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The Case for Small Businesses

The case for small businesses is a strong one. From job creation to patents filed, small businesses are a major driving force in the economy.

Small Businesses are an Engine for Job Creation

Despite losing 9.1 million jobs in the first two quarters of 2020, small businesses’ job growth rebounded swiftly following the COVID-19 recession. In the four quarters following, small businesses have gained 5.5 million jobs, making up for 60 percent of the decline during the early pandemic. Small businesses have generated 12.9 million net new jobs over the past 25 years, accounting for two out of every three jobs added to the economy. Source.

Small Businesses are Drivers of Innovation

Experts often use patenting activity as a proxy for innovation. Data from the National Science Foundation show that small businesses that engage in R&D generate more patents per employee than larger businesses that engage in R&D. However, small business patenting activity fell significantly following 2010.

The decline is now reversing. Small businesses recovered to two-thirds of peak patent application levels from 2015 to 2018 and recovered to half of peak patents received levels in the same timeframe. Source.

Small Businesses Need Support

Unfortunately, more than 90,000 restaurants that have closed across the U.S. in the past two years. Restaurant industry sales in 2021 were down $65 billion from 2019’s pre-pandemic levels. A touching article in High Country News tells the touching story of the last day at DeDe’s, a mom-and-pop restaurant in St. George, UT.

She suffered a stroke a year ago and hadn’t been able to visit. “When DeDe found out, she made my mom’s favorite meal — a ham, mushroom, and spinach omelet with Swiss cheese and a slice of cantaloupe — and delivered it to the care facility,” Feesago said. “It’s more than food. DeDe made us feel like family.”

This type of value-added service without an exorbitant surcharge would be unheard of in a corporate restaurant scenario. The personal touch is also gone. Optimizing for profit results in diminished customer experiences. The typical story of a small company that grows until it catches the eye of a larger firm is common. The value and brand that the small company created are gutted to make room for shareholder value creation. The original loyal customers eventually leave because the magic is gone. This is done over and over again until Main Streets throughout the US begin to look exactly the same with the same 15 corporations.

The tragic irony in all this is that corporations spend a considerable amount of resources trying to recreate a “we treat you like family” environment that customers want. Unfortunately, it is just marketing, and the user experience is not genuine. The corporations would do better as a holding company that lets the small business operate with minimal interference. The parent company could provide occasional funding for expansions, hiring, and process improvements.

Small improvements can lead to significant benefits. Our blog post Competitive Advantage and Coffee talks about how a simple gesture such as remembering regular customers’ names can result in higher coffee sales. Another example is DK’s Donuts a small independent donut store in Santa Monica, CA that has been in business since 1983. Even when mega-chain Dunkin’ Donuts opened a block away, business did not suffer because the user experience, customer service in other words, was not there at Dunkin’ Donuts.

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Contact us today to discuss how you can start your own small business.

“If you get tired, learn to rest, not to quit.”~ Banksy

Many clients complain about getting burnt out and not having the motivation to keep pushing through the struggles of entrepreneurship.

In this great article from the Harvard Business Review, University of Pennsylvania psychology researcher and best selling author Michelle Gielan discusses how effective recovery periods is the key to resilience.

We often take a militaristic, “tough” approach to resilience….However, this entire conception is scientifically inaccurate.

The very lack of a recovery period is dramatically holding back our collective ability to be resilience and successful…We “stop” work sometimes at 5PM but then we spend the night wrestling with solution to work….The key to resilience is trying really hard, then stopping, recovering, and then trying again.

So how do we recover and build resilience? If you’re trying to build resilience at work, you need adequate internal and external recovery periods: Internal recover refers to the shorter periods of relaxation that take place within the frames of the workday by shifting attention or changing to other tasks. External recovery refers to actions that take place outside of work – e.g. in the free time between the workdays, and during weekends, holidays or vacations.

Another great book on the topic of resilience is Grit by Angela Duckworth. In it she discusses that the secret to outstanding achievement is not talent but a special blend of passion and persistence she calls “grit.”

How to Be More Influential

One of the best podcasts for business is the Freakonomics Radio podcast. This particular episode was especially interesting because it discusses how to be more influential. Influence has direct relevance to sales. One of the biggest issues for any business is generating revenue. To do that, your revenue centers must be skilled at influencing clients to purchase from your business.

The social psychologist Robert Cialdini is a pioneer in the science of persuasion. His 1984 book Influence is a classic, and he has just published an expanded and revised edition. In this episode of the Freakonomics Radio, Cialdini discusses the seven psychological levers that manipulate our self-described rational minds and lead us to act, follow, or believe without a second thought. The seven levers of influence are reciprocation, liking, social proof, authority, scarcity, commitment and consistency, and unity.

