Small Businesses Don’t Need Feel-Good Holidays to Compete
Are you a small-business owner struggling to compete with that Walmart or Home Depot on the outskirts of town? Don’t worry: your pals at corporate goliath American Express have got your back! See, back in 2010, they created something called Small Business Saturday, nestled right between Black Friday and Cyber Monday. It even has its own website, featuring young, attractive and ethnically diverse customers sampling artisanal products from smiling shopkeepers.
The site implores consumers, “Shop Small and share your support for the spots you call your own, whether it’s your barbershop or even your one-stop garden supply store. Places like these keep your community strong and vibrant, potentially employing your friends, family and neighbors.” By the way, do you take American Express?
The whole thing makes shopping at small businesses feel like an act of charity, and underscores the way many people throw free market economics out the window when thinking about Main Street. In reality, small businesses are profit-driven entities competing in the economy. While goodwill from consumers may help on the margin, what small businesses need are working strategies to offer the market something of significant or unique value.
We often assume small businesses can’t compete in the face of the economies of scale of larger rivals. But small businesses often do many things better than large ones. Large firms must centralize a good deal of decision making, whereas those running small businesses may have a sharper understanding on the ground of customers and the more detailed operations of the firm..
Economists have long understood the benefits of decentralized decision making. In a classic 1945 paper, Friedrich Hayek argued that a fatal flaw of centrally planned economies was that a central decision maker could not possibly take in and respond to the dispersed information of a complex economy and its millions of individuals on the ground. Though Hayek dealt with policy rather than competitive strategy, his assertion rings true for small businesses:
Practically every individual has some advantage over all others in that he possesses unique information of which beneficial use might be made, but of which use can be made only if the decisions depending on it are left to him or are made with his active cooperation. We need to remember only how much we have to learn in any occupation after we have completed our theoretical training, how big a part of our working life we spend learning particular jobs, and how valuable an asset in all walks of life is knowledge of people, of local conditions, and special circumstances.
Small businesses are often better-equipped to respond to local information than larger competitors. If they offer superior customer service or in-demand niche products, they can thrive even with higher prices.
I’ve spoken to small business employees and owners who appreciate that the American Express event generates publicity. But publicity only goes so far, and business owners should always look closely at the value they bring to the market.
Max Gulker
Max Gulker is a former Senior Research Fellow at the American Institute for Economic Research. He is currently a Senior Fellow with the Reason Foundation. At AIER his research focused on two main areas: policy and technology. On the policy side, Gulker looked at how issues like poverty and access to education can be addressed with voluntary, decentralized approaches that don’t interfere with free markets. On technology, Gulker was interested in emerging fields like blockchain and cryptocurrencies, competitive issues raised by tech giants such as Facebook and Google, and the sharing economy.
Gulker frequently appears at conferences, on podcasts, and on television. Gulker holds a PhD in economics from Stanford University and a BA in economics from the University of Michigan. Prior to AIER, Max spent time in the private sector, consulting with large technology and financial firms on antitrust and other litigation. Follow @maxg_econ.
