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July 12, 2004
Small Business Sensitivity
Posted by Laura Rich at 5:52 PM
The Wall Street Journal, that cauldron of big, public company news, today released its "Small Business Report," taking pains to point out the pragmatic, as well as karmic, differences between big and small companies. High on the package's points of emphasis: small businesses are more likely to be rocked by market dynamics than their larger brethren. "For small businesses, there is simply less margin for error," says Dave Anderson, a leadership consultant in Agoura Hills, Calif., and recent author of "Up Your Business," in the Journal piece. (Paid registration required.)
Do you agree? Have small businesses been more vulnerable to the downturns of the last few years? And if that's true, does it, by turn, make them more likely to benefit from the seemingly oncoming upswing?
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The smallest of businesses in America are "as vulnerable" to the downturns of the economy as the largest of corporations. However, the ability for small companies to turn-on-a-dime and adjust and tweak their business models when faced with increased competition and less demand for their product or service is what gives them a distinct advantage in comparison to larger less nimble companies where change often comes too late. The airline industry is a perfect example of smaller companies doing more than just surviving during the worst possible business climate post 9/11. Look at the growth of JetBlue and Southwest Airlines in comparison to a much larger fish US Airways.
[Airline analyst Ron Kuhlmann in Oakland, California is not optimistic about the survival chances of United or U.S. Airways, which recently emerged from bankruptcy protection. Mr. Kuhlmann says established airlines must slash costs and drastically change their business model.
"I don't think the revolutionary nature of the challenge has caught up with them yet. And I don't think the management of either those two companies and of most of the major carriers has really grasped the nature of the need to dramatically recast their thinking and establish a new corporate culture," he said.]
Should US Airways go belly-up and not make it during this difficult period, JetBlue has the infrastructure and corporate culture to pounce on and seize this opportunity and benefit from an upswing in the passenger demand for it's service.
[Jet Blue will soon be taking delivery of 100 new aircraft, which it will deploy against the competition. Southwest, determined to retain its market share, this week touched off a new round of fare cuts. A low-cost carrier in the Washington, D.C. area has forced big fare cuts at financially vulnerable U.S Airways.]
Nick Giammusso
President/Co-Founder
VIP Seats, Inc.
1-800-371-6323
The smallest of businesses in America are "as vulnerable" to the downturns of the economy as the largest of corporations. However, the ability for small companies to turn-on-a-dime and adjust and tweak their business models when faced with increased competition and less demand for their product or service is what gives them a distinct advantage in comparison to larger less nimble companies where change often comes too late. The airline industry is a perfect example of smaller companies doing more than just surviving during the worst possible business climate post 9/11. Look at the growth of JetBlue and Southwest Airlines in comparison to a much larger fish US Airways.
[Airline analyst Ron Kuhlmann in Oakland, California is not optimistic about the survival chances of United or U.S. Airways, which recently emerged from bankruptcy protection. Mr. Kuhlmann says established airlines must slash costs and drastically change their business model.
"I don't think the revolutionary nature of the challenge has caught up with them yet. And I don't think the management of either those two companies and of most of the major carriers has really grasped the nature of the need to dramatically recast their thinking and establish a new corporate culture," he said.]
Should US Airways go belly-up and not make it during this difficult period, JetBlue has the infrastructure and corporate culture to pounce on and seize this opportunity and benefit from an upswing in the passenger demand for it's service.
[Jet Blue will soon be taking delivery of 100 new aircraft, which it will deploy against the competition. Southwest, determined to retain its market share, this week touched off a new round of fare cuts. A low-cost carrier in the Washington, D.C. area has forced big fare cuts at financially vulnerable U.S Airways.]
Nick Giammusso
President/Co-Founder
VIP Seats, Inc.
1-800-371-6323
First off, I'd like someone to define "small business"? I do not consider Jet Blue to be a "small" business. Certainly, it is smaller than United, but huge in comparison to the vast majority of businesses in the US, regardless of whether you use income or employment base to define it.
To the question, "Are small businesses more suseptable to changes in the economy"? The answer, if you base it on what has happened in the past 10 years or so, is yes. If you define "small busines" as a company with 50-100 employees (or less) and you look at the percentages of businesses that have closed in the past few years, then you see that businesses of this size have suffered a closure rate about 400% higher (possibly much higher, depending on who's statistics you want to use) than seen by larger businesses.
Small business "may" be able to react more quickly, but if they react incorrectly, they still close. In addition, small businesses have less diversity and money to draw on, to help them through. As a particular industry declines, small business can not adapt and change their product base as easilly as a larger one "might".
Bottom line: More jobs were lost in the past 5 years or so from "small business" closures and more jobs will be created, in the next 5 years or so by "small businesses" than by their larger, more reported on, counterparts. So, again, the answer to the question is Yes.
Should market capitalization be used as a measure of business size? Obviously, there is the risk that, for a publicly traded company, market inefficiencies could misstate firm size.
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