Some key excerpts from the interview:

  • Reciprocation – Reciprocation is the rule that is installed in all of us, in every human culture, that says we are obligated to give back to others the form of behavior they’ve first given to us. 
    • For large groups, he would ask the first person for an order, and no matter what s/he ordered, he would frown, lean down so everyone could hear, and say, “That’s really not as good tonight as it normally is.” And then he’d recommend something slightly less expensive from the menu. “This, this, and this is really good tonight.” So, what he did was to say, “I’m being so honest with you, I’m willing to recommend something that will give me less of a tip.” Then when he returned at the end, he would say, “Would you like me to recommend a dessert wine or a dessert?” And people would all look at each other and say, “Of course, Vincent, you know what’s good here, and you have our interests at heart,” and they would spend on wine and dessert.”
  • Liking – Being likable makes you more persuasive.
    • “But how do you make someone like you? One is to point to genuine similarities that you share. The other is praise. Because, first of all, people like those who are like them, and secondly, they like those who like them and say so.  Car salespeople, for example, are trained to look for evidence of such things while examining a customer’s trade-in. If there is camping gear in the trunk, the salespeople might mention, later on, how they love to get away from the city whenever they can; if there are golf balls on the back seat, they might remark they hope the rain will hold off until they can play the 18 holes they’ve scheduled for the next day.
  • Social Proof – We are more likely to say yes to a proposal or a recommendation if we have evidence that a lot of others like us have been doing so. 
    • The power of social proof is so substantial that people who watch a presidential debate on T.V. are said to be significantly swayed by the magnitude and direction of the applause at the live event. This is not at all a recent phenomenon.
  • Authority – Deferring to authoritative figures and sources.
    • In one study, someone called the nurses in various wards of hospitals and claimed to be a doctor on the staff who the nurse had never met and ordered the nurse to give a double dose of Astrogen to a patient. They’re not supposed to take these orders by phone. The dose was twice the maximum dose that was on the bottle of Astrogen. But 95 percent of them were on their way to give the drug to this patient before they were interrupted by a researcher who said, “Wait, don’t do that.” The researchers concluded that one would think there would be multiple intelligences operating to decide whether to give this amount of drug or not. But it turns out that, because of the principle of authority and the deference that the nurses were giving to the physicians, there was only one such intelligence function. As highly trained and intelligent as nurses are, in a fast paced challenging environment, it is easy to unthinkingly follow an authority’s directive.”
  • Scarcity – An insufficiency of amount or supply.
    • In the book, you tell the story of your brother when you were much younger, that he would buy and resell used cars. And his big trick was to tell all the prospective buyers to come view the car at the same time, so that he’d have everybody come Sunday at 2:00 p.m. to create a sense of demand or a false scarcity.
    • Another example is companies that create an artificial scarcity, essentially by limiting the amount of production they engage in. Let’s say it’s a T-shirt, a sneaker, a luxury watch. They could make a million a year. They choose instead to make 10,000 a year and charge 100 times what it might go for on the market as a mass-market item.
  • Commitment & Consistency – Seeming to appear true one’s decisions, beliefs, and/or actions
    • In one study, when six- or 12-person experimental juries were deciding on a close case, hung juries were significantly more frequent if the jurors had to express their opinions with a visible show of hands rather than by secret ballot. Once jurors had stated their initial views publicly, they were reluctant to allow themselves to change publicly. Should you ever find yourself the foreperson of a jury under these conditions, you could reduce the risk of a hung jury by choosing a secret rather than public balloting method.
  • Unity – The power of social identities to drive people’s behavior
    • In the United States, citizens agreed to participate in a survey to a greater extent if it emanated from a home-state university. Amazon product buyers were more likely to follow the recommendation of a reviewer who lived in the same state. People greatly overestimate the role of their home states in U.S. history. Readers of a news story about a military fatality in Afghanistan became more opposed to the war there upon learning the fallen soldier was from their own state.

The most fascinating takeaway is that the more “rational” aspects, such as features, benefits, quality, value, or pricing, are not major direct decision-making factors. Although it is arguable that quality, features, etc. can fall under Like; they prefer substance over style, etc.

Listen to the whole episode here:


Another effective marketing strategy is using the MAYA approach, “Most Advanced Yet Acceptable” also incorporates some of the levers of influence, namely Liking and Commitment & Consistency. Read about MAYA here.

Psychographics of Hipsters

Psychographics explains Pabst Blue Ribbon's popularity with hipsters
Hipster and Pabst Blue Ribbon

Psychographics of hipsters explains how Pabst Blue Ribbon’s (or PBR) rise and fall is a story of a market finding a product. PBR has been around for 170 years but only in 2008, enjoyed a 6-year boom in popularity (outside of a brief moment in the 1970s).

It is better to find an under-served market and create a product/service for them than wait for a market to find your product/service.

Q: How to Find an Under-Served Market? A: Market Research

There are many sources at your disposal to gain a deeper insight into who your customers are and segments within that market.

