The 4 Advantages Small Businesses Must Exploit

One of the best things about running a small business is that it's small. Leverage that status to outcompete the big guys

Written by Phoebe Fung

It’s never easy to run an independent business in a market dominated by chains, but it’s especially tough in the hospitality industry. Every day, we fight with more recognizable national and international brands to win the disposable income of customers. It’s a battle many mom-and-pops lose: of the 1,486 Canadian commercial restaurants that closed in 2011, 1,261 units—nearly 85%—were independents.

But it’s not exactly wine and roses for chains—increasingly, these are finding it tough to attract new franchisees or secure money for capital expansion. In fact, in today’s highly turbulent industry, being independent now holds several crucial competitive advantages. Learn to exploit them, and your business can thrive.

1. You can build the business you envision

Chains provide the stability of systems, procedures and processes to optimize efficiency; these are security blankets if you’re a franchisee or licensee. The flip side, however, is that you’re usually bound to the corporate line when it comes to your brand, operating systems, inputs and marketing. You usually don’t have final say on the direction of your business; often, you’ll feel like more of a corporate manager than an entrepreneur.

As an independent, you’re responsible for all aspects of the company; the business plan is truly your own.  You have the freedom to experiment and innovate. You alone define your firm’s focus—along with the pace and scale of changes that affect it. This means you can respond more nimbly to customer needs than a bureaucracy-laden chain outfit can.

Bonus: when you’re successful, the credit goes to you—not someone else’s brand.

2. You have greater cost freedom

Yes, chains usually have better buying power than independents. However, the benefits of lower input costs are very often neutralized—and, sometimes, eclipsed—by a host of “hidden” costs, including royalties, fees, and head office overhead.

Besides, independents today can access to group buying power through industry associations and private buying groups. Also, these days, as suppliers hungrily compete for market share, the astute entrepreneur can often negotiate reduced costs on her own. And if you can’t get a suitable price, you’re usually free to switch suppliers—something large chains with blanket purchasing contracts can’t do. It’s also easier for independents to deal with smaller suppliers, which sometimes are able to use their reduced overhead costs to pass along lower prices.

3. Your can offer more than just Joe-jobs

A key risk area for any entrepreneur in a high-turnover industry like hospitality is HR. Attracting and retaining talent in this people-intensive, yet relatively low-wage, industry is a major challenge.

Here, independents hold a trump card in that they can provide an unique employee value proposition. Independents can offer employees opportunities that chains usually can’t. For instance, a bar manager at Vin Room will help design new processes, or learn new skills, or take ownership of a project that tangibly improves the business. The ability to have direct input on an employer’s culture, systems and growth appeals to individuals who want a creative challenge as opposed to a Joe-job following prescribed processes. It’s hard to foster entrepreneurial thinking within the more rigid and hierarchical org charts of chains.

The independent also has more freedom to provide creative compensation packages, such as ownership in the business or employee trips.

4. You can be the local hero

Perhaps the biggest competitive advantage independents hold is their ability to generate social goodwill within their local communities. While a chain relies on the value of its national or global brand, an independent often has the advantage of a hands-on owner. This is the person who created the business, who works it on a daily basis and who serves as the face of the brand. Current and future customers get a chance to connect with a person who really cares about the business in a way a franchisor or licensee rarely can. Don’t underestimate the goodwill this can generate.

Plus, independents tend to be more likely to buy local products and services from local suppliers. People take pride in their community, and will often reward local businesses that contribute to its vitality. This social goodwill translates into seriously loyal customers—which make or break a hospitality business.

Independents can certainly thrive in a competitive, chain-dominated industry—even one as cutthroat as hospitality. Ultimately, nothing beats the enthusiasm that an independent owner brings to her customers. That’s a passion that can’t be duplicated.

Phoebe Fung is proprietor of Vin Room, a Calgary-based wine bar with two locations and that ranked No. 25 on the 2011 PROFIT HOT 50 list of Canada’s Top New Growth Companies, proprietor of VR Wine, a boutique wine store, and a former financial executive with a multinational energy company.

More columns by Phoebe Fung

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