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JUNE 19, 2000


The Internet as a Small-Business Edge

Geoffrey A. Moore tells how it offers a universe of outsourcing opportunities and a chance to focus on your core business

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Whenever new technologies revolutionize business sectors, the early adopters get an advantage over the latecomers. Historically, small businesses have been on the short end of this exchange because they lacked the necessary resources to get onto the new wave as it was forming. In the Internet Age, however, they have an unprecedented opportunity to profit from technology disruption precisely because getting onto this new wave doesn't require significant expertise or infrastructure investment. What it does require is the ability to act now, an area where small companies actually have the advantage over larger ones.

The focus of getting onto the Internet should not be on copying what others are using it for but on increasing the value of one's own business. Because small businesses are not publicly traded, owner-operators can't use the stock market as a scorecard for how they're doing. But they must realize that, scorecard or no, every business has a valuation, and it's the job of every business' management to increase that value on behalf of the shareholders. For small business, those shareholders are typically the owner-operator and his or her family, and perhaps one or two partners. These people are giving up a whole lot of their lives to this enterprise, and they deserve to be rewarded.

The value of any business is a function of the likelihood that it will be able to generate profits in the future. If someone were to buy your business today, they would be buying it for its future profit-making potential. What's at the heart of those capabilities is competitive advantage, and what shapes the value of your company is the depth and the sustainability of that advantage.

Therefore, small-business owner must focus relentlessly on a single issue: How can I use the Internet to help me differentiate my business from my competitors, both immediately and sustainably?

CORE VS. CONTEXT. The answer, ideally, is different for every business, thereby allowing us all to differentiate and create unique value. Activities that support this differentiation are core to our businesses. Everything else we do, by contrast, is context -- that is, work that has to get done but cannot improve our valuation. The hardest lesson in business is that whenever a competitor catches up to our core, it gets turned into context because it no longer differentiates us. Thus, life becomes a continual exercise in reinventing ourselves.

The key to succeeding is willingness to change and to carve out the resources to support that change -- something large corporations struggle with hugely, and thus an area where small businesses can gain an advantage. Here small businesses fall into a trap. Being cost-conscious, they want to do all the work in-house. But this clogs up their workload with context tasks. So the answer is to outsource the context so that you can get back the time needed to reinvent the core. That's the key to the New Economy.

In an ideal world, everyone would do only what they do best and would subcontract everything else to someone who did that task better. We would all be outsourcing our contexts to people for whom that work is core. If cash is too tight to pay for these services directly, we can still barter to make the exchange. Why would we? Because that way both we and our subcontractor each get some time back (if you are an accountant, I guarantee you can do my taxes faster than I can), we each gain a new customer reference and source of referrals, and we each gain more experience in our core work.

UNIVERSE OF SERVICES. In the Internet Age, with online business exchanges like Onvia.com and others, small-business owner-operators for the first time have access to a universe of service providers where we can buy or exchange services. By judicious use of these services, we can increase the amount of time, talent, and management attention we focus on the core, thereby increasing the attractiveness of our business, gaining more and better customer relationships, and increasing our companies' value.

The best thing about the Net may be not that we use it directly to create our core but that we use it indirectly to relieve ourselves from context. Maybe your core has nothing to do with the Internet, but I'm sure your context does. Even if you cannot differentiate your business by using the Internet, you can outsource using it. And if you are a service provider, not only can you buy outsourcing over the Internet but you can sell it as well.

The opportunity, at the end of the day, is for the World Wide Web to mutate from a web of ideas to a web of commerce, where core and context interweave to create a new kind of economic fabric that gives power and value to small businesses that they have never enjoyed before.

Geoffrey A. Moore is chairman and founder of Chasm Group, where he still consults. He serves as a venture partner at Mohr Davidow Ventures. He has been named one of the Elite 100 leading the digital revolution by Upside magazine. His book, Living on the Fault Line, was published by HarperCollins on June 1.


By Geoffrey A. Moore

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