  • Ask potential customers: Surveying is a form of primary market research. Ask them how they use their product, and what they like/dislike about it. How long have they used it, is it expensive, how does it make them feel, etc. These questions will give you valuable insight into the psychology of the user.
  • Pose as a customer and visit your competitor’s store/website. Learn how they do what they do. See what they do well, and what they can improve on. Sometimes employees are very happy to share details you cannot find anywhere else.
  • Industry and market research companies such as IBISWorld, Pew Research Center, Audience Overlap Tool, and Statista are loaded with great information. The downside is that they can be expensive. Less expensive options include the SBA’s Office of Entrepreneurship, US Census data, and older reports/white papers.
  • Industry and trade publications for your particular sector are also great sources of information. Some are free, while some require memberships.

So, going back to Hipsters:

Hipsters are known for following the latest trends and fashions while eschewing things regarded as being within the cultural mainstream. Hence the term, “I was into __________ before it was cool.”

So why did hipsters like PBR? To put it simply, it was “retro chic,” and anti-mainstream, and with many people still trying to recover from an economic recession, Pabst Blue Ribbon’s low price point was an attractive option. This brings us to a tool in marketing used to find customer groups: psychographics.

What are Psychographics?

Psychographics are metrics used in market research as a way to divide consumers into sub-groups based on shared psychological characteristics, including subconscious or conscious beliefs, motivations, and priorities, to explain and predict consumer behavior. Any dimension can be used to segment a group of consumers, such as style, variety, availability, price, etc.

Hipsters avoided things that were popular, and some of them were not price-sensitive, so they were willing to consider a range of beers that occupied a certain psychographic zone.

Psychographics of hipster beer consumption - Your Startup Guru
Psychographic of hipster beer consumption

As PBR’s popularity grew, it was departing from the zone of consideration – the region of price and popularity where hipsters were willing to purchase from. Also, as hipsterism became more mainstream, the association of PBR with hipsters caused a self-fueling downward cycle.

A shift in Pabst Blue Ribbon's popularity caused hipster abandonment due to the psychology of the hipster
An increase in Pabst Blue Ribbon’s popularity caused hipster abandonment

How to Use Psychographics for Business?

It is better to find an under-served market and create a product/service for them than wait for a market to find your product/service since you don’t have over one hundred fifty years for your product or service to be found by a market. You can read about more businesses that found a need and filled that need.

Your Startup Guru used psychographic analysis to differentiate our client’s brand from that of their competitors yet stay true to their envisioned identity. Psychographics are used in market research as a way to divide consumers into sub-groups based on shared psychological characteristics. Age (Young vs. Established), Popularity (Unique vs. Mainstream), Price (Expensive vs. Inexpensive), and Style (Function vs. Fashion) was used to find the spaces their competitors occupy, and there might be an opportunity for our client to find an under-served market. In the case of our client, they wanted to stay within a fairly competitive zone of youthful, unique, pricey, and fashionable. However, if a brand wants to target an older, fashion-forward market, then research into the type of prints they like, how and where they wear the product, how the product makes them feel, etc., through surveys, focus groups, and informational interviews will be invaluable.

Swimsuit brand psychographics
Swimsuit brand psychographics

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Contact us today to get started on market research and strategies that will help take your business to the next level.

Old school business model

I just saw a commercial for Rent-A-Center and thought to myself that their old-school business model is nearly a half-century ahead of the times.

Founded in 1974, Rent-A-Center is an American public furniture and electronics rent-to-own company based in Plano, Texas. The company was incorporated in 1986 and, as of 2014, operates approximately 2,972 company-owned stores in the United States, Canada, Puerto Rico, and Mexico, accounting for approximately 35% of the rent-to-own market in the United States based on store count.

A convergence of trends—including the Mari Kondo-sparked enthusiasm for cleaning out closets, increased concern over the impact of climate change, and a movement toward smaller, urban apartments—has made millennial consumers more conscious of how many items they’re accumulating.

Rent the Runway CEO Jennifer Hyman.

As you may know, companies are taking a similar business model and expanding it to other consumer sectors, such as clothing and jewelry. This model has already been applied to transportation with Lyft/taxis/vehicle leasing and with housing with Airbnb/hotels/apartments and intellectual property with game rentals/public libraries. Entering into the fray are companies like Rent the Runway, which rents unlimited designer styles to subscribers, and Fat Llama, which rents electronics (in the UK).

A convergence of trends—including the Mari Kondo-sparked enthusiasm for cleaning out closets, increased concern over the impact of climate change, and a movement toward smaller, urban apartments—has made millennial consumers more conscious of how many items they’re accumulating, according to Rent the Runway CEO Jennifer Hyman.

