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SMALL IS BEAUTIFUL

The coming of personalized, profitable, bootstrapping, aligned, organic business.

Enough already with the doom and gloom about the shakeout of e-everything. Anyone who can read a balance sheet can see that many of the big, visible web companies, especially those in retail, cannot endure (though when many of these companies truly tank is debatable). The interesting story isn't so much how things will fall apart, but how the economic center will hold.

I believe that the great gush of companies seeking huge returns with change-the-world technology backed by VC billions will ebb. In its place will emerge a new breed of web-enabled small business: a smaller, more organic, slower growth yet more solid species of enterprise. Web-enabled, yet not web-dependent; process-oriented yet with a real product to sell. Entrepreneurs will begin to pare down their grand visions and start using the web to do real business.

In the two decades before the spread of the internet there was a huge cultural shift towards entrepreneurship: huge numbers of people began turning to small business as a vehicle to realize their hopes and dreams. Sure, many of these people wanted riches; but a great deal simply wanted to use business to take back control of their lives. One of the best cultural artifacts of this time was Inc. Magazine, which perfectly captured the spirit of small business. It's community was comprised of people like Anita Roddick, Ben & Jerry, Paul Hawken, and others who saw business as a economic form through which people could effect meaningful change beyond what they could accomplish as individuals.

Unfortunately, most of the businesses launched on the web today sap that sense of control out of the business founders. In the quest for venture capital, few entrepreneurs have the satisfaction of working with real customers. They are selling the idea of the company to financiers rather than providing real products and services to real customers. In the ridiculous notion of internet time, few have the ability to craft real lives.

Small business as it has emerged over the past several decades has been shaken up to its core by the rise of the web. In fact, in the internet economy, nobody seems interested in small business. In other words, the distinction between big and small is meaningless when every small business wants to be big. Amazon, whose credo from the Get-Go has been to "Get Big Fast," ushered in the frenetic net business model that fuels most e-companies today. In many ways, however, the company has proved the exception that proves the rule. Few companies are able to raise the money that Amazon has engineered, and fewer can build the community or revenue to catch up to the financial and infrastructure demands the company has produced.

Of course, the technology that has enabled such businesses to operate out of such a skewed model, also holds the promise for a new form of small business. The spread of the web, and its ability to automate many of the processes that kept small businesses out of the game, makes it possible for individuals to launch manageable enterprises once again. Recently one analyst said that web startups must choose between niche or scale. A new option will present itself: the issue of integrity. How well does the company execute on its promise? How well does it understand what it is uniquely poised to offer? And how well does it blend the mix of available tools and resources to realize that?

I believe that the businesses who are able to answer these questions successfully will display the following characteristics:

They will be profitable. Recently I wrote a column about ClickZ, an online marketing site that happens to be headquartered in Andover, MA-home of CMGI. The difference between the two companies is the color of their ink: ClickZ, which was founded by two friends who saw a quick opportunity, has been profitable from the get-go, while CMGI remains mired in red ink. Moreover, the two have bootstrapped their growth, building a company that will take in $8-10 million in revenue this year, with close to half that amount dropping to the bottom line. Ann Handley and Andy Bourland, who continue to run the company, own 100 percent of this profitable and rapidly growing enterprise.

Their business metabolism-the rate at which the company consumes, digests, and transforms information-will be radically and necessarily faster. Internet speed is here to stay, and so the definition of small business will need to be rethought, as small businesses that find their net sweet spot quickly ramp up.

They will take a more holistic, personalized, systems approach. The new small business will not merely be connected to its customers and vendors; they will be internally aligned.

They will use the web as a tool rather than a landscape or environment.

Finally, they will incorporate the unique qualities of the web into a healthy business model. Scores of specialized small business service providers are now offering the promise of assuming tasks that entrepreneurs could not afford to outsource: everything from market research to website design to seeking capital. Small businesses will learn how to use the web rather than be used by it; to leverage their unique mission into the digital marketplace.

So far the impact of the Web on business has been counterintuitive. Who would have guessed that this great technology, which links up the global village, would do away with the vernacular quality that makes great businesses succeed? The coming shakeout may help companies attain this quality.

(This article appeared in the Industry Standard.)

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