Trend: Small Businesses Change Hands

Small businesses are being sold more frequently than in the past. Statistically, on any given day, 1.7 Million small businesses are for sale in the United States. Yet, business brokers report that in many industries there are more buyers than sellers.

In the past, the vast majority of small business owners either started their companies or inherited them. The way in which small business ownership comes about is changing.

The trend of purchasing existing small businesses will be driven in part by older workers who have left corporate America (see the Graying of Small Business trend). Fortified by stock options, retirement buyouts, and severance packages, many will prefer to keep working as their own boss.

Impact:
A thriving market for the sale of small businesses will help grow their total number. There will always be those who start from scratch, just as there will always be businesses that make it into second- and third-generation hands.

But a healthy market for the sale of small businesses will give owners additional exit-strategy options. Businesses that might have withered or have been absorbed by competitors will be sold to people who will bring new energy and in many instances new capital.

Service providers who assist in putting together buyers and sellers, such as business brokers and M&A firms, will find good times ahead. More M&A activity will also mean more business for lawyers, bankers, consultants, and others who help make sales happen.

For vendors, service providers, and market partners, businesses changing hands will mean a shifting landscape. A carefully constructed relationship has no guarantee of surviving when a new owner takes over. Relationships well become a constant concern that require more time and resources.
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Trend: Small Businesses Go Virtual

The future is likely to be the age of virtual businesses. The newly opened two-person office will be able to look big, established, and successful. Build a really good website, toss in some color printers, fast computers, and cell phones, and you're halfway there. After that, it's a question of leveraging your creativity and ability to partner with other entrepreneurs.

The virtual business is the epitome of the less is more dictum -- less expense leaving more profit.

Not every business in the future will be able to go virtual -- at least we don't think so today. But as the line between what's virtual and what's real blurs, going virtual will become more attractive.

Let's make one thing clear, virtual doesn't mean the business isn't for real. It just means all that heavy, expensive stuff won't be sitting there eating money when not in use.

Who cares whether the home office of Acme Thingamajig has 300,000 square feet as long as Acme is able to deliver those thingamjigs. Performance is what counts, not the number of employees or the size of the company cafeteria.

Impact:
    For vendors and service providers, reaching virtual businesses will be an even bigger challenge than selling to traditional small businesses. Often virtual businesses pick vendors by word of mouth. Because they rely on other businesses for much of their output, they'll tend to network and look to their partners for purchasing advice.

    It will be hard to find the physical location of some virtual businesses, so the old fashioned sales call won't always work. With virtual businesses on the rise, companies will be developing new ways to communicate with decision makers. Think permission-based email marketing for one. Finding them online is another alternative.

    Virtual businesses will run lean. They won't have much time to be sold to, so expect relationship management to take on added importance. Savvy companies will make the investment to recognize the special needs of the virtual business.

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Trend: Freelance Economy

Self-employment, contracting, and consulting have changed the nature of work. As the book Free Agent Nation suggests, the U.S. is truly becoming a nation of people freelancing their skills and talents.

Consultant used to be code for "just killing time between jobs." That's still true for some. But consulting has become a real business for millions of former corporate warriors who wouldn't take a "real" job if Beelzebub's home turf turned into tundra.

Large corporations want to be leaner and meaner. Rather than staff up, they'll outsource functions. As large firms respond to tighter times by restructuring, they'll continue to replace employees with contract workers.

Often those workers will be the same people who used to be on the payroll. When the person doing the work is not on payroll it's easier to change your workforce to meet changing needs.

Impact:
    Companies love it when the freelance market is a buyers market. That love can turn to fear when there is a shortage of good people. Anybody who had to hire IT professionals during the height of the dotcom boom is well aware of the corporate downside to a freelance market.

    Every change creates new market niches. As larger companies rely on contract workers and outside consultants, look for small businesses to develop and change to fill those needs.

    The old-line "temp" industry has already begun to morph into something new. Just what that something will become remains to be seen. But one thing is sure, it will have service and product needs of its own. And that's what we call a new market.

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Trend: Technology Levels the Playing Field

Technology is making small businesses competitive in markets once thought to be the exclusive territory of larger corporations. This trend will grow stronger as common software platforms such as Microsoft Windows/Office combine with the Internet and low-cost, easy-to-use communications to reduce expenses, increase market reach, and push the envelope of creativity.

The Internet has shoved aside expensive libraries and information publishing services as the dominant sources of business intelligence. It lets small businesses quickly research their markets, find critical information, and stay on top of the latest trends. All for a fraction of what it would have cost just a few years. Research that was once beyond the budgets and staffing of small businesses is now had with the click of a mouse.

Low-cost, common software platforms have given small businesses access to the same spreadsheet, word processing, email, and other sophisticated software as Fortune 500 companies. Computers now cost less than the chairs some of their users sit in.

Today's home-based businesses have better communication capabilities than the largest corporations had less than a generation ago. Fax, email, voice mail, cell phones, conference calling, multiple landlines, and even VOIP are readily available to the smallest business.

Impact:
Small businesses are seldom on the cutting edge when it comes to a new technology. But they are often quick to recognize its value once the bugs have been worked out and costs drop. Small size gives them the agility to rapidly adopt any technology that delivers a competitive edge.

Look for falling software and hardware prices to continue give small businesses a level playing field and in some instances a clear advantage -- especially in niche markets.

