Small Business Labs

Microsoft Small Business Insight Report

Microsoft has released a report predicting that a majority of small businesses will maintain or increase their IT spending in 2009. 

To develop this forecast, Microsoft surveyed their business partners that focus on small business.  Designated by Microsoft as Small Business Specialists, these partners supply small and mid-sized businesses with IT services. 

Key findings of the study include:

1.  Small businesses will continue to see IT as a strategic asset and a way to cut costs and improve productivity.

2.  Tighter budgets will lead to increased streamlining of IT services and a focus on cost cutting and doing more with less.

3.  Smaller companies will increasingly move to cloud computing.

4.  SMBs will increasingly rely on VARs and other partners to help with IT.

Since Microsoft surveyed its small business partners instead of small businesses the report provides a different - and useful - perspective on small business IT. 

Creating Fans Through Great Customer Service

I was a business trip recently and for reasons too long to explain I needed a new suit.  And I needed it in less than 24 hours.

I went to the local Jos. A Banks store and explained my problem.  Less than a day later I had a new tailored suit. 

Making me even happier, they had an excellent sale going on and they did not charge me extra for my rush tailoring job.

This is great service, the kind that creates loyal customers.  It also turns customers into fans who support the brand with positive word of mouth and social media posts.

I was already a customer of Jos. A Banks, but not a fan.  I am now a customer and a fan.

A Balanced Analysis of the $250,000 Small Business Tax Issue

Kudos to Businessweek for their balanced coverageof the Obama administration plan to roll back the two highest marginal tax rates. 

Under Obama's plan the two highest marginal tax rates would move from 33% and 35% to 36% and 39.6%.

As the article points, out non-partisan sources - including The Tax Policy Center - believe that only 2% to 3% of small business owners will be impacted by the tax increase. 

Our analysis also shows that relatively few small businesses will be impacted. 

This doesn't mean we think the tax increase is a good idea.  But we also see no way to spin the data enough to claim anywhere near 9% to 15% of small businesses or their owners will be impacted.   

Seth Godin on the Right Company Size

Seth Godin has a very interesting post  about scale and business size.  Key quote: "Many businesses that are in trouble are in trouble for a simple reason: they're the wrong size."

We've done a lot of work on this topic over the last few years and we certainly agree with Seth.  In particular we are seeing two broad trends on this topic:

1.  Most industries are moving towards a barbell industrial structure with a few global giants on one end and lots of small businesses on the other.  Mid-sized firms (sizes vary by industry) are being acquired by larger firms or squeezed out. 

Driving this is the changing nature of economies of scale.  In many industries scale has become less important due to technology shifts.  And as Seth points out, in some industries scale has become a major competitive problem.

2.  Variable cost business models allow small firms to be competitive with large firms in an increasing number of market spaces.  New technologies have reduced the costs of starting and operating a business. 

And outsourcing, partnering and business infrastructure service companies (UPS for logistics, contract manufacturers for production, Amazon on others for IT and web services, etc.) have created the ability to start and operate businesses using a high degree of variable costs. 

The chart above is taken from an earlier post on this topic.  It shows that in niche markets small firms with low fixed costs have a substantial advantage relative to larger firms with high fixed costs. 

And we see more and more markets becoming niche markets.   

We are not suggesting that large firm are going away.  There are many market segments where scale still matters. 

But a key reason we are forecasting continued growth in the small business sector is their ability to use their size and agile business models to effectively compete in a growing number of markets. 

Secret Ballot Not a Good Way to Vote?

The Employee Free Choice Act is pending legislation that would make it easier for workers to form or join labor unions.  The measure appears to have died for now due to Senator Arlen Specter (R, PA) pulling his support. Specter was the only Republican in favor the measure.

The most interesting part of the legislation is it ignores centuries of voting best practices and replaces the secret ballot with a system where a worker publicly checks a card.  If over half of the involved workers check yes, the union is formed. 

Because of this, the legislation is widely known as the card check bill. 

I'm not an expert on unions or unionization, but it seems to me many of the provisions of the bill are worthwhile.  Stiffer penalties and stricter enforcement of existing labor relations laws, for example,  make sense to me.

But arguing that the public signing of cards is a better voting method than the secret ballot?? 

Even dictators and totalitarian regimes throughout history maintained at least the illusion of the secret ballot.  They knew even a staged secret ballot had more credibility than public voting.

It would be funny except it may still happen. 

Tim Berry on Loving and Hating Twitter

I've been meaning to post on Twitter for some time now.  I haven't because I continue to be somewhat conflicted about it. 

