Visiting America’s Small Business Innovators
Three economists get in a rental car, and... well... you can probably make up your own joke.
But it’s no joke for the Roadside MBA Team.
We three are economists and business strategy professors, and we recently broke free from our Ivory Towers and hit the backroads of America. There, we found brilliant applications of MBA-level strategic reasoning --- all devised and implemented by hometown small business owners.
We bring these stories and applications to life in our book Roadside MBA: Backroad Lessons for Executives, Entrepreneurs and Small Business Owners.
Small Businesses that Think Big
Our project began in 2009 at a very boring economics conference in Boston. Hoping to get away from the Powerpoints and statistics for just a bit, we rented a car and cruised up I-95 to grab lunch in Maine.
After lunch, we wandered into a strip-mall shoe store where Scott struck up a conversation with one of the store's employees. Mike and Paul soon wandered over, as did the store's other employees (slow day!), and we listened as the employees described, in fascinating detail, the store's incentive plans, marketing strategies and sales tactics.
This little shoe store was, it turned out, a perfect case study for so many ideas we had been teaching to our MBA students.
Driving back to Boston, we lamented the fact that the typical Harvard Business School case study focuses on Procter and Gamble, or Ford Motor Company, or Microsoft, or Pepsi, or ... somebody big with billions or hundreds of millions in annual sales. But the MBA concepts and frameworks aren't just about the big boys, they can be useful to businesses of any size.
And to us, this meant just one thing: Road Trip!
Visiting Small Business America
We've now taken seven weeklong journeys, hit 27 states, driven more than 4000 miles, and interviewed more than 100 small business owners. At every stop, we found thoughtful and passionate businesspeople who were wrestling with tough strategic challenges --- and devising ingenious small business innovations.
Our aim is to explain the logic of these good decisions, and connect that logic directly to the concepts and frameworks taught in leading MBA programs.
Our central premise, which we named Mazzeo's Law in honor of Mike's repeated use of it while teaching, is this:
The right answer to every strategic question is, `It depends.'
To illustrate what we mean, consider the following question: Should a firm try to offer the highest possible product quality? And before you quickly answer "Yes, quality is good!" consider that two of the biggest Fortune 500 success stories of the past two decades --- Apple and Wal-Mart --- have chosen very different paths on this question.
Steve Jobs was notorious for insisting on the highest possible quality in the user experience, and Apple’s success clearly reflects this orientation. Wal-Mart, conversely, is not known for selling the highest quality products or offering the greatest shopping experience, but rather for selling at a low price.
The answer to the High Quality or Low Price question is "It depends", and the trick for any executive, entrepreneur or small business owner is to figure out what it depends on... so you make the right decision for your business.
The trick is figuring out what "it" depends on.
And here’s where the MBA curriculum comes in. Regardless of the issue --- whether it’s strategic positioning, pricing, growth, outsourcing, hiring, providing incentives, designing an effective organization, negotiating with suppliers --- any firm faces a variety of strategic options. We see the MBA as a set of frameworks for figuring out what the right answer is for your firm.
To put it a bluntly, we’re suspicious of anyone who says “all firms should do X.” Or that there’s a single “best practice” that all firms should adopt.
We think purveyors of notions like this are ignoring the complexity of the modern business world, and the fact that so many firms manage to succeed with such widely varying approaches to business.
Strategy must be matched to the business context, and business is, as a result, an intellectual activity. These insights from a few of the small businesses we met on our journey illustrate this principle:
Knowing your Costs: A company needs to make positive margins on the products and services that it sells, so the right price for anything must be greater than its cost to produce. When there is uncertainty about costs, as is the case for Arnold Tool, being able to predict those costs better than competitors do is critical in order to avoid the winner’s curse.
Performance Measurement: An incentive pay plan is only as good as the measure used to track performance. Klein’s DKI carefully tailors the performance measure to the job in order to align the employees’ interests with those of the company.
Offering Services the Big Boys Don’t: Large companies invest in overhead to exploit their size, enabling them to perform certain activities efficiently. Launch Something focused on the smaller advertising and consulting projects that larger agencies weren’t set up to do well.
Customers Who Really Care: A customer’s loyalty will grow if he or she has particularly intense preferences for the product’s unique features. While TiLite ’s customized wheelchair is better than a standard wheelchair for any user, an active, job-holding person needs more mobility and will appreciate the difference between wheelchairs more than will older, housebound users.
The business owners we met on our journeys were, without fail, thoughtful, passionate, and smart --- and our respect for America's small business owners grew and grew as we traveled.
MBA professors have much to learn from them!
Michael Mazzeo is an associate professor of management and strategy at Northwestern University’s Kellogg School of Management.
Paul Oyer is a professor of economics at Stanford University’s Graduate School of Business.
Scott Schaefer is a professor of finance at the University of Utah’s David Eccles School of Business.
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