Description
With the help of competitive intelligence, diversification, and an integrated package of policies for systematically building the intangible asset of corporate reputation, a small business went from making $100 per day in sales to $4,000 per day in sales.stematic planning and implementation enabled this small business to improve its competitive position by gathering information, analyzing it and offering strategies to define its market, and to leverage its core competencies.
SBAJ: Volume 11 Number 2 (Fall 2011) 113 - 131
THE BUILDING AND EROSION OF A SMALL
BUSINESS IN THE INNER CITY LESSONS IN
ENTREPRENEURSHIP
Theodore E. Davis, Jr., State University of New York at Buffalo
ABSTRACT
With the help of competitive intelligence, diversification, and an integrated
package of policies for systematically building the intangible asset of
corporate reputation, a small business went from making $100 per day in
sales to $4,000 per day in sales. Systematic planning and implementation
enabled this small business to improve its competitive position by gathering
information, analyzing it and offering strategies to define its market, and
to leverage its core competencies. However, the owner/manager personal
values were not congruent with these strategies and the turnaround of the
business was rapidly undermined as these values were implemented again.
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INTRODUCTORY BACKGROUND
At any given time, between 20 and 30 percent of all companies
are in need of a turnaround (Murphy, 1986). The rapid pace of change
in today’s markets has caused competition to become so strong that
products have become outdated at an extraordinary rate. And in
some industries, “simply doing your best does not cut it anymore
because your best can be mimicked too quickly and easily,” says Faye
Brill, president of the Society of Competitive Intelligence
Professionals in Alexandria, Virginia (Entrepreneur, 1996). “A
company’s competitive advantage can be eroded more quickly now
than ever before” (ibid.).
This need often is felt most in the small business sector, since
small firms are especially susceptible. They lack the product diversity
to cushion the loss of key products, and they have limited resources
for developing new ones. They often operate within small, unstable
market niches that can get smaller or that can be invaded by low-cost
competitors. Without the cash or market power needed to defend
against competitors, their markets are easy prey for larger companies.
The management process in the small firm is unique.
Strategies such as divesting a strategic business unit, diversifying into
a more stable business, or easing operating distress with a short-run
financing from a parent company are not generally available to the
small firm. It bears little or no similarity to management processes
found in larger organizations, which have been the subject of
considerable academic research resulting in numerous models,
prescriptions, and constructs (Jennings and Beaver, 1995).
STATEMENT OF THE PROBLEM
The primary purpose of this exploratory study was to identify
areas of distinctive competence in an inner-city small business. A
secondary purpose was to assess the extent to which these
competences can lead to competitive advantage and sustainable
competitive advantage. The case study was an inner city, African
American, family-owned tavern located in a medium size city in a
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Midwestern state. I became general manager on October 1, 2007, for
three months, at the request of the owners in order to turn the
business around, improve performance, and establish a competitive
advantage. However, the longer-term outcome, in terms of success or
failure of this small firm, was strongly influenced by the personalities,
values, and abilities of the owners.
Examining the success of this African-American, family-
owned tavern is significant because the role of the entrepreneur does
act as an engine for economic development in the black community.
In addition, this tavern has always played an important role in the
success of black business owners for networking and as a builder for
the black community in terms of social, economic, and political
engagement. Without this tavern, there would be an opportunity
structure that would hinder black business ownership, because the
infrastructure, within the black community would have been
destroyed especially the black entrepreneurs ability to gain access to
markets.
RESEARCH QUESTIONS
In the initial interviews at the family-owned and operated
tavern, several problems were identified including severe negative
cash flow, a belief that not all sales to customers were being billed or
collected, and a paper-heavy system that was cumbersome. This
research explores three areas that relate to the problems concerning
this inner-city tavern. They are:
1. What are the strengths and opportunities where this
inner-city tavern’s core competencies could provide a competitive
edge?
2. How does this inner-city tavern’s core competencies relate
to its culture and context?
3. What are the new markets in which this inner-city
tavern’s core competencies could create customer value?
Core competencies are those skills required for this company
to compete successfully in its market niche. Those skills include team
building, quality management, and problem solving. Culture consists
of the values and traditions that are vital to the business. Context is
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related to an understanding of the tavern’s strategic goals and
objectives as they relate to the market niche.
A major obstacle in turning around or reengineering a small
business is the staff that has worked at the business for years tends to
acquire an ownership in the current process and, as a result, may be
unable or unwilling to consider a radical change in the process.
Contrary to conventional wisdom, a majority of businesses fail
because of internal factors that are affected by managerial action and
discipline (Boyle and Desai, 1991). Examples include failure to
control operational costs and analyze financial statements.
Researchers, such as Foley and Green (1989) who have studied
small business failure and success, have attempted to classify
underlying reasons. However, the majority of studies simply
identifies symptoms and fails to highlight causes when providing
explanations within the context of “rational management theory.”
Equally, many surviving small business are seen, in terms of rational
theory, to operate at sub-optimal levels of performance. The actual
root cause of failure may lie with the apparently non-rational
behavior and decision-making of the entrepreneur and/or owner-
manager. He/she does not obey the “rules” of classical management
theory (Jennings and Beaver, 1997). The small business practitioner
is, therefore, subject to a number of competing and contradictory
influences, which may lead to erratic, unpredictable, and self-
destructive behavior.
Small business managers can endeavor to strengthen their
market status by establishing a positive reputation in the shortest
time possible (Goldberg et al., 2003). This reputation defines a
company’s identity – as seen by important stakeholders – in the
market competitiveness of its products and/or services, the effective
management of its resources, and its potential for future success
(ibid.). As an intangible resource, such a corporate reputation could
prove pivotal in obtaining legitimization within the marketplace
(Fichman and Levinthal, 1991). Others perceive a good reputation as
an indicator of a firm’s overall effectiveness attracting investors,
decreasing costs as suppliers offer better terms, encouraging customers
to purchase the company’s products or services, and assisting in the
recruitment of skilled labor (Dollinger et al., 1997; Fombrun, 1996).
Despite its attractiveness, few small businesses managers make a
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sensible and deliberate decision to use a reputation-building strategy.
Indeed, managers will find few references to such a strategy in the
small business literature (Goldberg et al., 2003).
Issues
From the theoretical framework discussed above, several
questions were developed for this research.
1. What are the costs to build a competitive advantage?
2. What are the business’ distinctive competencies that can
lead to a competitive advantage that can be sustained?
3. To what extent does relying on the existing core
competencies generate a competitive advantage in new markets?
4. What constitutes success?
METHODOLOGY
Design
Because this study uses participant observation and in-depth
interviewing, a qualitative research design using a naturalistic or field
study serves as the framework for this study. This descriptive
research involves data collection on many variables over an extended
period in a naturalistic setting. In the instant study, the period is 7
months.
Subjects and Procedure
This inner city, African American, small business tavern was
experiencing declining performance. This small business required
several actions, which were: (1) specific acknowledgment of causes, (2)
timely performance, and (3) sufficient assets to have some bearing on
a turnaround, and (4) identifying this small tavern’s management
practices. The first step was an external investigation to discover
minor, but potentially crippling, changes in the competitive
environment. The second step was to notify the owner that it was
important not to assign the lackluster performance to sheer “bad
luck” or uncontrollable market forces. Because of new technologies,
substitute materials, changing consumer tastes, and shifting
consumption patterns are shortening product life cycles, this inner-
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city tavern was required to develop a steady stream of new services.
As outline by Porter (1995), this inner-city tavern already had a
potential competitive advantage in five areas to work with, which
were:
1. Strategic Location – possible advantage because it could
gain from its closeness to the downtown business district, the logistical
infrastructure of a main highway and bus transportation, its closeness
to the entertainment and tourist destinations, and its closeness to the
concentrations of both major and minor companies.
