Big Business vs. Small Business…. who’s right?

Today, in response to an interview that I’d posted recently with the founders of the Ypsi/Arbor small business support group Small & Mighty, a reader by the name of KJC posted a link to an article titled “Small is not Beautiful,” implying, I think it’s pretty clear, that many of us are misguided in our love of small, local businesses. And, as no one has taken me to task in a while over my unabashed boosterism of local business, I thought that I’d move it up here, to the front page, so that we could discuss it properly. Here’s a clip from the article.

…What I find more surprising, and disturbing, is the tendency of some folks on the left to embrace small business with some passion. This is particularly true in the unfortunately named anti-globalization movement—as if internationalization itself were the problem rather than the way it’s carried out. Their anti-globalism is connected to a desire to “relocalize” economies, and with them to reorient production on a much smaller scale. These aims seem more motivated by nostalgia—and, in many cases, by a nostalgia for something that never existed—than any serious analysis.

Larger firms are also far more productive than smaller ones. Small-is-beautiful advocates rarely tell us how tiny enterprises would produce locomotives, computers or telephones; maybe they’d prefer to do away with these things and revive a hunter–gatherer society. But if that’s what they intend to do they should tell us.

And people who presumably care about workers should also rethink their passion for tininess: the experience of actually existing small businesses show that they’re not great employers, with poor pay, cheesier benefits and more dangerous workplaces. Bigger firms are easier to regulate, more open to public scrutiny, friendlier to affirmative action programs and more vulnerable to union organizing.

A progressive case for bigness is rare and unpopular these days, but somebody has to make it.

First, let me start by saying that I agree that, just because a company is locally-owned, does not mean that it’s necessarily good. I haven’t said that in the past, as I thought that it was pretty obvious, but perhaps it’s something that I need to be more explicit about. I’m painfully aware that there are assholes who run local businesses, abuse employees and add little value to the communities in which they operate. (Like many of you, I’ve had the pleasure of working for some of these folks.) Second, if you scroll back through the archives, you’ll also find instances where, on several occasions, I’ve said positive things about large companies, like Costco – a company, which, by all accounts, treats its employees well, and strives to ensure that its suppliers do the same. (If I’m not mistaken, I’ve also expressed in the past that I’m torn on the subject of Starbucks, as I hate the homogeneity they bring to communities, but respect the fact that they provide insurance to part-time workers, champion gay rights, etc.)

So, let’s start by dropping the false notion, as KJC would suggest, that I believe that all big companies are evil, and all small ones are terrific. I may be idealistic, but I’m not naive. I can appreciate that we live in a complex world and that the issues that we’re facing are far from black and white. At the same time, though, I have no reason to think that Michael Shuman is lying when he says that he’s never seen an academic study that’s shown that a chain business, with out-of-state ownership, has contributed more wealth to a local community than a comparable business whose owners are rooted in the community. So, yes, I believe that, all things being equal, I’d rather do business with entrepreneurs who live in our community, and have to face us each and every day, than with their corporate counterparts, who just see Ypsilanti as a line on a spreadsheet, and don’t know the names of those people they employ in our community.

I know that some of the jobs that these small businesses create aren’t ideal. I know that, with regard to the food service industry in particular, it can be poorly-paying, grueling work, often without insurance. I can very well remember, for instance, busting my foot, and having to hop around the kitchen that I worked in for several weeks, in pain, as I was unable to see a doctor. Still, though, I think I was better off at the time working for Seva, than I would have been working for McDonalds… I could go on, but I think that Jean Henry, one of the founders of Small & Mighty, does a better job than I could. Here’s how she responded to KJC.

First I would say (as an employee of Zingerman’s) that, in comparison to WalMart and McDonald’s, at any level (other than maybe top) of the organization, staff at Zingerman’s are doing far better in terms of wage, benefits, engagement and employee satisfaction than the aternatives. There are national businesses (Costco for example) that do better than we do in terms of wage scale, but I can’t think of any totally situated in the food business like we are. And we are working on it very very actively. Industrial production in the food business has created a system in which consumers pay very little (relative to in the past and as a percentage of income) for food – and we waste an average of 30%+ of that – and no one in the supply chain is making a reasonable living (except the giants) and, yes, it’s all at risk. In food, the better the integrity of your product and service, the lower your profit margin — even at Zingerman’s prices.

