Small is Beautiful

Author: Alok Mittal
General Partner, Canaan Partners
For years, enterprise buyers have driven technology venture markets. The mantra for success was to create a product or service offering for the Fortune 500 customers – understandably so, since large customers are amenable to efficient sales processes, higher ticket size, and control most of the technology spending. Not anymore. Technology purchasing power is now shifting to smaller customers, and that represents the wave of innovation that we are likely to see over the next many years.

The notion of serving small customers is not new – Web hosting and pay roll outsourcing companies are examples of relatively standardized services that have been offered for some time now. However, the broader range of technology and service offerings has been out of reach for most of these customers. Very often, businesses providing such services are fragmented and locally driven, hence unable to create venture-style returns in most categories.

Small customers have their advantages – they offer significant diversification to revenue, and offer more pricing control than the larger ones. They have also been conventionally underserved. Furthermore, the globalization of buyer base has accentuated the need for such offerings. The key challenge has been lack of a relevant business model – how does one architect the offerings that can be customized for small businesses or even for individual consumers, and how does one take them to the market efficiently. Innovations in business models are enabling these markets across the spectrum, and Canaan is looking to participate in these opportunities.

On the core technology end of the spectrum, hosted software and cloud computing are areas that represent this trend. The computing infrastructure of the world is getting redesigned to provide more flexibility to customers. Small businesses can now get access to world-class infrastructure and software, and can dynamically scale their capacity, rather than having to incur huge capital investments. Provisioning of such infrastructure requires significant technology development; and some of the companies such as Success Factors, Soasta, and Virsto are helping create that future.

At the other extreme, services are also being reconfigured to suit the requirements of smaller businesses and individual consumers. Often delivered through a global workforce, these services are becoming more and more platform driven, and provide configurability not very dissimilar from that provided by hosted software. An example on the business side is our investment in UnitedLex, which is bringing the benefits of high end legal consulting and outsourcing to smaller clients. On the consumer front, iYogi aims to provide top end computer support to millions of consumers through a personalization platform.

Most of the businesses mentioned above are being enabled by advancement in technology to offer personalization and rapid customization, in business models through offshoring and enabling pay-as-you-go pricing, and in distribution through a mix of online, inside sales, and channel sales. The combination of these factors represents a compelling opportunity for entrepreneurs to create large businesses that were not possible till a few years back. Canaan is very excited to support and help build such businesses at a global scale.

Advice to Entrepreneurs

The migration of technology markets to smaller customers represents a disruption that does not naturally fit into the DNA of current market leaders. The business models related to this opportunity often threaten to cannibalize their existing business and thus are internally resisted. This opens up a compelling opportunity for innovators to create the next-generation leaders. Like any other business, what is required is an ability to think afresh from the customers’ viewpoint and a team that leverages ongoing advances on all the fronts required to execute on this opportunity.
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Reader's comments(4)
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3: I have read the article and my opinion is for small is beutiful is that in India, there should be a concept of ancilliary based small Industries development which should be supported by large scale industries.I was once in an In country team of Rajasthan State Productivity Council Jaipur and visited Baroda a long long back where this concept was introduced in Baroda by Amin Goup.They tried to adopt this by having a small Industrial area in their own area, poviding machinaries,raw material ,technical know how,finance and full guidance to the enterpreuner for manufacture of goods required by them in their main unit.The enterpreuner was given 5 yars time to build up the unit and thereafter he will be sole owner of the unit .Thus it was a method of developing ancialliary unit .
In India we have many large scale Industries in private and public sector and if 20% of their land is reserved for ancilliary development in their own area and try this concept ,I think the development of small Industries will go like any thing in India.In fact a small Industry if opened on their own accord, they have to face many problems right from initial stages to the end which includes,mainly Finance, rawmaterial,testing facility,marketing .It all will go away if Government and Industries in Private and Public Sector consider such developments.The issue is large and can be debated time to time by FICCI,Achhcham,CII,and other trade and Industrial Associations FASII,Small Industries Board and many other inter connected and inter related trade and Industry Authorities and given a shape to help small and Cottage Industries in India.
Posted by: CHAND BABU BAIRATHI - Tuesday 27th, October 2009
4: Dr.E.F.Schumacher often called as Western Gandhi proposed SMALL IS BEAUTIFUL Concept. Schumacher proposed the idea of "smallness within bigness": a specific form of decentralization. For a large organization to work, according to Schumacher, it must behave like a related group of small organizations. Schumacher's work coincided with the growth of ecological concerns and with the birth of environmentalism and he became a hero to many in the environmental movement. Here are some quotes from Dr.E.F.Schumacher.
• Man is small, and, therefore, small is beautiful.
• A Buddhist economist would consider this approach excessively irrational: since consumption is merely a means to human well-being, the aim should be to obtain the maximum of well-being with the minimum of consumption.... The less toil there is, the more time and strength is left for artistic creativity. Modern economics, on the other hand, considers consumption to be the sole end and purpose of all economic activity.
• It is clear, therefore, that Buddhist economics must be very different from the economics of modern materialism, since the Buddhist sees the essence of civilisation not in a multiplication of wants but in the purification of human character. Character, at the same time, is formed primarily by a man's work. And work, properly conducted in conditions of human dignity and freedom, blesses those who do it and equally their products.
• The most striking about modern industry is that it requires so much and accomplishes so little. Modern industry seems to be inefficient to a degree that surpasses one's ordinary powers of imagination. Its inefficiency therefore remains unnoticed.
• Wisdom demands a new orientation of science and technology towards the organic, the gentle, the non-violent, the elegant and beautiful.
• The way in which we experience and interpret the world obviously depends very much indeed on the kind of ideas that fill our minds. If they are mainly small, weak, superficial, and incoherent, life will appear insipid, uninteresting, petty, and chaotic.

I myself have over 20 Innovations especially in Energy. I already made prototypes. What ails inventors like me to become Small entrepreneurs is the much needed Venture Capital. Government funded organisations like TePP (DSIR), TIFAC are there. But the procedure is lengthy and time frame is high. Innovators are often lack resources to start small industries. It is here Private Industry can help the prospective innovators to become entrepreneures.

Dr.A.Jagadeesh Nellore (AP)
Posted by: Anumakonda Jagadeesh - Wednesday 21st, October 2009
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