2. Local Market Demand – even though average wages are
low in the inner cities, high population density creates considerable
purchasing power and a large market. Inner-city markets are not only
large but also young and quickly growing. By focusing on satisfying
ethnic needs does not automatically limit the growth and potential of
this inner-city tavern, but instead, a focused strategy could provide a
competitive advantage over large established companies and a base
from which to expand into other market segments (e.g. Bennigan’s,
TGIF, Thursday, etc.). An even more exciting opportunity presented
itself when it was realized that the needs and tastes of inner-city
consumers represented trends that often cross ethnic and
socioeconomic strata.
People in largely lower-income ethnic and minority
communities have distinctive needs and tastes, which demand
customized products and services. However, most companies design
products and services for white middle-class consumers and
businesses, hence, their product configurations, retail concepts,
entertainment, and personal and business services do not fit inner-city
customer’s needs. This means that there was an unmet demand of the
inner city’s population, which created a major growth market;
whereby, the principal inner-city business opportunity sprang,
however, not from the size of the market but from its character.
Micro segmentation lags in the inner city, but it represents a great
opportunity. This inner-city tavern is uniquely positioned to
understand and address the needs of its consumers and the businesses
in its own and other similar markets.
3. Integration with Regional Clusters – while this inner-city
tavern was currently isolated from the regional economy, those unique
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regional clusters represented promising opportunities for financial
growth.
4. Human Resources – the workers at this inner-city tavern
are from the inner city, which are often more motivated and loyal,
especially since this is a business that suffers from high turnover.
5. Access to capital – According to Porter (1995) this is
usually a disadvantage for inner city small businesses. However, this
inner-city tavern has access to personal and family savings and
networks of individuals to draw on for capital.
According to Porter (1995), the disadvantages of this inner-
city tavern because it is located in the inner city include:
1. Non-wage costs – high costs for utilities, workers’
compensation, health care, property insurance, unemployment and
liability insurance, real estate and other taxes, Occupational Safety
and Health Act compliance. Because this medium size Midwestern
city has a greater proportion of residents dependent on welfare,
Medicaid, and other social programs than their suburbs do, this city
must spend more and thus charge higher taxes.
2. Security – crime is a real obstacle to doing business in the
inner city, but the perception of crime is greater than reality.
3. Employee skills – even though this inner-city tavern is a
bar, the workforce lacks the skills to work in the bar, which needs
more than just the basic skills. In addition, while there is a large pool
of available lower-wage labor, most of the residents do not have the
skills suitable for this bar.
4. Management skills – the owner and the former manager
lacked formal managerial training, especially in the areas of strategy
development, market segmentation, information technology, process
design, and cost control.
5. Attitude – while this is a locally, minority-owned business,
which hires locally, the hard truth is that its attitude constitutes a
significant barrier to its current and future economic development.
This inner-city tavern has a reputation of worker exploitation, being
in business primarily to earn profits for its owners, due to it having a
captive market by being the only legitimate black-owned and oldest
bar in this Midwestern city; as well as complacency. This attitude
undercuts efforts to improve quality of not trying to sell beyond the
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captive market, and reducing costs. It believes that it can give any
type of service because it serves “Coloreds.”
I took over managing the tavern on October 1, 2007, which
earned about $100 per day in sales; had very little supply and variety
of liquor, as well as the tavern and equipment was in disrepair from
the lack of maintenance. The owner and former manager used the
profits for their own use while the employees stole money from the
establishment. From July 1 until I took over, I went to the
competitors to see what they were offering as far as service and
products. I patronized them, and kept an eagle eye out for areas in
which I could surpass them, especially in service, i.e., more frequent
follow-up and faster delivery.
I administered a customer questionnaire to turn up many
areas upon which I could concentrate including: why they patronized
the businesses they do; what the ideal business would offer; and what
they like best about this inner-city tavern. I paid close attention to
the answers because some were pointing directly at possible changes to
improve the competitive advantage.
In addition, I instituted a training program to give the
employees an understanding of the tavern’s role in the marketplace
and to allow the workers to learn more quickly and be more
productive. This training program provided instruction in what are
known as the “three C’s”: culture, context, and core competencies.
The focus of the training was how employees can improve the quality
of service and explain the benefits and features of those services to
current or potential customers.
The competitive strategy used by the tavern was the
multidimensional concept as outlined by Porter (1980), which
consisted of the five common dimensions of business strategy:
1. Innovation differentiation (aims to create products to
services that customers see as unique in terms of technical
performance, design, and/or quality),
2. Marketing differentiation (attempts to create a customer
loyalty through advertising, prestige pricing, and/or market
segmentation),
3. Cost efficiency (a strategy that strives to deliver products
or services to customers more cheaply than competitors do by
lowering costs per unit of output),
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4. Asset parsimony (strategy of low cost through few assets
per unit of output), and
5. Domain scope (or niche strategy, determine the type of
customers, products or geographic coverage the firm concentrates on)
(Hambrick, 1983; Miller, 1986, 1988).
This inner-city tavern used the strategies of innovation
differentiation, marketing differentiation, and domain scope. It was
determined that the tavern could not apply the alternative strategies
of cost efficiency and asset parsimony.
The factors external to the tavern, requiring aggressive
market responses included diversification, niching, market
development, product development, and market penetration. Market
penetration included diversifying into a countercyclical industry and
finding a niche in a market up, to now unexplored by the competition
– especially one this tavern was uniquely qualified to occupy and
defend.
In addition, I instilled several characteristics as “best
practice” that was outlined by Sandvig and Coakley (1998) within this
inner-city tavern. They are:
1. Leveraging existing capabilities – Significantly lowered
the costs and risks of diversification by using the existing core
competencies to gain entry into new markets. I formed partnerships
with the police and local businesses to serve meals at discounted prices
in order to receive services. In addition, became a member of the local
chamber of commerce, as well as the local black chamber of
commerce.
2. Entering growth markets – Diversified into rapidly
growing markets, such as Illinois lottery and Games for
“Entertainment Purposes Only” (penny and nickel slot machines).
Entering these markets avoided expensive battles for market share
against well-entrenched competitors. Chandler and Hanks (1994)
found a positive relationship between market attractiveness and new
product success.
3. Targeting niche markets – Targeted small niche markets,
where customers are willing to pay premiums for products tailored to
their needs (i.e. this inner-city tavern was the only place in this
medium size Midwestern city that served Kosher Hot Dogs, as well as
Rib-eye Steak Sandwiches and chili. It also had one of the biggest
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selections of alcohol – 100 different selections; bottled beer and wine
coolers – 33 different selections; as well as serving coffee, soda, and
bottled water. The jukebox was the only place in this medium size
Midwestern city that played and advertised only blues, jazz, R & B,
reggae, and hip/hop – the box contained 200 c.d.’s selections, as well
as a black only music downloading selection). Niche markets are
typically less competitive than larger markets.
4. Diversification strategy – Targeting new markets and
adding new capabilities that require thought and the development of
an effective diversification strategy (e.g., added an ATM). The
successes realized by the Japanese through operational efficiencies
during the 1980s maintains Porter (1996), have lured many companies
into focusing on efficiency at the expense of looking forward to
develop new products and markets.
5. Adding new capabilities – To enter target markets, this
inner-city tavern added new capabilities, such as updated technologies
and marketing skills. In addition, strong top management leadership,
by having an aggressive manager to lead the diversification efforts,
have taken decisive – and sometimes risky – measures to reposition
the tavern. These actions included major investments in new
products, downsizing, and developing new competencies and market
channels. For example, added a Women’s Night with an amateur
male strippers contest; a free drink and cake for a patron with a
birthday; had two digital televisions featuring sports; collaborated
with other clubs and local black chefs for more of a variety of food and
entertainment; and sponsored poker and other card games.