Less established small businesses than Zingerman’s are in much the same economic position as their staff – they struggle to survive in an economic structure that is marshaled against their interests. (They can’t afford the rent, the bills or health insurance either in many cases.) There is plenty of evidence of this. There is also plenty of evidence, contrary to the posted article, that small businesses create more sustainable jobs than the big ‘C’ corporations. But, yes, they often do so at a lower wage base, and almost always with fewer benefits, because they are not as profitable.

The capital in this country does not flow towards its most efficient and productive engines – small businesses. Small businesses give back more generously to their local communities. Of $1 spent at a local independent business, 68 cents stays in the community vs. 43 cents at a national chain store. In independent retail and restaurants the differential is higher. (More info can be found at the BALLE website.) Small independent businesses should also offer better product, service and experience than a chain store. In the end, no one is asking anyone to support local business as a charity. They should provide value. But I would ask you to consider the fabric of your community without them.

The best small business owners risk everything and walk a financial tightrope daily in order to make their vision a reality, because they love what they do and where they do it. They struggle along with their staff in a shared boat in the rough seas of the current economic structure. It is no mistake that the Occupy movement identified with small business owners as part of the 99%… And as part of the solution. If you would like small businesses to be able to pay higher wages then you must be prepared to pay more for their services, or work to invert the current systemic bias toward big and bad.

I try to pay with cash at local businesses doing good work in order to give them more capital to invest in their business, staff and the local economy. Doing so saves them about 4% in credit/debit card fees on each transaction (likely doubling their profit margin) and doesn’t feed into the predatory national banking system. It also keeps me on budget. Do what you can. Think about the big picture. And ask staff at local businesses how they like working there and why they, in many cases, resist working elsewhere for more money. Their answers will often be very close to their bosses answer to “why were you so crazy as to go out on your own?” For many many happy, thriving but often broke people out there, it’s worth it.

So, where do you stand on all of this?

[note: The image at the top of the page is from You’ve Got Mail, the not-so-good 1998 remake of 1940’s The Shop Around the Corner, in which Tom Hanks and Meg Ryan fall in love, despite the fact that Hanks runs an enormous bookstore chain which threatens to put Ryan’s lovely little book shop out of business… Sorry, but I couldn’t think of better image to illustrate this post.]

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  1. Edward
    Posted March 1, 2013 at 8:32 am | Permalink

    I’d like to take the article linked to by KJC seriously, but the asinine “But who will build our locomotives?” argument tells me that the author isn’t interested in having a real, meaningful discussion. No one who advocates for local business has ever suggested that we build bombers, tanks, and locomotives locally.

  2. kjc
    Posted March 1, 2013 at 9:21 am | Permalink

    “So, let’s start by dropping the false notion, as KJC would suggest, that I believe that all big companies are evil, and all small ones are terrific.”

    i only got this far before i thought wtf is he talking about? i think no such thing. i can only imagine how many projections follow. sigh.

  3. kjc
    Posted March 1, 2013 at 9:22 am | Permalink

    but you can go yell at doug henwood if you want. he might not know he was talking about you either though.

  4. anon
    Posted March 1, 2013 at 9:29 am | Permalink

    some folks get testy when you interrogate the myths they live by; in this case, the belief that capitalism becomes more benevolent the smaller it gets.

  5. kjc
    Posted March 1, 2013 at 9:29 am | Permalink

    i didn’t mind Jean’s response, which I just saw. why would I? this has nothing to do with me personally and your defensiveness, Mark, is ridiculous. I take her points in good faith.

    “Think about the big picture. And ask staff at local businesses how they like working there and why they, in many cases, resist working elsewhere for more money. Their answers will often be very close to their bosses answer to “why were you so crazy as to go out on your own?” For many many happy, thriving but often broke people out there, it’s worth it.”

    As i noted previously–MAYBE I NEED TO BE MORE EXPLICIT EVEN THOUGH I ALREADY WAS EXPLICIT–my interest in the issue is based on talking to people i know who have had, ahem, non-thriving experiences. i didn’t realize those people don’t matter or that it was anathema to even mention it.

    get over your fucking self. so silly. i’ll pass this post on to Doug and see if he knows how much he hurts your feelings.

