Change Agent - Issue 34

"The fact is, the wild oscillations in our business life will continue to get wilder and wilder, probably forever."

I could almost empathize with the executive who was sitting across from me in a fancy leather chair at a huge conference table.

The Internet was ruining his life. He had spent more than 20 years carefully crafting a business, and now that business was crumbling. And why? In his opinion, it was the result of media hype, greedy day traders, and a few nerdy kids in Silicon Valley -- a place, by the way, that he has never bothered to visit.

Lowering his voice, he leaned across the table and asked, "Seth, when do you think that all of this will settle down?"

I thought, Wouldn't it be great if it actually did settle down? Then we could all get back to building businesses on a stable foundation -- to focusing on fundamentals, rather than on being distracted by a seemingly endless series of shifts, rifts, and tremors.

But sadly, I couldn't tell my friend what he so desperately wanted to hear. I told him the truth: "It's never going to settle down." The fact is, the wild oscillations in our business life will continue to get wilder and wilder, probably forever.

Today, entropy rules. It's as much a law of the new economy as it is a law of science: Things rarely become orderly on their own. As Stephen Hawking has pointed out, while it's possible for a cup to fall off of a table and break into a million pieces, it's pretty unlikely that those million pieces will ever leap back onto the table and reassemble themselves into a cup.

This "Internet thing," as my executive friend calls it, has shattered the old shape of business. And some important structural factors lead me to believe that the cup is never going to put itself back together. Shift happens, so get used to it!

Here are five things that existing companies are good at -- and that are lying on the floor in pieces.

Distribution. Go to Toys "R" Us, and you'll find boxes of games from Nintendo and Sega. Go to the A&P, and you'll find a huge shelf of laundry detergent from Procter & Gamble. Go to Barnes & Noble, and you'll find a stack of books published by Simon & Schuster. Big companies know how to sell tons of stuff because they have existing relationships with big retailers.

Access to distribution used to be a huge competitive advantage. If your products were in a store or if your sales force had access to purchasing agents, then you could shut out the competition and charge more for your products. But what happens when the purchasing department at Ford starts shopping online instead of making deals on the golf course? What happens when people start buying their music online, where every CD is in stock, rather than shopping at a big-name music store, where they must choose from among those CDs that Warner Bros. has decided to promote.

Access to capital. When a market leader needs to raise $10 million, $50 million, or $500 million, that company's high-powered CFO makes a couple of phone calls and gets Goldman Sachs to float a bond issue, and -- boom! -- the money appears.

What happens when the cost of entry to a market goes down -- when you can get started in an old market without wheelbarrows full of capital? And what happens when, at the same time, the availability of speculative money goes way up? You've got it: Access to capital is no longer a barrier for anyone who wants to steal a market from a Fortune 500 behemoth.

Brand equity. Everyone has heard of such big companies as Nike and Starbucks. If you're a big company and you want to roll out a new product, just slap your logo on it -- instant brand recognition.

Not anymore.

For some reason that I don't pretend to understand, Web consumers resist existing brands. Time Warner threw every magazine that it owned onto the Web, and yet Pathfinder still didn't attract a whole lot of consumers. Yahoo! News outdraws cnn.com every single day, despite CNN's relentless promotion of its site -- all day, every day -- on the number-one TV news network. As Tom Peters once wrote in the pages of this very magazine, "It's a new brand world" ("The Brand Called You," August:September 1997).

Customer relationships. Thousands, sometimes millions, of people buy from industry leaders on a regular basis. And the local plumbing-supply store counts on that same kind of behavior, only on a smaller scale. That shop doesn't spend money on marketing, customer service, or business development, because it figures that the plumbers who have always shopped there will continue to do so.

Here's the sad thing: When those plumbers stop coming in, when they find a cheaper, faster, friendlier alternative online, it's too late for the local shop to improve on customer service. Too late for the store to satisfy customers whom it used to take for granted. Too late for the store to develop ways to save its customers time and money.

It used to be that it took years for a customer to fade away. But today, increasingly fickle consumers are happy to change banks, insurance brokers, and airlines at the drop of a hat. And what's true for individuals also applies to business-to-business relationships.