6. Skilled work force – The skill and flexibility of the work
force was an important asset. This inner-city tavern grew because of
the remodeling and the workforce. People saw us trying
entrepreneurial things and changing the way we were doing business.
We required that people be self-motivated and self-starters. They
must understand their customers and their customers’ needs without a
manager overseeing them, which included learning the latest mixed
drinks.
7. High employee productivity – This inner-city tavern
avoided adding to its work force as the amount of services being
offered grew, even reduced the workforce; however, gave them a raise
in salary from $120 to $192 plus tips per twenty hours of work.
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Thereby, productivity increased, lowered overhead costs, and gave
employees more autonomy; however, security cameras in the tavern
and listing devices in bathrooms were added.
8. Low overhead – Maintained a lean management structure
and employed few overhead personnel, as well as changed all vendors,
including garbage, and negotiated with distributors.
9. Tenacity – Had little choice but to diversify, shrink, or go
out of business. Unlike large companies that can still prosper even
after closing entire divisions; the fate of small firms often rests on the
success of their diversification efforts. When a small firm fails, all of
its employees lose their jobs, including top management.
RESULTS
Does it cost much to offer a competitive advantage? It takes
aptitude, time, vigor, and imagination; it is not a matter of money.
The financial possibilities of the inner city can be realized when
companies leverage the competitive advantages and when the
disadvantages are confronted directly. Most of the disadvantages of
locating businesses in the inner city can be disposed of, controlled, or
conquered.
The owner wanted to close the tavern, but my
recommendation was against this. I wrote down everything that
needed to be done to make the tavern profitable again. There were 30
items on the list, some of these things were hard to do – but they
provided an alternative to closing the tavern. Top of the list was to
make temporary staff cuts, increase prices by 20%. Our backs were to
the wall. We immediately got much tougher and everyone just had to
tolerate it – although we lost some customers along the way. These
actions worked extremely well and within three months, the tavern
was back making a profit, from making $100 per day in sales to over
$4,000 per day in sales.
The turnaround of this small tavern provided an example of
effective niching. This tavern was experiencing a decline of its
customers; and it was unable to replenish its customer base, because it
catered to an over 60 years of age crowd. Through market research,
the tavern identified a suitable customer segment (of an over 30 years
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of age crowd) and developed an advertising program targeted toward
this specific niche, by putting flyers in beauty and barber shops, as
well as partnering with businesses next door. Since redefining and
pursuing its newly identified target market, the tavern got back its
customers and expanded its customer base.
In addition, it was accepted that a good corporate reputation
was important for receiving legitimation from different stakeholders.
By combining the strategic elements of having a company policy of
strengthening internal core competencies, extending external
relationships, and creating a positive corporate image, I used several
distinctive competencies to establish a strong reputation for this
inner-city tavern. A distinctive competence is of value in a
competitive environment only if it can be transferred into a
competitive advantage. The establishment of a strong reputation, as
well as obtaining a sustainable competitive advantage was
concentrated in four distinctive competencies that were outlined by
Stoner (1987):
1. Experience/Knowledge – In order for the
“experience/knowledge" skill of owners/workers to point to a
competitive advantage, this competence must be present as a
significant buying condition for possible customers. In other words,
this competence is important to the buying public only if the
“experience” is somehow indicated in the assistance. If this is the
case, customers must be conscious that the experienced workforce has
led to a better service. I made customers aware of the distinctive
competence by having considerable advertising through flyers, posted
in barbershops, beauty salons, social clubs, and various workplaces.
However, once the customers understood and accepted this
competitive advantage, its sustainability was likely to be strong. In
general, rival businesses would have to consume substantial amount of
assets to erode or change customers’ opinions once the competitive
advantage was established.
2. Unique/Special/Original Product and Service – The
distinctive competence of having a “unique/special/original product
and service” suggested the obvious potential for being a significant
buying condition, and the competence was simple to communicate
especially if the product and/or service truly fulfilled customers’
wishes. The products and services at this inner-city tavern truly
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fulfilled customers’ wishes. We were the only bar/tavern that had the
Illinois lottery in place, as well as the only bar/tavern that had an
ATM. In addition, this tavern was the only inner city bar that served
food until 2:00 a.m. Thus, this distinctive competence gave the
impression that it could easily lead to a competitive advantage,
whereby, sustainability depended upon competitors’ capabilities to
offer similar or alternative products or services as dictated by
consumer demand.
3. Better more complete customer service and relative
quality of product/service – “Better more complete customer service
and relative quality of product/service” was likely to be an important
buying condition as long as price was not adversely affected. Prices
increased by 20%, however, more services were being offered, as well
as more variety of drinks. In addition, this inner-city tavern was
being promoted as a local, friendly community bar, where everyone
was welcomed. It was no longer a bar for the owner’s personal use.
These areas of distinctive competence were quite difficult to establish
and project to potential customers, but once it was established, they
were likely to remain strong and sustainable.
4. Location – “Location” was difficult to measure. This
inner-city tavern is located just two blocks south of the downtown
area on the main highway. The influence of this competence as an
important buying condition is significant, since having a bar at this
location is central do to the service being offered. Communicability is
direct and straightforward. Sustainability due to the fixed nature of
location is strong (particularly since this desirable location is not
readily available to the rival businesses).
Finally, the biggest lesson that I learnt is that it pays to be
firm with staff and customers alike. It went totally against my
character, but if I wanted to excel, I had to do it. Otherwise, I would
have been ineffective. In addition, I kept a close eye on accounts from
day one. I had to set up monthly accounts so one would know from
month to month how one was doing. I then made sure that I had
trustworthy workers. Having the right team behind you was very
important for success.
Although the turnaround was successful, the owner wanted to
pursue other strategies. For instance, the owner wanted the tavern to
attempt to move from a focus differentiation to a low-cost strategy.
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It was argued that the distinctive competence of “low cost/price” is
certainly a key buying criterion, and price can be communicated
easily. Thus, this distinctive competence can clearly be transformed
into a competitive advantage. However, sustainability depends
largely on the ability of rivals to undercut prices or to offer substitute
products or services at a lower cost, which was very real with all the
illegal clubs that served alcohol at discounted prices. No way could
this inner-city tavern compete with them. In addition, this tavern
possessed few of the capabilities needed to achieve the competitive
advantage of a low-cost strategy in its new markets. Both the costs
and risks involved in making such a change would have increased. In
contrast, when this inner-city tavern sought to diversify into new
products and markets, it improved its chances of success by pursuing
opportunities that required no change in its fundamental competitive
strategy.
With the changes in management, after I left, profits were not
sustainable (or transferable) with the lack of some type of competitive
advantage. After the 3 months, the owner took control of the bar,
and retained the same workers as before my take-over. In addition,
she hired her own nieces, who had no formal management training, as
management. The bar went back to its former state. Most of the new
customers discontinued patronizing the bar, and only the owner’s
acquaintances (who were over 60 years of age) stayed. Instead of
putting money back into the business, the owner and her nieces used
the money for their own use, and the bartenders went back to stealing.