  6. anonymous
    Posted March 1, 2013 at 9:29 am | Permalink

    Thank you for replying without having read the post, KJC. That helps move the dialogue along immensely.

  7. anonymous
    Posted March 1, 2013 at 9:32 am | Permalink

    Doug, by the way, looks like a happy fellow.

  8. kjc
    Posted March 1, 2013 at 9:32 am | Permalink

    get over your fucking self was for Mark, not Jean. i want to be explicit though i think it’s pretty obvious.

    I love local businesses. I try to use their services, eat their food, buy their auto parts exclusively. Can I have an opinion now? Share a link?

  9. kjc
    Posted March 1, 2013 at 9:33 am | Permalink

    Obviously i created the dialogue! Oh brave anonymous.

  10. koosh
    Posted March 1, 2013 at 10:11 am | Permalink

    doesn’t henwood make some sense with his locomotives comment?

    it seems that the “local” or “small” movement is geared towards retail and food industry — two of the shittiest paying industries. isn’t locomotive a metaphor for anything that isn’t locally produced with local resources?

  11. Jean Henry
    Posted March 1, 2013 at 10:33 am | Permalink

    Oh my. I think we all are more in agreement than not– except maybe the person who believes that capitalism is more inherently corrupt than statism. Ive seen gross failures is in all economic systems. My problem is with concentrated power. America knew better than to get in this fix. We engineered abd the dismantled mechanisms to address the risk. I am not against trade, larger scale business or even globalism– although I’m not crazy about– ok I hate– how these mechanisms are put into practice today. And there are alternatives. I am interested in rebalancing the scale, so those alternatives can emerge. For instance, I’d like to see more capital and economic development dollars go towards storefront businesses, green, and service businesses that build community integrity and resillience. I truly appreciate the dialogue here. I think it’s important to have this conversation. I really appreciate Mark for providing a forum for it. This is by far the best blog for sustained informed dialogue about complex and locally relevant issues. At least the trolls here are impassioned… Even so, if you keeping picking on Mark, I may need to kick your kneecaps and poke you in the eye.

  12. Mr. X
    Posted March 1, 2013 at 10:33 am | Permalink

    Local business is broader than just retail and food. Those are the most obvious, and approachable, but we’ve got all kinds of small companies. The David and Golliath comparisons are less obvious though.

  13. koosh
    Posted March 1, 2013 at 10:47 am | Permalink

    is local business really that much broader than retail and food? most service indsutry fits into local but mostly because there are very few big box legal or architecture firms. anything of any value i buy isn’t made locally or even in america. my car was made in japan. my washing machine in mexico. my iphone in china. and my blue jeans in india. i could eat at zingermans three times every week and still not make anything close to the economic impact i did when i bought my car.

  14. Brainless
    Posted March 1, 2013 at 10:57 am | Permalink

    Why do all general conversations about local business have to mention Zingerman’s? It’s ONE company, not the whole economy. It’s one company that sells insanely overpriced food to rich people. Yeah, I loves me a Greenberg’s once in a while, but a staple it is not. Minus our VERY LARGE university and the VERY LARGE hospital attached to it (tail? dog? you decide), Zingerman’s doesn’t exist. This small business was borne of BIG business. This is not an either/or choice.

    Zingerman’s is like our local Hollywood. All of Hollywood took in $10.8 billion last year. Ford alone took in over $130 billion. Who do we hear more about? Meanwhile, Ford is pumping a bazillion dollars into our local economy, educating our workers, insuring them and improving their products while Hollywood hoovers our money and produces shit.

    Remember when all you yahoos talked about Borders the same way?

  15. anonymous
    Posted March 1, 2013 at 11:05 am | Permalink

    I think KJC deserves an apology for all this jackhole defensiveness. Like she said, that Doug Henwood piece was linked to as an alternative take and there’s actually a lot of truth in it.

    I’ve worked for both. Big and small. In 2008 I worked two part-time jobs one at Crazy Wisdom Bookstore in downtown Ann Arbor and the other at Starbucks. As much as I cringed at being part of the corporate world Starbucks gave me health insurance, a flexible schedule and room for growth. Meanwhile I was making $8/hr at the bookstore, zero benefits and could get no more than 12-15 hours per week. In this case the corporate world treated me as a partner while I never once felt like small business owners were looking out for me the way I was looking out for their business.

