Wednesday, November 2, 2011

2 Reasons Small is Better than Big

I am reading The Machine that Changed the World, which tells the story of how Toyota innovated the from the mass production methods to lean manufacturing, disrupting the automotive industry to become one of its most dominant players. One of the most notable discoveries of lean manufacturing was that small production batch sizes, as opposed to large ones, were better for two reasons-- (1) Reduction or even elimination of the carrying costs associated with needing to stock large quantities of finished parts, and (2) Low quality and mistakes are discovered much more quickly, saving significant labor and resource cost while increasing efficiencies.

These same advantages can apply to why being a small business has its advantages to being big. First, being small requires entrepreneurs to be more creative and resourceful...basically, get more done with less. While big companies have excess inventory to try and be efficient and keep all of their workers busy, small businesses know exactly what inventory they need, always quickly adjusting to the demands of their customers. In addition, the employees of entrepreneurial companies are accustomed to wearing many different hats. For example, a large manufacturer may employ 10 welders. Even if the products that require welding are not in demand by the customers, some companies will have the welders building parts anyway, just to try and keep them busy. Small companies, on the hand, seldom employ people who can only weld. Their employees can probably also machine, temper, and do most, if not all, of the other manufacturing functions.

Second, catching mistakes and "pivoting" the business is so much easier when you're small. It can take years for big companies to change, yet today's business environment requires more dynamic, nimble business initiative than before. In fact, when large companies like Google, GE, and others want to innovate, they acquire companies that are innovative, paying a premium for that which they cannot do themselves. Advantage...small business.

So, the next time you feel overwhelmed by bigger companies with what you perceive to be a superior competitive business, remember you have more going for you than you may initially think! Small is the new BIG when it comes to maximizing resources, meeting customer needs, and innovating.