The variety and supply of liquor vanished. All lottery machines,
gaming machines, ATM, jukebox, and security were pulled, as well as
the sports programming. She had no more Women’s Night, as well
the birthday cakes and free drinks. The bartenders refused to make
any more sandwiches and mixed drinks. The music was mostly old
blues that no one wanted to hear except for the owner. The bar again
became a place for the owner’s personal entertainment use. Therefore,
sales plummeted to the original level before October 1, 2007; however,
the owner viewed this inner-city tavern as a success because now her
aspirations were satisfied. She viewed this inner-city tavern as a
“Colored” bar, which should only serve “Coloreds.” She did not need
“Whites” to frequent the bar. In addition, she believed that
“Coloreds did not deserve good service or to be treated with
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respect….Coloreds should be grateful to have a tavern to go to….this
bar was doing them a favor by being open.”
DISCUSSION
In a small business enterprise, the decision-making process is
characterized by the extremely personalized preferences, biases, and
opinions of the firm’s entrepreneur, owner, and/or owner-manager.
The disposition of managerial activity expands or contracts with the
characteristics of the person fulfilling the role(s). Such expansion or
contraction is partially trained by the adaptive wants of the
environment in which the business functions, and is partly dependent
upon the personality and needs of the owner, manager, or
entrepreneur. The obsession with immediacy and short-termism is
probably as precise a generalization about the managerial
participation to small business failure as we are likely to get. Put
another way, small business failure is invariably caused through a lack
of responsive managerial strategic attention, which is confirmed in
this study.
The basis of the failure to attain and sustain an acceptable
level of performance is primarily due to poor managerial aptitude.
For example, the owner wanted to use a low-cost strategy, even
though the tavern’s competencies lie in a focus-differentiation
strategy. However, the direct attribution of cause and effect
relationships is additionally complicated by the intangible, invisible,
almost unconscious procedure of practicing strategic management,
which exists in the majority of small businesses.
Another characteristic, of the small firm management process,
is the closeness of the important players to the operating employees
and activities being tackled. This provides the important players with
extraordinary opportunity to influence these employees and activities
directly. However, relationships are often informal, with no precise
definition of rights and obligations, duties and responsibilities.
Appointments and promotions are often made based on birth or
personal friendship rather than based on ability, education, and/or
technical qualifications. Organization structures, as far as they exist,
are likely to develop around the interests and abilities of the key
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players. Such organization structures are likely to be organic and
loosely structured rather than mechanistic highly bureaucrat. Thus,
the exploitation of competitive advantage in the small firm is hardly
ever a readily visible practice. It often has a theoretical rather than
explicit form with strategic management being practiced instinctively.
Entrepreneurs and managers, because they alone have profit-
oriented reasons and incentives, should seek out the best opportunities
for generating wealth. The business community, however, must
rethink its strategy and employ new perspectives to do extremely well
in the inner city. The private sector will contribute more when it
focuses on what it does best: generating wealth and building
competitive businesses. As Porter (1995) indicated, four goals should
guide private-sector strategies:
1. Create and expand business activity in the inner city. The
most significant contribution a company can make in the inner city is
simply to do business there. Inner cities hold untapped possibilities
for building profitable businesses if companies look for and take hold
of the opportunities that build on these advantages.
2. Adapt operating practices to meet inner-city needs.
Successful inner-city businesses have learned to adapt their products,
services, and operating practices to the local market. One way
companies increase their knowledge of the inner-city market is to
build relationships in the community and hire locally. Neighborhood
employees build loyalty from neighborhood customers and help stores
customize their offerings.
3. Deal with disadvantages creatively.
4. Establish business relationships with inner-city
companies. By entering into joint ventures or customer-supplier
relationships, outside companies can help inner-city companies by
encouraging them to export and forcing them to be competitive. In
the end, both sides benefit.
Summing up, small businesses can increase their odds for
success by designing systematic strategies toward the establishment of
a positive corporate reputation. As explained in this case study, I
chose to develop the inner-city tavern’s internal capabilities, moved
quickly to make the most of a market, and tried to establish strategic
alliances. In addition, I invested in image factors that signal quality
products and a successful enterprise. Beyond a single reputation-
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Southwestern Business Administration Journal: Fall 2011
building strategy, I recognized the benefits from a comprehensive
approach that completely included all four methods for building
positive corporate reputations. What was essential was knowledge of
the system that exists and a willingness to consider radical new
processes that would dramatically add to the system.
However, it seemed that the owner had a different meaning of
success, which was “the continued fulfillment of main stakeholder’s
desires.” Logically, the definition of failure would be “the inability to
fulfill main stakeholder’s desires.”
It was immediately obvious that success was no longer looked
upon as synonymous with optimal performance since this represents
an extremely elusive concept. Similarly, failure no longer was looked
upon in terms of the traditional, rigid paradigm of the end of trading.
Rather, success was considered as the achievement of certain pre-
defined objectives which satisfied the stakeholder’s desires and which
culminated in performance that fell significantly below the possible
optimal level (Foley and Green, 1989). Equally, failure implied that
the stakeholder’s desires were not, and were unlikely; satisfied even
though the business may have been very able of continuing to do
business, although at a sub-optimal level and may have even profited
from a period of growth and business development. The owner and
former manager had kept the profits of the bar for their own use
instead of using it for the maintenance of the bar. The bartenders
stole money, as well as liquor. However, at this moment, the owner
viewed the bar as a success even though it did not make any
substantial money. What she wanted was a place that was an
extension of her living room, yet profitable. She was not looking for a
place to maximize profits.
Because of her viewpoint of success, the black community in
this town is in jeopardy. This tavern is no longer the infrastructure
necessary for community development, supplying the economic and
social benefits that are needed. The networking that took place in this
tavern provided employment opportunities for African-Americans and
created an avenue for blacks to be integrated with the majority
community and economy, thereby, minimizing the feeling of
disenfranchisement.
Further study of this tavern is needed in order to determine
the economic impact that this tavern has on the black community, as
Davis: The Building and Erosion…… 130
Southwestern Business Administration Journal: Fall 2011
well as the economic development to this area. Therefore, what is the
measure of this tavern being the nexus in building an entrepreneurial
community, and can an entrepreneurial community be built in this
community without this tavern?
REFERENCES
Boyle, R.D., and Desai, H.B. (1991, July). “Turnaround Strategies
for Small Firms.” Journal of Small Business Management 29, 33-42.
Chandler, G., and Hanks, S. (1994). “Market Attractiveness,
Resource-based Capabilities, Venture Strategies, and Venture
Performance.” Journal of Business Venturing 9(4), 331-349.
Dollinger, M.J.; Golden, P.A.; and Saxton, T. (1997). “The Effect of
Reputation on the Decision to Joint Venture.” Strategic Management
Journal 18(2), 127-140.
Entrepreneur (1996, February). “Inside Track.” 24(2), 86-87.
Fichman, M., and Levinthal, D. (1991). “Honeymoons and the
Liability of Adolescence.” Academy of Management Review 16(2), 442-
468.
Foley, P., and Green, H. (1989). Small Business Success. London:
Paul Chapman Publishing.
Fombrun, C.J. (1996). Reputation: Realizing Value from the Corporate
Image. Boston, MA: Harvard Business School Press.
Goldberg, A.I.; Cohen, G.; and Fiegenbaum, A. (2003, April).
“Reputation Building: Small Business Strategies for Successful
Venture Development.” Journal of Small Business Management 41(2),
168-186.
Hambrick, D.C. (1983). “High Profit Strategies in Mature Capital
Goods Industries: A Contingency Approach.” Academy of
Management Journal 26(4), 687-707.
Jennings, P.L., and Beaver, G. (1995, July/August). “The Managerial
Dimension of Small Business Failure.” Journal of Strategic Change
4(4), 185-200.
Jennings, P., and Beaver, G. (1997, January). “The Performance and
Competitive Advantage of Small Firms: A Management Perspective.”