    Let’s focus more on the dialogue (thank you KJC) and not the bullshit. Avid readers and commenters on this blog deserve more respect than blind defensiveness in response to posting a link. She didn’t write the damn piece for crying out loud.

  16. JC
    Posted March 1, 2013 at 11:22 am | Permalink

    There is one model we know is fundamentally native, and that’s the cooperative. Maybe our entrepreneurial energies ought to be channeled more passionately in that direction.

    What if—thinking aloud—some local organization’s mission were to enable and organize the formation of cooperatives in Washtenaw County?

    Along these lines, the new issue of yes! magazine is a really beautiful call to (link) arms.

  17. Different Anonymous
    Posted March 1, 2013 at 11:37 am | Permalink

    KJC took a drive-by potshot calling folks naive for supporting local businesses. She did not provide any background. She did not acknowledge any complexity. She likened to an article called Small is Not Beautiful. And, guess what, people got defensive. I found Mark’s response to be evenhanded and logical in comparison. He acknowledged that some bug companies were good and that some local ones are bad. On average, though, he said that he feels as though there’s more potential for good with local companies. I don’t see what’s objectionable about that.

  18. Different Anonymous
    Posted March 1, 2013 at 11:40 am | Permalink

    The real question as I see it is how to make local businesses better and more responsible. And my sense is that S&M may help in that regard.

  19. Posted March 1, 2013 at 1:03 pm | Permalink

    Small, tiny, unproductive retail businesses are cute and lovable, but really pretty unsustainable in the end.

    I often see that “68 cents on ever one dollar spend at a locally owned business goes back into the community” but, besides the source, am seriously skeptical when I consider the number of poorly run small business that fail to pay even a living wage, offer unstable employment, offer no benefits and evade taxation whenever possible. I also wonder if the purveyors of that particular number consider locally owned small businesses that go belly up every single day, leaving empty spaces and unpaid bills.

    I also get irked when people talk present thin profit margins as an excuse to paying shit wages. If the profit margins are so thin, and the only strategy to insure profit is to pay employees less, then that particular business shouldn’t exist. Why should workers shoulder all the risk and costs? If you consider foregone costs (assuming there are any), workers at a poorly run small business effectively subsidize their employers. Fuck….. that.

    It may be passe to talk about Zingerman’s now, but they obviously figured out how to stay in business AND pay a decent wage AND offer benefits, and NO, wealthy UM faculty did not show up out of charity to buy sandwiches.

  20. Jean Henry
    Posted March 1, 2013 at 1:29 pm | Permalink

    Cooperative models are emerging fast and furious (although many of the same wage and benefits issues exist within them). The county has funded a feasibility study for an business and employment economic cooperative, called The Shed. “Business & Employment Cooperatives (BECs) function as alternatives to traditional business incubators. A BEC is a cooperative that hires entrepreneurs and small business champions as employees, accepting a portion of their revenues in return for income to bridge their transition and growth periods. Entrepreneurs and local small businesses are also able to leverage the efficiencies of shared business services. Small businesses, once launched by a BEC, can remain part of the coop or spin off to become independent entities” There are many great models for a new, sustainable and generous economy (including Zingerman’s Community of Businesses–which happens to be on the forefront AND local, and so of course we talk about it).

    As for the big purchases discussion– it is an economic variant on the big fish/school of fish graphic Mark posted. You may buy a car once every ten years and spend a chunk of change on it all at once, but people eat food three times a day, eating out a couple of times a week. As a portion of my income, I spend a lot more on food and sometimes even eating out each month than I do on my car payment. But I eat well and drive a 12 year old car. Zingerman’s (local) may not compare to Ford (national), but the restaurant industry as a whole (2.3 trillion) compares pretty damn well to the auto industry’s billions (even more so if you weave in supply chain). Small business in total is also a monster chunk of GDP in comparison. But the power and capital flow are not concentrated there. Small businesses operate on cash flow and, as a result, they are big givers in this economy. The many many dollars spent there flow back out to enrich the lives of their communities directly. Honestly that economic magic happens even when they are shitty businesses. But small business is very often more– in part because its not a great way to make money. People usually are in it for another reason.

