What is so great about this country is that if you want it bad enough, you can make it. But at what cost? So why is having a level playing field so important to a business? Because if you as a small business owner have to pay more, have less access, or struggle to obtain supply chain needs, you must understand the playing field in order to survive. I believe that is why 85% of small business start-ups fail early in their life. They don’t understand the rules of business engagement.
A level playing field ties into Free Enterprise and an Open Market economy.
- What is Free Enterprise? Freedom of private business to organize and operate for profit in a competitive system without interference by government beyond regulation necessary to protect public interest and keep the national economy in balance.
- What is an open market economy? An open market is an economic system with no barriers to free market activity.
I learned that small business owners may not have the same opportunities to succeed competitively even though the United States is a Free Market Economy. So how do you survive in the business world if the rules are not the same for all business owners? First, you have to understand the playing field and adapt your business accordingly. In order to survive and keep the doors open, the prices you charge for your product or service may have to be higher than the majority of your large enterprise-wide competitors. So how do you handle this inequality when you are first starting out in the world of small business?
Firstly, analyze the entire playing field and presume your small business will not be treated in the business world as equals to large corporate enterprises. This is very important when creating your connections for vendor relationships. The United States antitrust law is a collection of federal and state government laws that regulates the conduct and organization of business corporations, generally to promote fair competition for the benefit of consumers.[i]
All businesses should be protected by antitrust laws. These Antitrust laws, also referred to as “competition laws,” are statutes developed by the U.S. Government to protect consumers from predatory business practices by ensuring that fair competition exists in an open-market economy.
Even with these laws, I learned throughout my entire entrepreneurial career that as a small business I would not get the same banking arrangements, pay the same credit card processing fees, have a line of equity loan relationship, leasing agreements, shipping and handling costs and many more important cost aspects involved in running a business, as my large competitors enjoyed.
A protected class is a term used to describe a specific group of people who are qualified for special protection by law or by policy. Many people think small businesses are a protected class, however, my business attorneys advised me that Small Businesses are not a protected class by the United States Government.
Recently, when I started an online travel agency, I already knew from prior entrepreneurial experience that my new business not be on a level playing field as other online travel agencies. When I began the travel agency business, I was told by one very large international bank that they would not allow me to open a business checking account. Why, I asked? The answer was, “we’re told, no travel agencies allowed.” As I highlighted, that 85% small business startup failure rate may frighten your potential supply chain business relationships from taking that risk of your business failing. Are your potential suppliers, vendors, bankers, and other business relationships going to take that risk of your business failing?
If these relationships agree to absorb any risk, it will be limited. The statistics are stacked against small businesses and as the business owner, you will be expected to take all the risk. It is important for you to understand the concept of risk before you venture too far out on the limb. You must answer the question, “how much risk can I handle?” You must be prepared for those unexpected financial risks that can occur throughout your small business life as a cost of business survival.
There are many barriers to business entry. Early in my entrepreneurial career most small business owners funded their business startup with their own personal savings, loans from family and friends, and second mortgages. At the time of this writing, the mortgage industry regulations were revamped as a result of the nation-wide housing industry collapse in 2008. Currently reviewing the US Government Statistics on the cost of entering a business, most small businesses are “single shingle”. That is the business owner is the only employee and typically works from home with a website or provides a single service, such a life coaching, mentorships, advisors of one type or another, online business experts, freelancers, or contracts for hire. Each of these has few barriers to entry with minimal startup and operational costs as compared to a brick and mortar business which may include lots of inventory or extensive build-outs like a restaurant, retail establishment or purchasing a franchise.
Because of this unlevel playing field, the cost of business as a percentage of sales may be a lot higher for a small business. In addition, with these added costs, the small business owner needs the right external team of people backing them. And the small business owner should be prepared for the additional costs of building this team.
Here are a few items that small business owners need just like their large enterprise competitors. However, many enterprise wide companies hire in-house talent to handle these tasks. The Small Business owner will have to pay the current market rate to contract these services from outside sources.
- Press relations
- Legal retainers
- Cost of financing
- Expert accounting advice
Many small business owners either skip these tasks all together, or scramble to hire them only when they are in crisis mode. When I began my travel agency, I contracted professional help in all categories from the above list with the exception of a professional press relations company. I felt it was an unnecessary expense. However, when my travel agency was served with a government lawsuit, the national negative news about me and my travel agency went viral. My lawyers suggested I work with my public relations firm to handle the press. However, I did not have one readily available.
Most small businesses bootstrap their way to the top. Many of these businesses like myself, have experienced adversity and struggled through many hardships. For example, as a small business owner your legal and accounting costs can be just as high as that for a large corporate enterprise. Without a level playing field many people still want to become business owners and are willing to take more financial and legal risk, and work harder to make it happen.
I’ve coached many small businesses and I must admit I talk a few of these business owners out of business. Many of these same people regroup and create a solid business plan that provides them a greater chance of success and survival beyond year 1 in business.
The SBA[ii](Small Business Administration) defines a small business with fewer than 500 employees. With all the businesses I owned, the largest number of employees any of my companies reached at any one point in time was approximately 75 to 100 people. Today, the SBA states that approximately 86% of small businesses have no employees. The average employment with the number of employer small businesses has been declining over the past decade. The SBA also claims approximately 52% of all small businesses are home based. Today, a home based business is a realty due to the number of technical advances made for virtual offices. These numbers tell us small businesses continue to start, and equal number fail and most do not grow.
How do you own a Win-Win business when the odds are against you from the beginning? How do consumers benefit from buying competitively from a small business owner versus a much larger established company? How will you differentiate yourself from your competition when playing in an uneven playing field?
I’ve learned how to compete in an uneven marketplace and overcome these higher costs by designing sustainable marketing plans by focusing on selling customers value. Small business owners can beat the odds of failure by creating business models that provides outstanding customer value as compared to large enterprise competitors. I know, because I’ve done it many times.
[ii]SBA Office of Advocacy, Frequently Asked Questions, March 2014