There are big advantages to being small. One of the most powerful is the way a small operation can scale up a lot easier than a large operation can scale down. Calling all underdogs, scrappy upstarts, and rebel leaders, this one is for you.
Caliper Foods and Stillwater Brands CEO Justin Singer says one question he always gets about the marijuana industry is “What happens when Philip Morris/Coke/Budweiser/some giant consumer conglomerate enters your market? They’ll crush you, right?” His answer is that all of the things that make the current marijuana market smaller are precisely what will keep the bigger players out, at least for now.
Small and hard-to-scale act as naturally fortified moats. Big brand recognition is one type of moat, as in people will choose a Disney movie for their kids to watch over some company they’ve never heard of. Complexity is another type of moat that scales differently than brand. An idea might be technically complex and require teams of highly skilled (and highly paid) engineers, or an idea might be locally complex and require boots on the ground or very specific niche knowledge.
Here’s where size matters: the more locally complex, A.the less a big brand will matter to the customer since they won’t be competitive, and B. the less incentives a big brand will have to move into a space that has a lower profit margin relative to their better scaled primary options. Said another way, it’s easier and more profitable for Coke to manufacture and sell a million cans of soda nationally than 100 custom-made cans locally. A small sized soda startup would only compete at this local level to preserve their moat and avoid direct competition with Coke.
Our own businesses have a unique mix of big and small attributes and moats we should seek to understand. The small ideas are more defensible than we might imagine at first. We want to look for these. Instead of abundance, look for scarcity. Instead of national, look for local. The biggest advantage of being small is figuring out what the biggest company probably won’t do and then how to do it profitably. It’s defensible, it’s smart, and it works. Look for little. Go small.
For a deeper dive into this topic and much much more, listen to Justin Singer’s interview with Patrick O’Shaughnessy on the Invest Like the Best Podcast, “How Regulation Unlocks Opportunity.”