    I’m all for Ford. It’s not an either/or situation. It’s just a make-a-little-room-at-the-table situation. I am super enthusiastic about the potential for small businesses to become more progressive and sustainable (with some support) because they are small and agile in a way that big businesses aren’t. There are some great big business models too (REI, patagonia, Stonyfield farms are 3 I really like), but I don’t work there. I’m working where I live on a small scale– because it enriches my life and I can see the results (and failures) and because I think small business is a really effective mechanism for change.

  21. anonymous
    Posted March 1, 2013 at 1:39 pm | Permalink

    Well said Peter Larson.

  22. Jean Henry
    Posted March 1, 2013 at 2:08 pm | Permalink

    A lot of businesses we really care about (including Zingerman’s) have thin profit margins. Scale allows Zingerman’s to do what it does and continually improve, but they didn’t start out that way (despite all clear good intention to do so eventually). I am making my case for more support of small businesses in part so we can begin to correct that. That cooperative businesses (at least those not seed funded by big grants) also often can’t pay decent wages and benefits tells me that the problem is systemic, not about business management. The economic cooperative idea could maybe allow small businesses to purchase health care benefits more affordably as a group. Access to capital would give small businesses the cushion they need to grow, hire up and pay more. Not every small business will do that of course. Not every big business does either. It would also help with risk management because business failings does have negative a ripple effect– usually on other small businesses. Bad businesses fail. That’s as it should be. But the economic engine of small business is still undeniable en toto. Who really argues that anymore– seriously? Also big businesses fail too. And when communities rely on them for most of their economic mojo, they are at much bigger risk. Consider support of small local businesses as a way to diversify our community’s economic portfolio. The localization movement is just trying to balance the scales– not just in terms of customer loyalty, but flow of capital and community resources and support.

  23. JC
    Posted March 1, 2013 at 3:23 pm | Permalink

    “The real question as I see it is how to make local businesses better and more responsible.”

    Have them be worker-owned cooperatives.

  24. Mr. X
    Posted March 1, 2013 at 4:18 pm | Permalink

    My guess is that a bar/restaurant would be difficult to start that way.

  25. Emma
    Posted March 1, 2013 at 7:04 pm | Permalink

    Isn’t a big business just the evolution of a successful small business?

  26. SparkleMotion
    Posted March 2, 2013 at 7:56 am | Permalink

    One thing I’d like to point out is the complex interweaving between big and small businesses that isn’t being addressed here. It’s a lot more complex, and the dividing line is much blurrier than many here think. Going with the restaurant theme we have going here since it appears to be the prototypical small business, they can make their own bread, use local meats and cheese, mix their own sauces in house, but they are still dependent on large companies existing. Sysco probably delivers their plates and silverware. There’s a good chance Ikea made the tables and chairs. They do accounting on an Apple computer. If they serve booze I guarantee Diageo is involved. The fact is that almost no small business can reasonably exist today without big business existing as well, for better or worse.

  27. SparkleMotion
    Posted March 2, 2013 at 8:01 am | Permalink

    And Emma, that’s the logical conclusion but not the only one. I work in the industrial world, and I’ve had the pleasure of meeting the owner of a machine shop that took his company from a 3 person operation to a 120 person operation, and then voluntarily scaled down to about 20. He claimed to be equally as profitable only hiring high end machininsts and going after difficult jobs than having …not high end machinists and taking everything that came in the door. He said the best part was that since he wasn’t running a 24/7 shop anymore, he wasn’t working 24/7.

  28. Gillian
    Posted March 2, 2013 at 4:16 pm | Permalink

    Yes.. Some big businesses treat workers well. Some small businesses treat workers like shit. Some of each contribute to the local community, or don’t. I think the small/big debate is missing the salient point: What can we do to hold all businesses accountable for how they contribute to the quality of life for their employees and their community?

    It’s easier to hold WalMart accountable than Joe’s Diner, but it’s also harder to change their behavior. When it comes to Joe’s Diner (or whatever), there’s no sign on the door saying whether they pay a living wage and are nice to their staff, so we depend on anecdotal evidence from friends. There’s some accountability that comes with a tight-knit community but one person’s experience is still one person’s experience. I spent years boycotting Orchid Lane in Ann Arbor before finding out management had changed and they’ve apparently gotten better, I will forever boycott the Cloverleaf Diner (lemme tell ya that story sometime), but I also spend more than I should at the Zing (yes, bringing it up again) because I had a positive experience working there (I also know plenty of people who didn’t).