As small businesses experience the advantages of rapid technological advancement, they become more likely to be customers for the "Next New Thing." They may not be the first buyers, but savvy small businesses will be close on the heels of early adopters. Savvy sellers of the latest tech will be looking for ways to take their products and services to the small business market more rapidly than ever before.

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Trend: Small Businesses Pick Niches

Business specialization and niche markets will grow in importance as small businesses first identify and then scurry to serve narrower slices of traditional markets. Outsourcing, the Internet, and customer demand, will help shape niche markets and dramatically change the business landscape.

Outsourcing will fuel the drive to specialization. A new PR firm, for example, will be unlikely to start out as a full-service practice. Instead, specialization in a niche such as investor relations will be seen as the way to gain entry to lucrative markets.

The Internet's global reach will enable wider acquisition of customers. Small businesses will find taking their specialized strengths further a field to be a more viable growth strategy than broadening their offerings in a geographic market.

Customers will continue to ask for more as small businesses proliferate. When there is a Mexican restaurant every five miles, outstanding burritos and tacos won't be enough to assure success. Instead, the menu will offer "secret" recipes from a small mountain village where early Mexican food is prepared as it was hundreds of years ago. The center of the restaurant will be a plaza where the dishes are prepared over open fires using authentic cooking stones. Diners will stroll the plaza sampling the dishes of their choice.

New niches will grow out of existing specializations that are sliced and diced into ever finer segments. Few small businesses are the first entrants in their markets. Studies show that the vast majority of small businesses are not started with a new invention or unique idea. They are far more likely to put a different spin on an existing product or service.

Impact:
Specialization will increasingly be the name of the game in small business, and specialization begets more specialization. Service providers and vendors will need to be able to show how they'll deliver superior results for each niche market into which they are selling.

The effort to reach narrower and narrower targets will make channel partners more important than ever. Cross-referral relationships will become critical in many markets.

For those selling in the small business marketplace, recognizing the impact of greater specialization and narrower niches will be a make-or-break process. The fast changing small business market of tomorrow will require increasingly rapid responses to customer needs and wants.

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Trend: Small Business Market Goes Global

The world is shrinking, and small businesses have noticed.

Taking advantage of instant communication, product delivery measured in days, and falling trade barriers, small businesses will become more global. The Internet and the proliferation of cheap, easy communications technology (cell phones, lower long distance rates, email, instant messaging, VOIP) are a big part of the enabling of small business in the global marketplace. Worldwide delivery services have contributed by lowering shipping time and costs.

Cross-border markets that were once the domain of only the largest corporations will be open to any size enterprise. National boundaries and oceans will no longer hem in the ambitions of small businesses.

The U.S. Small Business Administration reports that 97% of U.S. exporters qualify as small businesses. But the influence of globalization will be felt on more than sales. Suppliers to U.S. small businesses will increasingly be located in other countries. Small businesses are already outsourcing software development, preparation of tax returns, and the manufacture of goods. Look for all of these to increase and for new areas to open up.

Impact:
Expect a huge increase in translation services, import/export specialists, and other services to help smaller enterprises find partners and do business across borders. English will continue to be the lingua franca of business around the globe. But the ability to communicate in the languages of the markets into which you sell will be as sought-after competitive edge.

International outsourcing has become common in larger companies. But in tomorrow's world, U.S. small businesses will become important users of offshore outsourcing.

Capital markets will open up. Technology developed in one country increasingly will be funded by investors in other countries. Look for this to increase the investment of the U.S. and other first-world countries in developing nations. Also, look for a rise in the number of facilitators of investment and other transnational business activities.


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Trend: Graying of Small Business

Not too long ago when we thought of entrepreneurs an image of 20-somethings came to mind. Entrepreneurs we thought came from the ranks of the young. But in the future that won't be the case for many of the small businesses that form the backbone of the U.S. economy.

Small business is graying. And that should come as no surprise. That great bulge of population known as the Baby Boomers has changed everything it has touched in its generational march, and Boomers are getting pretty gray.

Fortified with corporate buyouts, early retirement, stock options, and severance packages, people who once would have been thought of as being in the twilight of their working lives will be carving out second or even third careers as small businesses owners.

The Boomers in their fifties, sixties, and seventies will be a different species from their parents. They'll be more likely to take on new challenges than to look for a place in the sun. For many, owning their own business will be a long sought dream, a chance to cap a lifetime of work with a more personal and individual accomplishment.

Impact:
Vendors will have to be ready to respond to older, savvier business owners, many of whom will have worked for companies very much like those trying to sell to them. These new small business owners will be more sophisticated and knowledgeable than earlier, younger first-time entrepreneurs.

Expect them to have well-honed negotiating skills and acumen out of proportion to the size of their businesses. Don't be surprised if they are better versed in procurement procedures and marketing tactics than the people selling to them.

This will be a new breed of entrepreneur. They won't be the young, high flyers of the 1990s dreaming of IPOs and constantly recurring triple-digit growth. Many will be going into business with an expectation of establishing moderate but steady revenue streams.

They will have established strong reputations. Many will be acknowledged experts in their fields, and they are likely to have contacts at high levels within some of the world's largest corporations.

In short, the graying of entrepreneurs will change the way organizations large and small do business with smaller enterprises. Small business is trending older. The way in which individuals and companies respond to that trend will play a large role in determining their success or failure in the small business marketplace.
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