International Small Business Journal 15(2), 63-78.
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Southwestern Business Administration Journal: Fall 2011
Miller, D. (1986). “Configuration of Strategy and Structure: Towards
a Synthesis.” Strategic Management Journal 7, 233-249.
Miller, D. (1988). “Relating Porter’s Business Strategies to
Environment and Structure: Analysis and Performance Implications.”
Academy of Management Journal 31(2), 280-308.
Murphy, J. (1986, May). “First Aid for Unhealthy Companies.”
Australian Accountancy 29.
Porter, M.E. (1980). Competitive Strategy: Techniques for Analyzing
Industries and Competitors. New York: The Free Press.
Porter, M.E. (1995, May 16). “The Rise of the Urban Entrepreneur.”
Inc. 17(7), 104-115.
Porter, M.E. (1996, November-December). “What Is Strategy?”
Harvard Business Review 61-78.
Sandvig, J.C., and Coakley, L. (1998, May-June). “Best Practices in
Small Firm Diversification.” Business Horizons 41(3), 33-40.
Stoner, C.R. (1987, April). “Distinctive Competence and Competitive
Advantage.” Journal of Small Business Management 25, 33-39.
About the Author
Theodore E. Davis, Jr., Ph.D. teaches in the department of business
at the State University of New York College at Buffalo,300 Elmwood
Avenue, 311 Chase Hall, Buffalo, New York 14222-1095. He can be
reached at (716) 878-5237 and [email protected]
doc_971536447.pdf
With the help of competitive intelligence, diversification, and an integrated package of policies for systematically building the intangible asset of corporate reputation, a small business went from making $100 per day in sales to $4,000 per day in sales.stematic planning and implementation enabled this small business to improve its competitive position by gathering information, analyzing it and offering strategies to define its market, and to leverage its core competencies.
SBAJ: Volume 11 Number 2 (Fall 2011) 113 - 131
THE BUILDING AND EROSION OF A SMALL
BUSINESS IN THE INNER CITY LESSONS IN
ENTREPRENEURSHIP
Theodore E. Davis, Jr., State University of New York at Buffalo
ABSTRACT
With the help of competitive intelligence, diversification, and an integrated
package of policies for systematically building the intangible asset of
corporate reputation, a small business went from making $100 per day in
sales to $4,000 per day in sales. Systematic planning and implementation
enabled this small business to improve its competitive position by gathering
information, analyzing it and offering strategies to define its market, and
to leverage its core competencies. However, the owner/manager personal
values were not congruent with these strategies and the turnaround of the
business was rapidly undermined as these values were implemented again.
Davis: The Building and Erosion…… 114
Southwestern Business Administration Journal: Fall 2011
INTRODUCTORY BACKGROUND
At any given time, between 20 and 30 percent of all companies
are in need of a turnaround (Murphy, 1986). The rapid pace of change
in today’s markets has caused competition to become so strong that
products have become outdated at an extraordinary rate. And in
some industries, “simply doing your best does not cut it anymore
because your best can be mimicked too quickly and easily,” says Faye
Brill, president of the Society of Competitive Intelligence
Professionals in Alexandria, Virginia (Entrepreneur, 1996). “A
company’s competitive advantage can be eroded more quickly now
than ever before” (ibid.).
This need often is felt most in the small business sector, since
small firms are especially susceptible. They lack the product diversity
to cushion the loss of key products, and they have limited resources
for developing new ones. They often operate within small, unstable
market niches that can get smaller or that can be invaded by low-cost
competitors. Without the cash or market power needed to defend
against competitors, their markets are easy prey for larger companies.
The management process in the small firm is unique.
Strategies such as divesting a strategic business unit, diversifying into
a more stable business, or easing operating distress with a short-run
financing from a parent company are not generally available to the
small firm. It bears little or no similarity to management processes
found in larger organizations, which have been the subject of
considerable academic research resulting in numerous models,
prescriptions, and constructs (Jennings and Beaver, 1995).
STATEMENT OF THE PROBLEM
The primary purpose of this exploratory study was to identify
areas of distinctive competence in an inner-city small business. A
secondary purpose was to assess the extent to which these
competences can lead to competitive advantage and sustainable
competitive advantage. The case study was an inner city, African
American, family-owned tavern located in a medium size city in a
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Midwestern state. I became general manager on October 1, 2007, for
three months, at the request of the owners in order to turn the
business around, improve performance, and establish a competitive
advantage. However, the longer-term outcome, in terms of success or
failure of this small firm, was strongly influenced by the personalities,
values, and abilities of the owners.
Examining the success of this African-American, family-
owned tavern is significant because the role of the entrepreneur does
act as an engine for economic development in the black community.
In addition, this tavern has always played an important role in the
success of black business owners for networking and as a builder for
the black community in terms of social, economic, and political
engagement. Without this tavern, there would be an opportunity
structure that would hinder black business ownership, because the
infrastructure, within the black community would have been
destroyed especially the black entrepreneurs ability to gain access to
markets.
RESEARCH QUESTIONS
In the initial interviews at the family-owned and operated
tavern, several problems were identified including severe negative
cash flow, a belief that not all sales to customers were being billed or
collected, and a paper-heavy system that was cumbersome. This
research explores three areas that relate to the problems concerning
this inner-city tavern. They are:
1. What are the strengths and opportunities where this
inner-city tavern’s core competencies could provide a competitive
edge?
2. How does this inner-city tavern’s core competencies relate
to its culture and context?
3. What are the new markets in which this inner-city
tavern’s core competencies could create customer value?
Core competencies are those skills required for this company
to compete successfully in its market niche. Those skills include team
building, quality management, and problem solving. Culture consists
of the values and traditions that are vital to the business. Context is
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related to an understanding of the tavern’s strategic goals and
objectives as they relate to the market niche.
A major obstacle in turning around or reengineering a small
business is the staff that has worked at the business for years tends to
acquire an ownership in the current process and, as a result, may be
unable or unwilling to consider a radical change in the process.
Contrary to conventional wisdom, a majority of businesses fail
because of internal factors that are affected by managerial action and
discipline (Boyle and Desai, 1991). Examples include failure to
control operational costs and analyze financial statements.
Researchers, such as Foley and Green (1989) who have studied
small business failure and success, have attempted to classify
underlying reasons. However, the majority of studies simply
identifies symptoms and fails to highlight causes when providing
explanations within the context of “rational management theory.”
Equally, many surviving small business are seen, in terms of rational
theory, to operate at sub-optimal levels of performance. The actual
root cause of failure may lie with the apparently non-rational
behavior and decision-making of the entrepreneur and/or owner-
manager. He/she does not obey the “rules” of classical management
theory (Jennings and Beaver, 1997). The small business practitioner
is, therefore, subject to a number of competing and contradictory
influences, which may lead to erratic, unpredictable, and self-
destructive behavior.
Small business managers can endeavor to strengthen their
market status by establishing a positive reputation in the shortest
time possible (Goldberg et al., 2003). This reputation defines a
company’s identity – as seen by important stakeholders – in the
market competitiveness of its products and/or services, the effective
management of its resources, and its potential for future success
(ibid.). As an intangible resource, such a corporate reputation could
prove pivotal in obtaining legitimization within the marketplace
(Fichman and Levinthal, 1991). Others perceive a good reputation as
an indicator of a firm’s overall effectiveness attracting investors,
decreasing costs as suppliers offer better terms, encouraging customers
to purchase the company’s products or services, and assisting in the
recruitment of skilled labor (Dollinger et al., 1997; Fombrun, 1996).
Despite its attractiveness, few small businesses managers make a
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sensible and deliberate decision to use a reputation-building strategy.
