“How do I compete with the ‘big boys’ in my industry?” This is one question that keeps small business owners up at night. Let’s face it, they have bigger budgets, larger staffs, and more reach. While small businesses do have many inherent advantages, let’s look at some specific examples of how small businesses can level the playing field against the advantages that the big guys have in these areas.
PEOPLE: People are the key to the success of all businesses, big or small. In fact, the argument could be made that it is even more so in small businesses. So, how can a small business compete in the area of attracting and retaining great people to represent the company? And, since a small business has so many fewer employees, each one is that much more critical to the success of the company.
You might think with the current unemployment situation here in California that attracting great people isn’t an issue right now. Well, think again. First off, employees with experience and skills specific to an industry will always be in demand; so competing for the best is always an issue, regardless of economic conditions. More importantly, however, is the issue of retention. Turnover, especially in a small business, is expensive and disruptive. It’s expensive to train a new person and it’s disruptive to lose the knowledge that the departed employee takes with them. And, in a small business, your customers view your employees AS your company. Lose a key employee and you might well lose some key customers. It has been well documented that as the economy recovers, and it will, that there is pent up turnover lurking just around the corner. Smart business owners will act now to be sure that they aren’t victims of this phenomenon which is building up momentum each month.
With the big guys offering big company compensation and benefits packages to attract and retain the best of the best, what’s a small business to do to compete? Even if you could afford them, how do you even get access to those types of benefits? First of all, be aware that “compensation and benefits” are broad terms in the eyes of an employee and, being more flexible by nature, your small business can be creative with comp and benefits. For example, perhaps to a specific key employee, a generous time off policy is important while another may value straight cash compensation. Or, maybe you have someone for whom the medical or dental plan is the main issue. Since small business can be more nimble, this affords you the flexibility to be creative in ways that big companies cannot. And, when the economy turns around and they come calling on your key staff members, they won’t be able to match your “comp and benefits” in terms of flexibility and your employee will happily stay where they are with you and your customers! One word of caution, however, is to be sure that you are on solid ground from an HR standpoint, in terms of discrimination, wage and hour rules, and leave laws. Getting the advice of a certified HR professional is of critical importance here.
As for classic, group employee benefits, the world is pretty simple there are small groups and large groups. And, large groups (over 50 employees) typically get better rates. There are some ways to get access to large group benefits plans and prices. One way is to partner with a Professional Employer Organization (PEO). PEO’s pool their clients together, thereby creating a large group and thus being able to get large group pricing, as well as a breadth of benefits (401k, FSA, EAP, etc) usually not available or affordable for individual small businesses. Being able to offer these types of benefits (at the discounts that larger employers typically receive) is a great tool for competing for and retaining great employees.
PIN POINT FOCUS: As a small business owner, no truer words were ever spoken than, “Jack of all trades, master of none”. In order to get things done, done quickly and done at the least cost, small business owners often wear many, many hats in the course of the week. At the beginning, simple tasks were just that simple. But now that your business is growing, those simple tasks are likely taking time away from letting you focus on the business of your business. Let’s face it, your time is your most precious commodity. Spend it unwisely and your company may lose an opportunity with an existing or potential customer. Or, your lack of focus or expertise may even cause you to lose money. In your larger competitors, they have specialists in a variety of areas accounting, legal, HR, payroll, insurance, etc. You likely don’t do your own accounting or legal work; you have a CPA or bookkeeper and a lawyer. So, why would you do your own HR, payroll, and insurance? Is that really the best use of your time? Are you really an expert in these complex areas that have governmental penalties and fines for mistakes? Clearly the answer is no.
So, do what the big guys do and hire an expert. In the case of a small business, that means outsourcing. Outsourcing helps deal with the two key shortcomings of trying to do all of this yourself expertise and time. A word of caution here is to be sure that how you outsource addresses both of these precious commodities. You can hire a payroll company, an insurance broker and join an online HR service and that will certainly begin to address the expertise issue. But, does that really give you back your time? Consider the advantages of mirroring what big companies do in these areas. They have an HR Director who is responsible for HR compliance and recordkeeping, employee relations, payroll, employee benefits administration, and safety/workers’ compensation. Then, they have managers with the expertise to oversee each of the specific areas. Too often, small business owners outsource, but they play the role of the HR Director hiring a payroll company, meeting and interacting with the insurance broker(s), and handling employee issues. While this “partial outsourcing” solves part of the lack of expertise problem, it doesn’t address the more important issue of the value of your time.
To truly mirror the big companies, another strategy is total outsourcing. In these areas, the common name for total outsourcing is HR Outsourcing (HRO) and the most common services of HRO are Administrative Services Outsourcing (ASO) and Professional Employer Organization (PEO). With this business model, the ASO or PEO company provides the services of the HR Director and the expert managers, giving you both the expertise and the time you so desperately need. Being able to completely turn over HR compliance and recordkeeping, employee relations, payroll, employee benefits administration, and safety/workers’ compensation the way big companies do, is the secret to success for many small businesses.
PROFIT: In most small businesses, profit is king but cash rules. So, that means that many purchase decisions in a small business are evaluated solely on price. Unfortunately, this approach is short sighted. Large companies, however, use a more accurate, long term measurement, Return on Investment (ROI). ROI takes into account all of the costs (and cost savings) associated with a particular decision and, therefore, how the decision affects profit. So, if you are looking at a new copy machine, instead of simply looking at the monthly rental and price per copy, an ROI analysis would also take into account the amount of time you spend making copies on an older, slower and less reliable machine, what else you could be doing with that time, and the money you spend at the local copy store because your machine broke down again and you needed to get a proposal out to a very large prospective client. ROI analysis might even try to quantify the cost of business you lost because you couldn’t get proposals out in time. Taking the longer view and focusing on profit over time will pay off for your small business in the long run.
There are many good lessons to be learned from how large companies conduct business. And, there are many benefits customers find in doing business with small businesses. The challenge for the small business owner in competing with the big boys is to learn the lessons of the big guys without losing your company’s small business advantages. With the environment we are encouraged to “think globally but act locally”. Successful small business owners need to take a page from their larger competitors’ playbooks and “think big but act small”.