Battling the big boys

“I refuse to (frequently discount books), because there is no way I can play that ball game,” says Christine Kelly, owner of independent Sundance Books and Music in Reno, Nevada, in the book “The Roadside MBA.” “There’s no way I can compete (with big chains).”

When Sundance opened in 1985, things went well until megastores like Borders and Costco, and later Amazon, started eroding small businesses.

Borders has disappeared, but Sundance still thrives. Instead of stocking her shelves with New York Times bestsellers, Kelly greatly reduced such inventory, even if decades ago, these books were a significant source of profit.

Kelly’s secret is flexibility. She focuses on services that Amazon cannot do as well on the community.

“She expends considerable effort ‘curating’ her shelves, making sure there is a diverse collection of books available to her customers, who often browse for 30 minutes or more before making a purchase. She works to retain key staff, whom customers look to for recommendations and a familiar face. She organizes events that resonate with the local audience. She started a small publishing arm that focuses on regional authors … and stories.”

Professors Michael Mazzeo of Northwestern University’s Kellogg School of Management, Paul Oyer of Stanford University’s Graduate School of Business and Scott Schaefer of University of Utah’s David Eccles School of Business have taught MBA courses for decades.

Once, fresh from an economics conference, they stopped by a shoe store in Maine and after an eye-opening chat with the staff, they realized that the problems faced by small businesses, most of which were family-owned, were just as challenging as those faced by multinational corporations.

The professors then decided to go on six road trips across America, visiting some 50 small businesses. They learned fascinating lessons along the way, and the result is the book The Roadside MBA.

This week, let’s look at how the small businesses hold their own against bigger ones.

Engineering firm GPS Source in Pueblo, Colorado, only has two dozen employees. Yearly revenue is a fraction of firms like Lockheed Martin and Northrop Grumman. However, GPS has snagged military aircraft contracts without sacrificing price or quality.

The secret? Allen Gross, founder and president, “answered the phone when the customer called.” The customer can directly contact the one in charge and discuss specifics, unlike bigger firms where salespeople primarily want to hit their targets at the expense of customer satisfaction.

“Recognize the advantage that comes from being small and exploit the smooth communication capabilities in choosing activities. GPS Source will never have an R&D [research and development] budget the size of one of their big aerospace competitors. But by listening to customers and doing smart R&D, they can win some contracts. Even as the little guy.”

Advertising firm Launch Something in Spartanburg, North Carolina, was able to win contracts from restaurant chain Denny’s, which has headquarters in the community. Denny’s usually teams up with huge firms for Super Bowl ads and other national campaigns.

But for small projects, which would cost many times more with bigger companies, Denny’s partners with Launch.

“Suppose they have a new product,” says Launch founder Sims Bouwmeester, “they have to figure out how they’re going to market that to their own employees. They have incentive programs and do a lot of training here in Spartanburg … They’d end up way overpaying for something [like that] with their [big] agency. Fifteen thousand dollars for a brochure that should cost $600.”

(Next week: Setting right prices)