The spending habits of millennials, the largest single consumer group out there with 83.1 million (a full quarter of the U.S. population), was surveyed. The survey found that the main reason why they rent is to “test things before purchasing” at 57%. This makes sense with money being tight and space being limited, every purchase has to be scrutinized. The results of the survey are shown in the infographic below:

World Economic Forum: This is how millennials are fueling the rental economy

Old-school brands such as Play it Again Sports and Rent-A-Center are riding the boom of the change in consumer sentiment and behavior. Rent-A-Center’s revenue grew $9M between 2018 and 2019 to $2.6B, operating income ballooned an astounding $197M between 2018 and 2019 to $253M, helping net income to increase by $165M to $173M.

See a need, fill a need

See a need fill a need - bigweld robots

Entrepreneurs often see a need through their own personal experiences and fill that need with their business idea.  This is a great strategy but sometimes doesn’t tap into a market large enough.

In episode #850 of Planet Money, The Fake Review Hunter, the host interviews Tommy Noonan, creator of SupplementReviews.com.  SupplementReviews.com is a highly popular website that provides unbiased user reviews of health supplements.  However, Tommy soon found that there were suspiciously positive reviews.  Because Tommy’s entire website was based on authentic user reviews, fake reviews became an existential threat.  After a lot of research, he found that some of these reviews were written by supplement companies.  He uncovered so many fake reviews that he started noticing a pattern, almost like a modus operandi.  They were often single product/brand reviews, used fake pictures, had lots of reviews in a short period of time, and/or only had one review.  Sometimes the “reviewer” would give positive reviews for one brand and negative ones to competing brands.

This is when Tommy had his a-ha moment.  If his website had fake reviews, others would also probably have them.  So he created another business that aligned with one of the juggernauts of the internet, Amazon.  Tommy’s site, which uncovers fake reviews, is called ReviewMeta.com.

How to find a need

As mentioned at the top of the post, most rely only on their personal experiences or that within their network.  Sometimes the need is obvious.  For example, at a 7-Eleven in Shirley, New York, one 7-Eleven sells more coffees than any other franchise in the US, all because of one store manager who knows virtually every customer’s name and greats them.  No special location mojo or customer flow algorithm, just old-fashioned customer service. You can read more about it in my post Competitive Advantage and Coffee.

Other times it is not that obvious.  In that case, you have to hustle differently.   How do you do more “work” when you’re already working to the bone?  Find efficiencies:  know your customers, know your competitors, and lower your expenses by working on learning more doing more research in episode #700 of Planet Money, Peanuts, and Cracker Jack.  In Boston’s Fenway Park, Jose Magrass is the top seller.  One year, on opening day, he sold 500 hot dogs, $2750 worth of hot dogs in a single game.  In fact, Jose has been the top seller for over five years.  Part of his secret?  He has a spreadsheet where he analyzes many factors beyond just the weather, such as what his competing vendors are selling and what fans are likely to purchase depending on the price of their seats.  For example, behind home plate diet coke sold better because possibly that is where the “vain people” sit.  That kind of analysis is impressive.

Time utilization for startups - Your Startup Guru Time is a finite resource

One of the top five reasons people say they cannot start their own business is lack of time.  I always, always, ALWAYS emphasize time efficiency to my clients.  For example, scheduling calls in advance, taking notes during meetings, making checklists, etc. all can help maximize time efficiency.  I cannot tell you how many times people have called to discuss business but do not have their materials in front of them…even worse, while driving.  Invariably they do not remember everything that was discussed and another meeting will be had.

In a startup, there are so many things to consider and juggle.  Rent, advertising, staffing, licenses, etc.  It becomes very easy to become overwhelmed in the thousands of tasks that need to be done which can cause us to lose sight of direction and lose creativity.  However, according to Economist Joseph Schumpeter business people would be better off if they did less and thought more.

All this “leaning in” is producing an epidemic of overwork, particularly in the United States. Americans now toil for eight-and-a-half hours a week more than they did in 1979. A survey last year by the Centres for Disease Control and Prevention estimated that almost a third of working adults get six hours or less of sleep a night. Another survey last year by Good Technology, a provider of secure mobile systems for businesses, found that more than 80% of respondents continue to work after leaving the office, 69% cannot go to bed without checking their inbox and 38% routinely check their work e-mails at the dinner table.

Managers themselves could benefit. Those at the top are best employed thinking about strategy rather than operations—about whether the company is doing the right thing rather than whether it is sticking to its plans. When he was boss of General Electric, Jack Welch used to spend an hour a day in what he called “looking out of the window time”. When he was in charge of Microsoft Bill Gates used to take two “think weeks” a year when he would lock himself in an isolated cottage. Jim Collins, of “Good to Great” fame, advises all bosses to keep a “stop doing list”. Is there a meeting you can cancel? Or a dinner you can avoid?

Your time is valuable. Make sure you’re spending it wisely.

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