Indeed, managers will find few references to such a strategy in the
small business literature (Goldberg et al., 2003).
Issues
From the theoretical framework discussed above, several
questions were developed for this research.
1. What are the costs to build a competitive advantage?
2. What are the business’ distinctive competencies that can
lead to a competitive advantage that can be sustained?
3. To what extent does relying on the existing core
competencies generate a competitive advantage in new markets?
4. What constitutes success?
METHODOLOGY
Design
Because this study uses participant observation and in-depth
interviewing, a qualitative research design using a naturalistic or field
study serves as the framework for this study. This descriptive
research involves data collection on many variables over an extended
period in a naturalistic setting. In the instant study, the period is 7
months.
Subjects and Procedure
This inner city, African American, small business tavern was
experiencing declining performance. This small business required
several actions, which were: (1) specific acknowledgment of causes, (2)
timely performance, and (3) sufficient assets to have some bearing on
a turnaround, and (4) identifying this small tavern’s management
practices. The first step was an external investigation to discover
minor, but potentially crippling, changes in the competitive
environment. The second step was to notify the owner that it was
important not to assign the lackluster performance to sheer “bad
luck” or uncontrollable market forces. Because of new technologies,
substitute materials, changing consumer tastes, and shifting
consumption patterns are shortening product life cycles, this inner-
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city tavern was required to develop a steady stream of new services.
As outline by Porter (1995), this inner-city tavern already had a
potential competitive advantage in five areas to work with, which
were:
1. Strategic Location – possible advantage because it could
gain from its closeness to the downtown business district, the logistical
infrastructure of a main highway and bus transportation, its closeness
to the entertainment and tourist destinations, and its closeness to the
concentrations of both major and minor companies.
2. Local Market Demand – even though average wages are
low in the inner cities, high population density creates considerable
purchasing power and a large market. Inner-city markets are not only
large but also young and quickly growing. By focusing on satisfying
ethnic needs does not automatically limit the growth and potential of
this inner-city tavern, but instead, a focused strategy could provide a
competitive advantage over large established companies and a base
from which to expand into other market segments (e.g. Bennigan’s,
TGIF, Thursday, etc.). An even more exciting opportunity presented
itself when it was realized that the needs and tastes of inner-city
consumers represented trends that often cross ethnic and
socioeconomic strata.
People in largely lower-income ethnic and minority
communities have distinctive needs and tastes, which demand
customized products and services. However, most companies design
products and services for white middle-class consumers and
businesses, hence, their product configurations, retail concepts,
entertainment, and personal and business services do not fit inner-city
customer’s needs. This means that there was an unmet demand of the
inner city’s population, which created a major growth market;
whereby, the principal inner-city business opportunity sprang,
however, not from the size of the market but from its character.
Micro segmentation lags in the inner city, but it represents a great
opportunity. This inner-city tavern is uniquely positioned to
understand and address the needs of its consumers and the businesses
in its own and other similar markets.
3. Integration with Regional Clusters – while this inner-city
tavern was currently isolated from the regional economy, those unique
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regional clusters represented promising opportunities for financial
growth.
4. Human Resources – the workers at this inner-city tavern
are from the inner city, which are often more motivated and loyal,
especially since this is a business that suffers from high turnover.
5. Access to capital – According to Porter (1995) this is
usually a disadvantage for inner city small businesses. However, this
inner-city tavern has access to personal and family savings and
networks of individuals to draw on for capital.
According to Porter (1995), the disadvantages of this inner-
city tavern because it is located in the inner city include:
1. Non-wage costs – high costs for utilities, workers’
compensation, health care, property insurance, unemployment and
liability insurance, real estate and other taxes, Occupational Safety
and Health Act compliance. Because this medium size Midwestern
city has a greater proportion of residents dependent on welfare,
Medicaid, and other social programs than their suburbs do, this city
must spend more and thus charge higher taxes.
2. Security – crime is a real obstacle to doing business in the
inner city, but the perception of crime is greater than reality.
3. Employee skills – even though this inner-city tavern is a
bar, the workforce lacks the skills to work in the bar, which needs
more than just the basic skills. In addition, while there is a large pool
of available lower-wage labor, most of the residents do not have the
skills suitable for this bar.
4. Management skills – the owner and the former manager
lacked formal managerial training, especially in the areas of strategy
development, market segmentation, information technology, process
design, and cost control.
5. Attitude – while this is a locally, minority-owned business,
which hires locally, the hard truth is that its attitude constitutes a
significant barrier to its current and future economic development.
This inner-city tavern has a reputation of worker exploitation, being
in business primarily to earn profits for its owners, due to it having a
captive market by being the only legitimate black-owned and oldest
bar in this Midwestern city; as well as complacency. This attitude
undercuts efforts to improve quality of not trying to sell beyond the
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captive market, and reducing costs. It believes that it can give any
type of service because it serves “Coloreds.”
I took over managing the tavern on October 1, 2007, which
earned about $100 per day in sales; had very little supply and variety
of liquor, as well as the tavern and equipment was in disrepair from
the lack of maintenance. The owner and former manager used the
profits for their own use while the employees stole money from the
establishment. From July 1 until I took over, I went to the
competitors to see what they were offering as far as service and
products. I patronized them, and kept an eagle eye out for areas in
which I could surpass them, especially in service, i.e., more frequent
follow-up and faster delivery.
I administered a customer questionnaire to turn up many
areas upon which I could concentrate including: why they patronized
the businesses they do; what the ideal business would offer; and what
they like best about this inner-city tavern. I paid close attention to
the answers because some were pointing directly at possible changes to
improve the competitive advantage.
In addition, I instituted a training program to give the
employees an understanding of the tavern’s role in the marketplace
and to allow the workers to learn more quickly and be more
productive. This training program provided instruction in what are
known as the “three C’s”: culture, context, and core competencies.
The focus of the training was how employees can improve the quality
of service and explain the benefits and features of those services to
current or potential customers.
The competitive strategy used by the tavern was the
multidimensional concept as outlined by Porter (1980), which
consisted of the five common dimensions of business strategy:
1. Innovation differentiation (aims to create products to
services that customers see as unique in terms of technical
performance, design, and/or quality),
2. Marketing differentiation (attempts to create a customer
loyalty through advertising, prestige pricing, and/or market
segmentation),
3. Cost efficiency (a strategy that strives to deliver products
or services to customers more cheaply than competitors do by
lowering costs per unit of output),
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4. Asset parsimony (strategy of low cost through few assets
per unit of output), and
5. Domain scope (or niche strategy, determine the type of
customers, products or geographic coverage the firm concentrates on)
(Hambrick, 1983; Miller, 1986, 1988).
This inner-city tavern used the strategies of innovation
differentiation, marketing differentiation, and domain scope. It was
determined that the tavern could not apply the alternative strategies
of cost efficiency and asset parsimony.
The factors external to the tavern, requiring aggressive
market responses included diversification, niching, market
development, product development, and market penetration. Market
penetration included diversifying into a countercyclical industry and
finding a niche in a market up, to now unexplored by the competition
– especially one this tavern was uniquely qualified to occupy and
defend.
In addition, I instilled several characteristics as “best
practice” that was outlined by Sandvig and Coakley (1998) within this
inner-city tavern. They are:
1. Leveraging existing capabilities – Significantly lowered
the costs and risks of diversification by using the existing core
competencies to gain entry into new markets. I formed partnerships
with the police and local businesses to serve meals at discounted prices
in order to receive services. In addition, became a member of the local
chamber of commerce, as well as the local black chamber of
commerce.
2. Entering growth markets – Diversified into rapidly
growing markets, such as Illinois lottery and Games for
“Entertainment Purposes Only” (penny and nickel slot machines).
