Innovation is driven by small businesses.

Innovation is driven by small businesses.

Small businesses cannot compete with larger, more established industrial players on a traditional, possibly less level playing field. They lack the resources to carry out the same kind of extensive actions, such as bulk purchases, to give just one simple example. Because of this, they lose any competition that requires scaling, like a price war. One good illustration is Amazon.com. Take a look at how they compete with established bookstores. This is because they are able to operate with smaller profit margins and optimize their activities, such as the shipping procedures and stock holding methods in their warehouses, which is known as economy of scale.

However, if we look back to the beginning, we can see that Amazon started out relatively modestly—more specifically, with just one man living in his garage—which is pretty modest by any standard. How do these businesses grow, and how can the small businesses of today hope to succeed like them? Recently, I’ve been reflecting on this and have come to some unexpected conclusions.

My contention is that operating a small business makes it possible to employ novel strategies that result in game-changing economic juggernauts. On the other hand, being an economic powerhouse makes it much less likely that a similar innovation will occur. Small businesses are the true innovators because of this. The only way to win is to alter the rules, as traditional methods of competition are ineffective. Large corporations, in contrast to small businesses, favor orderly transformations that can be easily contained within an existing industrial or corporatized setting. Because of their tight structures and access to resources, they prefer controlled processes. The same attitude applies to any organization with a hierarchy.