of their comfort zone.
Then, in 2007 the Great Recession challenged the very survival of small businesses as credit and demand dried up. Many survived, only by financing their big businesses customers in settling for payments up to 120 days. Fast payments by big business customers became a fond memory.
To cut their costs, big businesses started purchasing through third-party buying groups, further squeezing small-business’ margins in return for guaranteed, if only break-even customers.
To cut costs further, large businesses have outsourced functions. One employee now does the work of three and forces his small businesses vendors to work more and harder without getting paid for extra service.
In response, WPA’s small businesses have indulged their customer bases by providing too much value for the money and avoiding high-risk debt and expansion beyond low-risk, opportunities with existing customers. Deprived of margins for their extra services, too many small businesses have abandoned differentiating themselves to save thin profit margins. They simply don’t charge for needed research and development or for product or service customization. Consequently, small businesses have settled for “safe,” predictable results and abandoned selling and marketing high value for the money.
And now, the Internet has fulfilled its potential, enabling big companies to buy ever-cheaper goods and services worldwide. This has further disadvantaged small businesses. Finally, nonprofits and government entities, who, apparently view small businesses as merely their funding source, continually pressure small businesses to give, give, give regardless of what they need to survive or reinvest. Small businesses must do well before giving to do good.
Social responsibility and the green economy makes sense, but can’t substitute for small-businesses’ need to exchange real value for real money. Social entrepreneurism has never substituted for paying customers.
Going forward, WPA small businesses will succeed only when it exchanges its differentiated value with customers’ money who need them to solve their problems. Thereby, they can operate independently of large corporations, non-profits and government entities.
Small businesses can abandon serving big business at any cost, and serve customers who value their expertise and experience and pay a fair premium in return for these values.
They are free to rely on themselves and extend their comfort zones beyond serving only existing customers with under-priced, guaranteed products and services.
On this new path, small businesses are running on higher margins and charging more for improving the conditions and outcomes of their customers, especially the bigger bullies. Small businesses now offer charity and pro-bono services to those who value and honor it rather than demand and devalue it.
As the economy improves, small companies are hiring, investing, and thinking in terms of years not months. They’re running on lower credit lines and avoiding financing their customers. Hopefully gone are the 100-plus days of average accounts receivable. And small businesses are raising prices on unprofitable customers.
Small businesses know that the goodwill they’ve leveraged with larger companies may be fully depreciated. The big businesses they’ve served have declined, micromanaged as they are for high-volume sales and low margins.
Company buying behavior has also changed for the better. Customers now expect to pay more for what’s related to energy and transportation and for services tied to these sectors. Charging for these services shows that the worst is past, and that small businesses can take positive steps to succeed.
The key to further small-business growth is realizing that value is dynamic, not static. It matures and declines over time. It’s up to small businesses to fulfill customer needs as they emerge without relying on outside forces to improve their condition and to immunize them from value volatility. And that’s without even considering our impending trillion dollar Marcellus windfall!