Entering these markets avoided expensive battles for market share
against well-entrenched competitors. Chandler and Hanks (1994)
found a positive relationship between market attractiveness and new
product success.
3. Targeting niche markets – Targeted small niche markets,
where customers are willing to pay premiums for products tailored to
their needs (i.e. this inner-city tavern was the only place in this
medium size Midwestern city that served Kosher Hot Dogs, as well as
Rib-eye Steak Sandwiches and chili. It also had one of the biggest
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selections of alcohol – 100 different selections; bottled beer and wine
coolers – 33 different selections; as well as serving coffee, soda, and
bottled water. The jukebox was the only place in this medium size
Midwestern city that played and advertised only blues, jazz, R & B,
reggae, and hip/hop – the box contained 200 c.d.’s selections, as well
as a black only music downloading selection). Niche markets are
typically less competitive than larger markets.
4. Diversification strategy – Targeting new markets and
adding new capabilities that require thought and the development of
an effective diversification strategy (e.g., added an ATM). The
successes realized by the Japanese through operational efficiencies
during the 1980s maintains Porter (1996), have lured many companies
into focusing on efficiency at the expense of looking forward to
develop new products and markets.
5. Adding new capabilities – To enter target markets, this
inner-city tavern added new capabilities, such as updated technologies
and marketing skills. In addition, strong top management leadership,
by having an aggressive manager to lead the diversification efforts,
have taken decisive – and sometimes risky – measures to reposition
the tavern. These actions included major investments in new
products, downsizing, and developing new competencies and market
channels. For example, added a Women’s Night with an amateur
male strippers contest; a free drink and cake for a patron with a
birthday; had two digital televisions featuring sports; collaborated
with other clubs and local black chefs for more of a variety of food and
entertainment; and sponsored poker and other card games.
6. Skilled work force – The skill and flexibility of the work
force was an important asset. This inner-city tavern grew because of
the remodeling and the workforce. People saw us trying
entrepreneurial things and changing the way we were doing business.
We required that people be self-motivated and self-starters. They
must understand their customers and their customers’ needs without a
manager overseeing them, which included learning the latest mixed
drinks.
7. High employee productivity – This inner-city tavern
avoided adding to its work force as the amount of services being
offered grew, even reduced the workforce; however, gave them a raise
in salary from $120 to $192 plus tips per twenty hours of work.
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Thereby, productivity increased, lowered overhead costs, and gave
employees more autonomy; however, security cameras in the tavern
and listing devices in bathrooms were added.
8. Low overhead – Maintained a lean management structure
and employed few overhead personnel, as well as changed all vendors,
including garbage, and negotiated with distributors.
9. Tenacity – Had little choice but to diversify, shrink, or go
out of business. Unlike large companies that can still prosper even
after closing entire divisions; the fate of small firms often rests on the
success of their diversification efforts. When a small firm fails, all of
its employees lose their jobs, including top management.
RESULTS
Does it cost much to offer a competitive advantage? It takes
aptitude, time, vigor, and imagination; it is not a matter of money.
The financial possibilities of the inner city can be realized when
companies leverage the competitive advantages and when the
disadvantages are confronted directly. Most of the disadvantages of
locating businesses in the inner city can be disposed of, controlled, or
conquered.
The owner wanted to close the tavern, but my
recommendation was against this. I wrote down everything that
needed to be done to make the tavern profitable again. There were 30
items on the list, some of these things were hard to do – but they
provided an alternative to closing the tavern. Top of the list was to
make temporary staff cuts, increase prices by 20%. Our backs were to
the wall. We immediately got much tougher and everyone just had to
tolerate it – although we lost some customers along the way. These
actions worked extremely well and within three months, the tavern
was back making a profit, from making $100 per day in sales to over
$4,000 per day in sales.
The turnaround of this small tavern provided an example of
effective niching. This tavern was experiencing a decline of its
customers; and it was unable to replenish its customer base, because it
catered to an over 60 years of age crowd. Through market research,
the tavern identified a suitable customer segment (of an over 30 years
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of age crowd) and developed an advertising program targeted toward
this specific niche, by putting flyers in beauty and barber shops, as
well as partnering with businesses next door. Since redefining and
pursuing its newly identified target market, the tavern got back its
customers and expanded its customer base.
In addition, it was accepted that a good corporate reputation
was important for receiving legitimation from different stakeholders.
By combining the strategic elements of having a company policy of
strengthening internal core competencies, extending external
relationships, and creating a positive corporate image, I used several
distinctive competencies to establish a strong reputation for this
inner-city tavern. A distinctive competence is of value in a
competitive environment only if it can be transferred into a
competitive advantage. The establishment of a strong reputation, as
well as obtaining a sustainable competitive advantage was
concentrated in four distinctive competencies that were outlined by
Stoner (1987):
1. Experience/Knowledge – In order for the
“experience/knowledge" skill of owners/workers to point to a
competitive advantage, this competence must be present as a
significant buying condition for possible customers. In other words,
this competence is important to the buying public only if the
“experience” is somehow indicated in the assistance. If this is the
case, customers must be conscious that the experienced workforce has
led to a better service. I made customers aware of the distinctive
competence by having considerable advertising through flyers, posted
in barbershops, beauty salons, social clubs, and various workplaces.
However, once the customers understood and accepted this
competitive advantage, its sustainability was likely to be strong. In
general, rival businesses would have to consume substantial amount of
assets to erode or change customers’ opinions once the competitive
advantage was established.
2. Unique/Special/Original Product and Service – The
distinctive competence of having a “unique/special/original product
and service” suggested the obvious potential for being a significant
buying condition, and the competence was simple to communicate
especially if the product and/or service truly fulfilled customers’
wishes. The products and services at this inner-city tavern truly
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fulfilled customers’ wishes. We were the only bar/tavern that had the
Illinois lottery in place, as well as the only bar/tavern that had an
ATM. In addition, this tavern was the only inner city bar that served
food until 2:00 a.m. Thus, this distinctive competence gave the
impression that it could easily lead to a competitive advantage,
whereby, sustainability depended upon competitors’ capabilities to
offer similar or alternative products or services as dictated by
consumer demand.
3. Better more complete customer service and relative
quality of product/service – “Better more complete customer service
and relative quality of product/service” was likely to be an important
buying condition as long as price was not adversely affected. Prices
increased by 20%, however, more services were being offered, as well
as more variety of drinks. In addition, this inner-city tavern was
being promoted as a local, friendly community bar, where everyone
was welcomed. It was no longer a bar for the owner’s personal use.
These areas of distinctive competence were quite difficult to establish
and project to potential customers, but once it was established, they
were likely to remain strong and sustainable.
4. Location – “Location” was difficult to measure. This
inner-city tavern is located just two blocks south of the downtown
area on the main highway. The influence of this competence as an
important buying condition is significant, since having a bar at this
location is central do to the service being offered. Communicability is
direct and straightforward. Sustainability due to the fixed nature of
location is strong (particularly since this desirable location is not
readily available to the rival businesses).
Finally, the biggest lesson that I learnt is that it pays to be
firm with staff and customers alike. It went totally against my
character, but if I wanted to excel, I had to do it. Otherwise, I would
have been ineffective. In addition, I kept a close eye on accounts from
day one. I had to set up monthly accounts so one would know from
month to month how one was doing. I then made sure that I had
trustworthy workers. Having the right team behind you was very
important for success.
Although the turnaround was successful, the owner wanted to
pursue other strategies. For instance, the owner wanted the tavern to
attempt to move from a focus differentiation to a low-cost strategy.
