Burgeoning Internet sales are destroying the traditional business models for many small business retailers across America. It began with most brick and mortar shops feeling confident they could survive this disruptive innovation forever.
“Loyal customers will never desert us,” they proclaimed. Sadly, their view was more hope than fact, and little by little web sales began to erode their revenues and profits.
I know exactly how they feel. Back in 1997, I sat at a banquet table next to a young man named Jeff Bezos, a fellow Ernst & Young entrepreneurial winner from Seattle. “Jeff,” I asked, “please tell me about your business. What do you do?”
“I have started a new business called Amazon. We sell books over the Internet,” he explained.
I turned to my wife and prophesied that he would be out of business within two years. “Who would ever want to buy books over the web? We all visit our favorite bookstores when we want to buy books. We’ve done it for decades. Why does he think we will change our buying behavior?”
Now when my wife sees press about Amazon and Mr. Bezos she laughs. “Boy, Alan, were you wrong.” Wrong indeed. Jeff not only sells millions of books, but everything else a shopper wants to buy.
This past week a local retailer called me and asked, “What can I do?
“Local shoppers don’t buy from me anymore,” he said. “They would rather buy online. There is no way I can compete with web retailers on price. They can sell the very same products I sell for less than my wholesale price. Even worse, their selection of products is vast. My offerings are limited.”
I told my friend that in many ways, today’s businesses are like U.S. Steel, a company that fell from pre-eminent world producer of steel products to 10th place.
What happened? Nucor, a reinvented company, entered the steel industry with new cost-saving technology, lower prices and low-end products that US Steel had ignored.
By and by, Nucor replaced the financial juggernaut. It happened ever so slowly, until on one dark morning, the biggest steel manufacturer on earth was no longer the king of American industry and shrank from 250,000 workers to a mere 50,000.
Many small retailers are in the same sinking boat with no life jackets. In so many ways, selected groups of retail shops are the dinosaurs of our lifetime.
That’s the bad news. But there are options that shop owners and their crews could consider:
• Stay with your business until the bitter end, then retire. Hopefully you will have saved enough money to live a comfortable life. There is no shame in this approach. It’s been the approach of many great business leaders in the past. For employees, be ready to find new employment before the doors close.
• Develop a sustaining business model. Find and develop unique value-added services that will grow a loyal customer base. Talk to your present customers to learn what might be of interest to them. Or, as Steve Jobs would have done, surprise them with a novel idea they hadn’t even considered.
Current employees are also savvy business people. If I were the shop owner, I would sit in council with them to discover what else might be done to survive and prosper.
• Prepare to exit your business in the near term. In the process of doing this, find a new business opportunity to pursue. You know how to operate a successful business. Find a market niche with sufficient potential customers who will want to buy from you. This approach requires market research and a well-developed business plan.
Once again, I would gather my finest employees to discuss the future and the opportunities they see as attractive. This is the model I hope most small business owners will take.
Never forget that there will always be opportunities to establish a new business. So don’t despair and quit. Quitting is not in your nature, nor in the hearts of your faithful employees.
My retail friend has chosen to explore his next business. I salute him and I salute business owners everywhere who already have or are planning to do the same.
What has been your own experience about the current options small business owners must face? As always, I welcome your ideas and thoughts.
You can reach out to me via @AskAlanEHall, or at www.AlanEHall.com.