    So. Yes, I’m biased toward local businesses that I have reason to believe are good people. I also appreciate KJC and others calling out this bias because not all local businesses are good employers and neighbors. I just wish i had a bit more complete information available to help me make those judgements.

  29. Posted March 2, 2013 at 4:32 pm | Permalink

    And that’s where blogs come in, Gillian. We need people like you sharing their experiences of these various businesses. Yelp is great, but we need places not just to talk about how good the food is at a given restaurant, for instance, but how they treat their employees. Speaking of which, I’d love to hear your Cloverleaf story.

    Also, I’d like to take the opportunity to say that my intention in this post wasn’t necessarily to attack KJC, just as I’m sure her intent wasn’t to attack me. I value her comments on this site, and hope that they continue. I just felt as though I needed to respond and make my position clear. As much as I write about the transformative power of local business, every once in a while I think it’s valuable to step back and reaffirm the obvious, which is that not all small companies are good, and not all big companies are bad. And I appreciate KJC’s reminding me of that fact.

  30. Jean Henry
    Posted March 2, 2013 at 8:01 pm | Permalink

    Just to clarify a few points– 1)Small businesses are different than big businesses. They have a different banking system (since the 20’s ) from which to draw loans. They have limited access to investment. You can not buy stock in a local company. You can not invest in a local company with any legal protection unless you are an accredited investor (ie have wads of cash). They do not have access to ‘parent company funds.’ They are also not accountable to a parent company for their decision making (unless they are a franchise and many would argue franchises are not independent local business). Finally not needing to meet stockholder expectations of continuous double digit growth and plus divedend income generation, means more goes back to the business or out to labor and either way, stays in our community. Saying big business is just a more successful small business is like saying Donald Trump is just a more successful diner waitress. The mobility is just not there in a meaningful way and less so all the time.

    All that said, of course small businesses are inextricably tied to big businesses. And so are all of us. We all draw our income from somewhere. I think small independent businesses actually have a lot more capacity than most people do to make good choices about who they partner with and where their income comes from. Again this is not an either/or choice. The tag line is “Think Local First” for that reason. Awareness of choice — and intention in your purchasing as a vote for the kind of community you want to live in — is what we are trying to awaken here. Small business, like the middle class as a whole, deserves recognition as an essential economic muscle– One which is struggling under adverse conditions which preference the wealthy and big business. All we are asking really is for people to understand the distinction.

  31. Jean Henry
    Posted March 2, 2013 at 8:11 pm | Permalink

    re Sparkle motions comment– part of the localization movements interest is in encouraging businesses (as well as end consumers) to localize more of their purchasing– to reel in that supply chain a bit. There are a bunch of compelling reasons to do this. Many can be found at the BALLE site linked in Mark’s post. But, of course we will all be engaged with big businesses too. That’s the economic landscape we occupy and many many things will never be made and services never offered by small businesses. This is not a war. We are just trying to make the point that the smart purchase is not always just getting the cheapest price point. There is a lot more to consider.

  32. Posted March 3, 2013 at 12:46 am | Permalink

    I don’t understand why people try to push this false dichotomy of small vs. big business, or local vs. corporate. I do think small companies are can be more humane, operating at human scale (at or below Dunbar’s number), but it doesn’t mean that big companies can’t be (and it’s very often the opposite, for many). Are big cities terrible places vs. small towns, too?

    A small company doesn’t have to mean a small or local business, and in the case of technology startups, that’s exactly the point – technology (and culture) is exactly what allows small companies to scale “unnaturally” to enjoy outsized businesses (e.g. Arbor is still ~300 people, doing nearly $250m a year; companies like SolarWinds did $25m with only 15, and is now at $4B market cap as a public company). So I’m unclear on what the actual distinction is that’s being drawn here. I buy food locally, and care about such service businesses hiring local people, because well duh. Local dollars going to locally-produced products and services, all good.

    I care a lot more about innovation, for the tremendous impact technology has on creating wealth. I root for every new business here that does anything interesting, but I’m not excited by companies just because they’re small – or conversely, because they’re big and employ a lot of people. Small companies innovate faster, and to me that’s what matters. Disruptive technical innovation, scalable business models, virtuous and collaborative cultures that teach how to build value together. We cannot broadly create wealth for our community just by doing each other’s laundry.