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Southwestern Business Administration Journal: Fall 2011
It was argued that the distinctive competence of “low cost/price” is
certainly a key buying criterion, and price can be communicated
easily. Thus, this distinctive competence can clearly be transformed
into a competitive advantage. However, sustainability depends
largely on the ability of rivals to undercut prices or to offer substitute
products or services at a lower cost, which was very real with all the
illegal clubs that served alcohol at discounted prices. No way could
this inner-city tavern compete with them. In addition, this tavern
possessed few of the capabilities needed to achieve the competitive
advantage of a low-cost strategy in its new markets. Both the costs
and risks involved in making such a change would have increased. In
contrast, when this inner-city tavern sought to diversify into new
products and markets, it improved its chances of success by pursuing
opportunities that required no change in its fundamental competitive
strategy.
With the changes in management, after I left, profits were not
sustainable (or transferable) with the lack of some type of competitive
advantage. After the 3 months, the owner took control of the bar,
and retained the same workers as before my take-over. In addition,
she hired her own nieces, who had no formal management training, as
management. The bar went back to its former state. Most of the new
customers discontinued patronizing the bar, and only the owner’s
acquaintances (who were over 60 years of age) stayed. Instead of
putting money back into the business, the owner and her nieces used
the money for their own use, and the bartenders went back to stealing.
The variety and supply of liquor vanished. All lottery machines,
gaming machines, ATM, jukebox, and security were pulled, as well as
the sports programming. She had no more Women’s Night, as well
the birthday cakes and free drinks. The bartenders refused to make
any more sandwiches and mixed drinks. The music was mostly old
blues that no one wanted to hear except for the owner. The bar again
became a place for the owner’s personal entertainment use. Therefore,
sales plummeted to the original level before October 1, 2007; however,
the owner viewed this inner-city tavern as a success because now her
aspirations were satisfied. She viewed this inner-city tavern as a
“Colored” bar, which should only serve “Coloreds.” She did not need
“Whites” to frequent the bar. In addition, she believed that
“Coloreds did not deserve good service or to be treated with
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respect….Coloreds should be grateful to have a tavern to go to….this
bar was doing them a favor by being open.”
DISCUSSION
In a small business enterprise, the decision-making process is
characterized by the extremely personalized preferences, biases, and
opinions of the firm’s entrepreneur, owner, and/or owner-manager.
The disposition of managerial activity expands or contracts with the
characteristics of the person fulfilling the role(s). Such expansion or
contraction is partially trained by the adaptive wants of the
environment in which the business functions, and is partly dependent
upon the personality and needs of the owner, manager, or
entrepreneur. The obsession with immediacy and short-termism is
probably as precise a generalization about the managerial
participation to small business failure as we are likely to get. Put
another way, small business failure is invariably caused through a lack
of responsive managerial strategic attention, which is confirmed in
this study.
The basis of the failure to attain and sustain an acceptable
level of performance is primarily due to poor managerial aptitude.
For example, the owner wanted to use a low-cost strategy, even
though the tavern’s competencies lie in a focus-differentiation
strategy. However, the direct attribution of cause and effect
relationships is additionally complicated by the intangible, invisible,
almost unconscious procedure of practicing strategic management,
which exists in the majority of small businesses.
Another characteristic, of the small firm management process,
is the closeness of the important players to the operating employees
and activities being tackled. This provides the important players with
extraordinary opportunity to influence these employees and activities
directly. However, relationships are often informal, with no precise
definition of rights and obligations, duties and responsibilities.
Appointments and promotions are often made based on birth or
personal friendship rather than based on ability, education, and/or
technical qualifications. Organization structures, as far as they exist,
are likely to develop around the interests and abilities of the key
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players. Such organization structures are likely to be organic and
loosely structured rather than mechanistic highly bureaucrat. Thus,
the exploitation of competitive advantage in the small firm is hardly
ever a readily visible practice. It often has a theoretical rather than
explicit form with strategic management being practiced instinctively.
Entrepreneurs and managers, because they alone have profit-
oriented reasons and incentives, should seek out the best opportunities
for generating wealth. The business community, however, must
rethink its strategy and employ new perspectives to do extremely well
in the inner city. The private sector will contribute more when it
focuses on what it does best: generating wealth and building
competitive businesses. As Porter (1995) indicated, four goals should
guide private-sector strategies:
1. Create and expand business activity in the inner city. The
most significant contribution a company can make in the inner city is
simply to do business there. Inner cities hold untapped possibilities
for building profitable businesses if companies look for and take hold
of the opportunities that build on these advantages.
2. Adapt operating practices to meet inner-city needs.
Successful inner-city businesses have learned to adapt their products,
services, and operating practices to the local market. One way
companies increase their knowledge of the inner-city market is to
build relationships in the community and hire locally. Neighborhood
employees build loyalty from neighborhood customers and help stores
customize their offerings.
3. Deal with disadvantages creatively.
4. Establish business relationships with inner-city
companies. By entering into joint ventures or customer-supplier
relationships, outside companies can help inner-city companies by
encouraging them to export and forcing them to be competitive. In
the end, both sides benefit.
Summing up, small businesses can increase their odds for
success by designing systematic strategies toward the establishment of
a positive corporate reputation. As explained in this case study, I
chose to develop the inner-city tavern’s internal capabilities, moved
quickly to make the most of a market, and tried to establish strategic
alliances. In addition, I invested in image factors that signal quality
products and a successful enterprise. Beyond a single reputation-
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building strategy, I recognized the benefits from a comprehensive
approach that completely included all four methods for building
positive corporate reputations. What was essential was knowledge of
the system that exists and a willingness to consider radical new
processes that would dramatically add to the system.
However, it seemed that the owner had a different meaning of
success, which was “the continued fulfillment of main stakeholder’s
desires.” Logically, the definition of failure would be “the inability to
fulfill main stakeholder’s desires.”
It was immediately obvious that success was no longer looked
upon as synonymous with optimal performance since this represents
an extremely elusive concept. Similarly, failure no longer was looked
upon in terms of the traditional, rigid paradigm of the end of trading.
Rather, success was considered as the achievement of certain pre-
defined objectives which satisfied the stakeholder’s desires and which
culminated in performance that fell significantly below the possible
optimal level (Foley and Green, 1989). Equally, failure implied that
the stakeholder’s desires were not, and were unlikely; satisfied even
though the business may have been very able of continuing to do
business, although at a sub-optimal level and may have even profited
from a period of growth and business development. The owner and
former manager had kept the profits of the bar for their own use
instead of using it for the maintenance of the bar. The bartenders
stole money, as well as liquor. However, at this moment, the owner
viewed the bar as a success even though it did not make any
substantial money. What she wanted was a place that was an
extension of her living room, yet profitable. She was not looking for a
place to maximize profits.
Because of her viewpoint of success, the black community in
this town is in jeopardy. This tavern is no longer the infrastructure
necessary for community development, supplying the economic and
social benefits that are needed. The networking that took place in this
tavern provided employment opportunities for African-Americans and
created an avenue for blacks to be integrated with the majority
community and economy, thereby, minimizing the feeling of
disenfranchisement.
Further study of this tavern is needed in order to determine
the economic impact that this tavern has on the black community, as
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well as the economic development to this area. Therefore, what is the
measure of this tavern being the nexus in building an entrepreneurial
community, and can an entrepreneurial community be built in this
community without this tavern?
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About the Author
Theodore E. Davis, Jr., Ph.D. teaches in the department of business
at the State University of New York College at Buffalo,300 Elmwood
Avenue, 311 Chase Hall, Buffalo, New York 14222-1095. He can be
reached at (716) 878-5237 and [email protected]
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