The good news is Tim Berry has written a great post on Loving and Hating Twitter, so I don't have to and can instead point you to him. 

Like Tim, I think there is a lot to like about Twitter.  I find it great for information discovery and learning about new areas and new topics.  I also use it to keep up with the information flow in my main areas of interest. 

Because of this, I use Twitter search much more often than Google search.  This is pretty common among active Twitter users. 

I also find it a great way to meet new people and keep up with folks I already know. 

But I also find it annoying (lots of technical problems), time consuming and increasingly hard to manage as my follow and follower list grows.

I have other views on Twitter - both positive and negative - but will stop here because Tim does such a good job with this topic. 

Craigslist Continues Strong Growth

The web traffic market research company Hitwise has an interesting poston the top U.S. search terms.  According to their measurements, for the first time in three years Craigslist passed Myspace last week as the most popular search term.

     

Craigslist's search term percentage doubled from last year, driven in part from both buyers and sellers increased interest in classified ads due to the recession.   

It is also interesting to note that while interest in Craigslist is booming, eBay saw a 15% decline over the same period.          

Recession Drives New Businesses

Three good articles last week on the economic downturn resulting in displaced workers starting businesses and freelancing.   

In Hard Times, Freelancers Turn to the Web, NY Times reporter Dan Fost discusses layoffs leading to a growing number of freelance workers and the various freelance marketplaces they turn to for business.  The article covers Elance, oDesk and several vertical industry sites that connect freelancers and independent workers with companies looking to hire contractors. 

Weary of Looking for Work, Some Create Their Own, also from the NY Times, talks about a surge of interest in entrepreneurship due to the economic downturn. 

And over at BusinessWeek, John Tozzi's After Layoffs, Starting a Business From Scratch reports on laid off workers starting small businesses. 

The BusinessWeek article also has a great slide show with 29 examples of displaced workers - referred to as "rebounders" - who have started a new business. 

We've posted in the past on recession leading to higher rates of small business formation. 

SBA Study on Small Business Innovation

Over the last few years the SBA Office of Advocacy has funded several studies examining the patent activity of small businesses. 

All show that small businesses outperform larger corporations in the issuance of patents on a relative basis, meaning that per employee or per dollar of revenue small businesses produce more patents than big businesses.

Today the SBA Office of Advocacy released another installment in this series.  Innovation in Small Business:  Drivers of Change and Value widens the scope of this research by looking at the effects of drivers of innovation - employee headcount, sales and R&D expenditures - on small business value.

The research was conducted by Ceteris, Inc. and uses patent production as a proxy for innovation.  The use of patents as an innovation proxy is common in academic research.  This is done because of the quality and accuracy of patent information and the lack of other relevant innovation data sets. 

The key findings of the research are:

1.  Innovation increases significantly as small businesses increase headcount.

2.  Increasing R&D expenditures increases small business firm value.

Interestingly enough, the study also found that changes in a firm's sales have neither a positive or negative effect on innovation and there is no statistical relationship between patent count and market value. 

Like all SBA funded studies, Innovation in Small Business is academic quality research using rigorous methods and detailed data sets.  Studies like these are important in helping us better understand the role of small businesses in the U.S. economy. 

And like other academic papers, it provides a literature review that covers past studies related to the research.  I always find this section of academic papers to be extremely useful in understanding the broader topic.

The paper is available for download from the SBA Office of Advocacy. 

Small Business Innovation Research Study Released

                     

Intuit and Emergent Research (that's us:)) today released a research brief on small business innovation. 

The findings of the research focus on the key factors that drive, enable and amplify small business innovation. 

The report is part of the ongoing Intuit Future of Small Business research series and the first of several research briefs on small business innovation.

Some of the key research findings include:

1.  Small businesses are often natural innovators who use a mix of incremental, market sustaining and more radical market changing innovation in their businesses.  Our research shows small business innovation is not limited to tech or high growth firms, but used broadly across the small business sector. 

2.  Most small businesses do not describe themselves as innovators or use the term "innovation" to describe new products, business processes or methods.  Instead small business owners and managers use words like tweak, adjust, improve, fix, etc. to describe innovative practices and even innovative new products. 

3.  Many small businesses use business model innovation proactively and reactively.

The research brief covers the characteristics that enable small businesses to innovate, the amplifiers that improve small business innovation and the outcomes of small business innovation.

The research brief and related materials are available at www.intuit.com/futureofsmallbusiness.