Death of the Small Business

by Sonal Somaiya, Class of 2019

Sonal Somaiya Headshot.jpg

A drive through an America suburbs calls to attention many of the aspects of daily life and business that have changed in the past 20 years with the advent of new technologies. One change that is especially salient is the downfall of the quintessential small business. Nowadays, when I see a local hardware store, instead of thinking about the success of the family that likely owns it and how they have served their local community, I think of the sad truth that most of their customers will probably start ordering their screws and nails online if they don’t already. This isn’t a new story - technology has already disrupted our shopping habits - but while we always think of the changing customer and the successes of large e-commerce companies, what of the changing small businessman?

Consider the profile of the small business owner 20 years ago compared with one today. At the basic level, small business owners are younger and more diverse than in the past. In the past, business owners needed access to bank loans as a primary funding source, but now, financing options have expanded to venture capitalists and growth equity investors. Each of these groups of financiers seek different types of entrepreneurs - banks seek business owners who are low risk and steady return customers. VCs seek more inspiring and growth seeking entrepreneurs - inherently two different types of people.

Furthermore, the physical nature of small businesses has changed. Though many companies have bet that e-commerce will fully replace physical retail, as we can see with developments like the Amazon Go and the Rent the Runway store popping up in Chicago, brick and mortar is not dead just yet. In fact, many large e-commerce retailers now have the scale, capacity and distribution network to support many brick and mortar stores after they have gained traction in the online retail space. Moving in the other direction, on the other hand, is more difficult. Capturing a local market with brick and mortar retail and then trying to build an e-commerce presence is nearly impossible which is where businesses like Etsy and Shopify come into play enabling online growth without the upfront capital expenditures of owning, operating and marketing a physical retail location.

While the demands on a small business owner have certainly changed, the nature of the business actually hasn’t changed as much as we think even with the advent of new technology. Take data mining for example. An online store might track what items we click on, linger on, add or remove to our carts and actually purchase, but a brick and mortar store owner might try to observe the same thing - how many times do customers pick up something that’s on the mannequin, what are people trying on and so on.

The small business may never die, but it is certainly looks different today than it did in the pre-technology era. The demands on a small business owner are entirely different, from financing to expenses to staffing, and the path to success is not a bottoms up movement, rather a top down move back to brick and mortar retail.