Employees. Two rifts in our workplace mean that employees can do much better at a small company. The first is stock options. Wal-Mart, the New York Times, Macy's -- those big companies can no longer offer their employees meaningful stock options. So, instead, they create tracking stocks, or they spin off assets. Those are fine short-term responses, but they're not solutions. New companies -- the "infidels" -- can make the kinds of offers that any industry leader would be hard-pressed to match. As a result, the cost of keeping great people at old companies is skyrocketing.

The second rift is the technology that enables Free Agent Nation. The number of people who work from home or from a small office continues to grow. Why? Because a computer, a Kinko's, and a voice-mail service are all that an employee needs to do great work. Why let an employer pocket the profits, when you can hire yourself out to the highest bidder? The rise of Free Agent Nation means that big companies no longer have an advantage over smaller ones when it comes to getting the best talent.

Want to hire the very best headhunter, lawyer, graphic designer, musician, or plant manager? Many free agents would be happy to do the work -- and then to move on once the project is done.

At the same time that these five changes are threatening the stability that businesses used to count on, there are seven other factors that favor small businesses. If you've been thinking about taking the entrepreneurial plunge, here are a few reasons why your new business will probably do well (and why big companies should be shaking in their boots).

You've got nothing to lose. If you fail, it's no big deal! Just start over. But when the big boys at ABC, CBS, or NBC make a big mistake, everybody notices. Here's what you big-company types need to understand: The folks who are gunning for your company are on a suicide mission, and they couldn't care less about whom they might bring down with them.

You're a small fish, but even small fish are a good catch. Customers who aren't worth Cisco Systems's time, or AT&T's, or McKinsey & Co.'s, are fair game for you. Those big companies are like huge trawlers equipped with massive nets: If they don't land a big haul, they'll be in a big hole. But a lone fisherman who hangs out on a little boat calls it a good day when a day's work nets six pounds of bass. By focusing on small businesses and small opportunities -- which happen to be growing fast -- you can thrive amid the (much bigger) competition.

You're the president of the company. As the president of the company, you're the smartest person there, and you're going to be a part of every single decision that your company makes. Which means that you won't allow the kinds of stupid things to happen that go on every day inside big companies. Here's a true story: There's a big company that sells lots of music on the Internet. A friend of mine ordered something, and it didn't come. And it didn't come. And it didn't come. She sent a note to the company asking, "Where's my stuff?" No one even bothered to write back.

She sent another note to the company, and again no one wrote back. Finally, she sent a third note, and this time she received a three-word response: "Get a life."

If you were president of a small company, one that valued every customer, there's no way that anyone there would write such a note. There's no way that you would burn an asset like that. But big companies can't always pay as much attention as the little ones can.

You'll have the opportunity to do rapid R&D. The Internet is moving too fast for all of the meetings and studies that big companies insist on. I got a letter the other day from Johnson & Johnson. It said -- I'm paraphrasing -- "Could we call you on October 18 to interview you about where the Internet will be in three years?" While J&J is putting together its task force and interviewing people, spending years to get stuff out the door, your small company can try different methods -- real tests with real customers that yield real market information. Because, after all, what have you got to lose?

You're the underdog, and people like underdogs. Customers know that you're going to try a little harder, work a little longer, and value them a little more. You'll have a better attitude, and nobody will choose to do business with big, arrogant companies when there's an alternative.

You have low overhead. In fact, you don't have any overhead. The expensive trappings that big companies inevitably embrace are irrelevant to small companies itching to nail the big guys.

You have time. Time is on your side in two ways. First, you have time to work on the important stuff, because your business isn't huge. Since you're not being pulled in a hundred directions, you can focus on what matters. Second, at least for a little while, you can compress time. Every employee at Bloomingdale's won't pull an all-nighter to get something out the door. But you can. And because you can compress time, you can get stuff done much, much faster.

Even if you do work for a big company, it may not be too late to start acting like a small company. You may still have time to realize that the assets that you count on are disappearing -- and to work hard to put yourself out of business. And if you work for a big company that won't listen to you, then it's time to leave. Hurry! Put your former employer out of business -- before someone else does!

Seth Godin (sgodin@fastcompany.com) is the author of "Permission Marketing: Turning Strangers into Friends, and Friends into Customers" (Simon & Schuster, 1999) and the founder of Yoyodyne Entertainment.