I Heart Local Businesses, Part 2

(If you didn’t already read Part 1, go check it out. I’ll wait and you’ll need the background.)
With consumers jittery and $50,000 home improvement projects not as common as they were five years ago, how does the local business out compete the “rock steady” reliable national chain? When a buyer is worried about squeezing every last bit out of her dollar — and then some — the likely move will be to go with the national chain: a known quantity that will definitely be around in 2 months or in 10 years when the pipes leak and ruin your drywall. This way our buyer controls the maximum number of variables, leaving the least amount of uncertainty possible. But has she traded away too much variability?

What our local business has going for it, in a very big way, is FLEXIBILITY. And flexibility is an inexpensive (or even free) way to give that buyer the feeling she is getting the most for her money. Maybe our buyer feels good about the national chain’s guarantee, but she wants one appliance different from that chain’s branded line. The national chain cannot deviate from protocol. The local business doesn’t have the same constraint. The national chain may have done thousands of projects like hers, but they also have hundreds of work crews and high turnover. Her local business can guarantee that everyone on her job has done that specific work many times over. And since she can speak to the owner, that is a guarantee that carries weight. Big companies must depend on operational consistency to keep their ship on course. Deviating from protocol is not rewarded and is often punished. Operational consistency is also important for a small, local business, but they’re also small enough to provide a much wider range of flexibility within that operational framework. It makes the customer happier and the small business owner can reward her staff for it.

In game theory, this comes down to a very important difference between

I Heart Local Businesses, Part 1

Bad economic cycles can be scary times for small businesses. Consumers are spending less, which reverberates throughout the supply chain, especially one that isn’t maximized. When consumers can be persuaded to part with their money, it may only be for very steep discounts (which carries its own problems – more on that in another post) or for something they feel comfortable purchasing either because it is a safe purchase or there is an attractive consumer surplus — i.e., the price paid is less than the value the consumer has for the product. Lab Notes is undertaking a two-part look at how small, local businesses can use these factors to out compete large, national chains during difficult times.

First, the scenario. Times are tough and you’re a small business fiercely competing for a rapidly declining number of consumer dollars. What do you do? For the sake of argument, let’s dismiss discounting because we don’t believe it is appropriate or sustainable. That leaves you appealing to safety and/or consumer surplus. Let’s say a customer is interviewing contractors for a complete master bathroom renovation that will cost $50,000. One estimate is from a national chain that has been around for over 100 years and the other is from a local business that has been around since 1998.

Here are the key factors for evaluating the national chain:

Stay on the lookout for opportunities

I’ve been hearing lots of friends and colleagues talk about how the economic downturn has impacted their professions — cancelled meetings, contracts on hold, travel bans and the like. So I thought this profile of Singapore Airlines was very interesting. I’m the last person to advocate using an airline as an example of how to be smart and flexible during tough times,

The Supplier of Your Supplier

If you are a business owner, no doubt you are familiar with your suppliers.  But how familiar are you with your supplier’s supplier?  This may seem unrealistic in some cases, because some supply chains can be Biblically long.  Ore begat the mining company begat refiners, and on and on until you get those lovely copper pans in your kitchen pantry.  So, more precisely, what is the link (or links) in your supply chain that have the most significant impact on price and/or availability of key inputs?

Nonprofits: Strategies for a Downturn

By now it certainly isn’t news to anyone that the economy is facing a long road to recovery, with some dramatic changes taking place seemingly overnight.  

What does this mean to nonprofits?  

In the same way credit is tightening, donations from individuals and institutions are certain to slow while corporate budgets are reevaluated and decision makers determine how projections for the future have changed.  For nonprofits, now may be the time to take a fresh look at how you’ve positioned yourself with the donor community.