    Jean, maybe you mean to say that the focus of traditional economic development folks is off, and that their focus on jobs jobs jobs and ABC (Ann Arbor is the Bangalore of California) strategy is the wrong approach. I would totally agree – importing jobs isn’t sustainable, but creating the culture, community, and ecosystem that can continually produce new companies with better teams, is.

    If a business is making a positive impact by doing great things and treating people well, that’s all I really care about. Other folks have gotten hung up on the mechanics of business – size, funding, growth plans, etc. – that don’t matter at all when it comes to those things. It’s telling that many of the defiantly bootstrapped companies in tech, e.g. end up breaking all of those “rules” at some point. The longer you’ve been in business, the more demystified this stuff becomes – capital is just a tool, growth is freedom, etc.

    Beyond the Valley of Death for a small company, there is also a much longer Plateau of Suck for those that just barely make it through, where a lot of founders wind up as burned-out, hollow-eyed walking zombies indefinitely. There are many different aspects to building a great businesses, but the one you have to get right is making a profit. If you suck at making money, your company will be a terrible place to be, no matter what else you do.

  33. JC
    Posted March 3, 2013 at 8:11 am | Permalink

    Dug’s comment is that provocative combination of pithy, honest, and problematic.

    “If you suck at making money, your company will be a terrible place to be, no matter what else you do.” By the standards of those whose mission is to amass wealth, my business sucks at making money. But it also doesn’t create and unleash new products into the world that the world doesn’t need.

    “Are big cities terrible places vs. small towns, too?” Big cities and small towns aren’t owned.

    “I care a lot more about innovation, for the tremendous impact technology has on creating wealth.” It’s sentiments like this that I find super frightening, especially when they come from people like you, whom I assume are liberal. I’d just ask: where does that wealth come from?

    “We cannot broadly create wealth for our community just by doing each other’s laundry.” Actually we can, if by wealth we mean something other than money. I’m glad you wrote this, Dug, as it’s at the heart of a sharp disappointment I have with some friends (and vice versa, though we care about each other very much). I’ll close by throwing out a provocation, and I invite critical feedback: if you’re main “entrepreneurial” focus in life is visioning, engineering, and growing wealth, you’re part of the problem.

  34. Posted March 3, 2013 at 12:52 pm | Permalink

    JC: Where does wealth come from? Wealth is created by people, and it isn’t just money. I hate to reference Paul Graham here, but he gets this much right:

    If you disagree with the idea that business exists to create wealth for companies, their customers and communities, well, I’m not sure I can contribute much to the discussion. My own entrepreneurial focus is indeed in building platforms for creating wealth and opportunity for folks by engineering solutions to the hardest, most important problems I can find. I would rather fail completely trying to do that than settle for less (e.g. just making money, or just solving problems without actually creating a larger opportunity for many more people to do it with me).

    I’m not sure which “problem” you’re referring to that I’m part of, but the one that primarily concerns me is apathy – if we don’t push to improve things, who will? The Awesome Foundation grant for S&M (hehe!) is in support of the kind of small, local businesses that the Chamber of Commerce is supposed to be helping, but ends up attracting mostly bankers, insurance agents, realtors, etc. We’ve been doing similar things in the tech startup community for some time now as well:

    And it comes from a tech culture of collaborative innovation and shared success that I would like to believe is also reflected in the Small & Mighty initiative:

    I stand by my assertion that we cannot broadly create wealth just by doing each other’s laundry or feeding each other – by themselves, these aren’t scalable opportunities for economic growth as they’re largely dependent on the success of other sectors here (higher ed, automotive, life sciences, etc.) that are able to actually provide people with the discretionary income to spend on such things. If the higher ed bubble does burst, Ann Arbor and Ypsilanti will be the next Flint, without other industries to diversify them:

    Besides technical innovation, we should be working to build better companies with broader engagement in the community – I started a fund, but never got around to pulling together a board, to help do this in Ann Arbor:

    I started this initiative, and my current company, just before the birth of our second child (best time to drain all your savings, let me tell you). There is a certain pathology to entrepreneurship, I’ll give you that much.

