Tech Companies and Small Business Need Each Other

Tensions between tech and small business

There has long been tension between technology companies and small business, but as Covid-19 threatens economies across the globe these tensions have been on display as never before.  Amazon, Uber, Grubhub, and Doordash promise their retail and food service partners expanded markets and new customers, but at great cost to small businesses that already operate on minimal margins.  But the real problem isn’t this initial marketing cost, it’s the reality that each new customer these platforms attract is likely to purchase through the platform moving forward, making a one-time marketing cost permanent.  And at the same time, the convenience of using a single online ordering system pushes existing restaurant customers, even the most loyal ones, to migrate to these platforms, further undercutting margins and threatening the sustainability of the business.

Tech platforms depend on scale – density is required to make their models profitable, which is why new tech is almost always rolled out in cities first before eventually migrating to suburbs, exurbs, and rural communities.  Scale allows customers to negotiate more favorable rates, so big companies consistently get a better deal on tech services, while the smallest customers lack the leverage to strike similar deals.  Nothing here is surprising, but it all adds up to a huge burden on small businesses, especially in more rural communities.

Why they both need each other

1. Each small business is, first and foremost, a potential customer or partner for technology firms. Platforms like Grubhub and Doordash depend on a robust food service ecosystem to create the scale they need to be profitable.  Other platforms operate in the same way.  Ensuring your customer base and business model are sustainable is simply good business.
2. People love small businesses, and killing them is a bad look. The Covid-19 pandemic has led to outpouring of love and support for the small businesses – cafes, restaurants, bookstores, and more – that make communities unique. It turns out people really value these spaces and these merchants. They provide something that online platforms will never be able to fully replicate – space to meet and interact with other people. This extends to the heart of Silicon Valley, where many residents are making a pointed effort to transact directly with local merchants, even if it is less convenient. Accelerating the death of beloved local institutions is not what you want associated with your brand.
3. Technology helps small businesses operate and grow. Prior to the pandemic, labor markets in the U.S. were stretched thin and businesses struggled to hire. Technology and tech-enabled services that make businesses easier to operate and grow are hugely important to these merchants. In short, most value the technology but find the business model too burdensome.

What tech companies can (and should) do

1. Help small businesses become more resilient by aligning products, services, and business models to the needs of small businesses. All of this should be considered with the understanding that successful customers and vibrant economies are good for business.

• Revisit and reconsider business models that disadvantage small business
• Promote local options with targeted advertising capabilities
• Proactively negotiate fee reductions with regional GPOs and industry associations. This last point seems to have a strong business case for some companies in highly competitive markets (i.e. food delivery), where locking up a regional market with attractive pricing and incentives could promote significant growth.