Over on the Xero blog, the ever thoughtful Gary Turner posted recently about his theory about the UK business community. Luckily (for me) it’s a theory very much in line with a trend I’ve been calling for the global business community, and one I predicted in a management paper I did 15 years ago. To quote Gary’s perspective:

[the] small businesses community, freshly empowered and armed to the teeth for the first time with great and inexpensive business tech, will render medium sized businesses extinct and shift the wider dynamics the of the UK economy.

The theory goes that, armed with a bunch of low cost tools, a low barrier to entry and the benefits that a global economy (fuelled on intellectual rather than physical goods_, small businesses can form and grow much more rapidly than in the past. They can also do this without the capital requirements that were so crucial in the past. A credit card, an idea, a subscription to some cloud applications and services and you have a ready made business. Heck, it’s a theme I come back to often.

Being an analytical sort of a chap, Gary put (virtual) pen to paper and came up with a graph to display this trend. He looked at  UK company formations, unemployment, redundancies and GDP growth charted the results (see below).

UKstats-440x229

While Gary admits that the results are indicative rather than conclusive, it very much plays to my view of the world and raises (in my mind at least) some questions about what that means for technology companies and in particular cloud vendors. Xero itself is an example that runs somewhat counter to this theory – after all, one of the reasons that Xero itself IPOd at a very early stage was because of a stated need for both sufficient capital to “do this right” and the acknowledgement that in a crowded marketplace, a perception of “gilt standard” goes a long way to giving a vendor a helping hand to market dominance. It has to b noted however that Gary talks about small and medium business whereas Xero has always been a play to become a big-co. I wonder however if these same factors of easing the barriers, democratizing the opportunities and lubricating the growth ramp that Gary have identified in smaller businesses also hold true for larger ones?

It seems to me that the dark side of rapid formation and growth, is a corresponding potential dark side in terms of failure – we’ve all seen what happens when services that have grown rapidly are shuttered or fail – remember magnolia anyone? Just the other day I was talking to someone who expressed a real concern about protection for customers of cloud services. This person was championing some sort of compulsory escrow system so that, in the event of vendor failure, the core data and access to applications by customers would be maintained. Of course the flip side to all of this is that, especially at this early stage of the cloud economy, any regulation or standard setting tends to be an impediment to innovation.

It’s an interesting topic for discussion, the two conclusions I draw are that if Gary’s assertion (and my extension of that assertion) about the make up of modern business are correct, we’re in for a decimation of the mid to large size enterprise layer in the years ahead. And along with that decimation, there’s some real growing pains coming for us all.

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Ben Kepes

Ben Kepes is a technology evangelist, an investor, a commentator and a business adviser. Ben covers the convergence of technology, mobile, ubiquity and agility, all enabled by the Cloud. His areas of interest extend to enterprise software, software integration, financial/accounting software, platforms and infrastructure as well as articulating technology simply for everyday users.

4 Comments
  • As far as cloud vendors go, my belief is the economic leg up afforded to small co’s applies here also, but only up to a point.

    Whilst I think you can build a perfectly respectable and profitable small or mid-sized business much more easily today, at a certain stage of growth the old world economic principles come back into play when operational scale demands introduce new (old) pressures on running and managing a large scale business.

    It costs a lot less to look good if you’re small to mid-sized, the old operational tariffs will probably remain in place for big companies for some time to come.

  • can you explain how this happens a bit “we’re in for a decimation of the mid to large size enterprise layer in the years ahead”

    Might be first day back at work but i’m not seeing the correlation sorry

    • OK, here goes. My view is that large enterprises are sufficiently slow and cumbersome that they’ll be increasingly unable to respond to marketplace moves.

      Currently their saving grace is the ability to spend up large – when that goes (caused by a move in revenues from bigcos to niche players) they’ll be fighting for survival…

      • right…

        i can see that happening in ‘niche’ parts of the market..ie mass fragmentation (look at a mall), but in generic offers not so much…. i think you will see consolidation and scale build out (cloud anyone).
        Bigco will eventually figure out either to partner for / buy and run small co type capabilities…. eventually/…. maybe 🙂

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