  35. Jean Henry
    Posted March 4, 2013 at 12:27 am | Permalink

    Dug– I agree with almost everything you say. I think we share a vision for the future of this community that is more kick-ass and resilient and scrappy– ie more entrepreneurial. BUT the dichotomy between big and small is neither false nor created by advocates for small business. (nor is it absolute) The dichotomy between big and small business exists because there are differences in access to capital and support. Fundamentally.

    I understand that access to capital can bring its own set of problems, but we are talking about something close to total constriction at the small independent business scale. If you are in a lower profit margin business, because either that is the nature of your business’ margin or you are choosing to conduct your business with great integrity, you have thrown all your capital into the business itself. The chances that you have much equity from which to borrow are slim. Pre-2008 you could borrow on cash flow. Not anymore. This inequity becomes even more exacerbated as well-run businesses that should grow, because they have demand, can’t grow capacity to meet it and continue to struggle and don’t pay great wages or create jobs as they would otherwise. Even under this adverse pressure small independent business is an important economic engine– just a neglected one.

    I don’t think we want a world in which most small businesses are started by the independently wealthy or those with a rich uncle (this is where things are headed), but by the most qualified and inspired to run a great business. Small & Mighty exists so small business owners can support each other’s success by sharing resources and collaborative opportunity. Because we have to be scrappy. Because we want to be better and do better. And also because in joining forces, we join our voices. And we deserve to be heard. Our vision has not been cemented, but maybe someday we can advocate for our interests, whether scalable rents, government and economic development support or local procurement policies to balance the scales. Really we just want a place at the table in the conversation about the future of this community.

    Small is not inherently better than big. Small just depends on client support more than big for its very survival– because that’s all the support it gets (outside of that rich uncle). If you have ever lived without a cushion of support or a safety net, then you know that it is constricting. So, if we care about creating the dynamic, resilient, diverse and generative economy we both envision for this area, it’s essential to understand that small business needs more than patronage (though it really depends on that totally right now), it needs governmental, economic and policy support– like the big guys get. Not as a charity, but because its a wise economic move to do so.

    There is no versus here. Every person engaged in ramping up the vitality and sustainability of this community needs a place in the conversation. But our needs may not be entirely the same. Or we may be competing for resources. That’s all good. It’s has to be ok to advocate for the needs of small independent business without people getting all worked up. This is not good v bad rhetoric, but “hey we have mojo and deserve acknowledgment and real support.” We can’t do that if people see all businesses as the same no matter the scale. So the distinction is important.

  36. Jean Henry
    Posted March 4, 2013 at 12:55 am | Permalink

    One last bit (I swear). Brick and Mortar businesses may never generate huge wealth for their owners. They may however also have no intention to ever have ‘a liquid event’ or sell. Sticking around is their plan. Most money they take in goes back out into their community. This means they function differently in the economic health of a community than most start-ups (as defined in Dug’s linked article). Think of it as buying a home v investing in the stock market. Stock market might make you richer, but the home improves your daily life and creates financial stability (ok well it used to:). Again it’s not either/or but that each has its own value in creating a strong attractive community that generates wealth (broadly defined) and well being for all its members and grows in its community character. ie we may not bring in the most pollen, but we build the hive and make plenty of the honey. A strong hive economy would support all of its contributing members in balance.

  37. Aaron
    Posted March 4, 2013 at 8:58 am | Permalink

    Greg Sharzer’s recent book “No Local: Why Small-Scale Alternatives Won’t Change the World” is another good entry in this debate from a leftist perspective, along the lines of Doug Henwood’s original post. Here’s a review of the book and a recap of its argument:

  38. Dean
    Posted January 3, 2015 at 7:10 am | Permalink

    Big business has created the largest gap in wealth gap in recorded history. (PERIOD!!!) J.P. Morgan said 20 times the wage of your employee is enough, but modern business has made that 1000x. No human deserves that kind of wealth. Every generation or so, the great unwashed just go into rich people’s homes with pitchforks and torches because the rich WON’T share anything w a poor person unless “forced”. Can’t wait to see the poor start smash and grab start happening in rich folks homes who GOT that wealth by exploiting other Americans in some way. Ain’t no hard work for decent pay person I guess huh, partner. You believe in the presidential hand off w 2 families in 2 identical parties too I bet, so we can’t change jack squat.. I would rather the planet was dead than be this kind of wage slave to some dick I never get to meet, makes 1000x more than myself, while I drip the sweat.

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