BUSINESS MODELS – LARGE AND SMALL
America has at least two business models, and they tend to have somewhat different purposes and operate by different rules.
Larger, publicly traded companies tend to have a short term (quarterly financial report) horizon. Pension funds and major venture capital groups usually own significant shares of stock. Meeting the quarterly financial needs of these share holders is one of the prime drivers of management behavior in these organizations.
They rely on technology, intellectual property, capital assets, strategic positioning, size, and preferential government legislation for competitive advantage. The organizational structure typically supports measurement of productivity and fiscal performance (ROI), ongoing reduction of labor costs, and deskilling of production jobs.
Smaller, privately owned companies (family firms, partnerships, individual proprietorships) tend to be more long term oriented because the ownership is indigenous. The purpose of such firms often has more to do with long term survival, legacy, community benefit, family needs, individual commitment, sense of mission, etc., than quarterly profit. Positive financial performance is generally seen as a requirement of the business rather than its purpose.
Managers of smaller businesses will rely heavily on building mutually beneficial relationships that enable them to create a community of common interest among a diverse constituency composed of:
- the owners,
- their employees,
- vendors and
- the community in which they conduct their business.
For these managers, leading, managing, and maintaining these relationships are the critical skills. They will often make trade-off decisions between short-term profit vs. making a relationship mutually beneficial. Trust, loyalty, empathy, integrity, dependability and courage become the sina qua non (essential, indispensable) of effective managerial leadership.
G. K. Chesterton’s Distributism
One of G.K. Chesterton’s thoughts on business:
“Chesterton’s preferred solution is that most every business be a small business. Where larger businesses may be necessary, they should be owned by the employees; they should be run by a guild, combining their contributions and dividing their results. He believes that small shops can be governed – even if they are self-governed. He believes small shops can be supported—if we support them.”
As part this month’s Justice Dept./USDA Antitrust Workshop on margins in the meat business, it was revealed that the highly concentrated retail sector showed 21% return on equity (ROE) during the last six years. The nearly monopolized big meat packers ROE was 17% for the same time period, while the mostly small family farm, much more capital intensive and risky livestock sector (small business), lost .54% of their equity every year for the last thirteen years.
If we want healthy small businesses and prosperous communities we must foster, protect and support them.