Big Data and Small Business

Stephen DeAngelis

March 31, 2014

“Here’s a wishful vision of the future,” writes Christina Donnelly and Geoff Simmons, “One day, small businesses will have access to affordable consumer data.” [“Is There Hope for Small Firms, the Have-Nots in the World of Big Data?HBR Blog Network, 10 December 2013] Although most articles you read about how Big Data can help companies refer to large corporations, Donnelly and Simmons assert, “This is a life-and-death issue for small businesses.” Anyone who has worked in or around a supplier to a big consumer company — to a supermarket chain, for example — knows the value of information on shoppers’ preferences. If a supplier can use consumer data to shape its offerings and marketing strategies, it has a significantly better chance of survival than its data-deprived competitors.” You hear time and again how important small businesses are for the economy so it follows that providing them with tools that give them a better chance of survival is also good for the economy.

 

Donnelly and Simmons aren’t just theorizing about whether Big Data can help small businesses, they proved it. Armed with a government grant, and assistance from Gillian Armstrong of the University of Ulster and Andrew Fearne of the University of Kent, they “provided consumer data and analysis — free of charge thanks — to a group of food and beverage companies that had previously relied mainly on their managers’ intuition and a little guidance from supermarkets.” The beneficiaries of this free consulting found the insights provided very useful. But, as Donnelly and Simmons report that none of the suppliers they assisted — the largest had just 45 employees — “could have afforded the ongoing cost of the consumer data. A single analyzed report runs €7,000, and to keep up with the big firms, they’d need more than that.” When the grant money ran out, the small suppliers were back to “square one,” but now they knew they were operating at a disadvantage — and they weren’t happy. Donnelly and Simmons go on to explain that Big Data analytics is the medicine that could keep small businesses alive; and, without that medicine their days could be numbered. The consequences of such business failures could be significant. They explain:

“If it’s true, as Andrew McAfee writes, that ‘data-dominated firms are going to take market share, customers, and profits away from those who are still relying too heavily on their human experts,’ then we can expect to see a very different business landscape some years down the road. It will be a landscape with many fewer of the small, artisan businesses that have been so important to societies for millennia. Small businesses account for a large proportion of private-sector employment; in the U.S., for example, despite a vast corporate sector, the figure is 49%. Small firms are a ‘fountain of job growth,’ according to the U.S. Bureau of Labor Statistics; companies with fewer than 500 employees account for about two-thirds of net jobs created in the country. They are often great places to work, too.”

The question is: Do we really want a business landscape desolate of small businesses? Donnelly and Simmons don’t think so. They ask another question: “Should big companies assist small companies by providing them with inexpensive access to data?” Their unqualified answer to that question is “yes.” They believe that such sharing of data creates a win-win situation. They explain, “Consumers enjoy the products of small businesses — some of the items provided by the firms we studied were popular in the big supermarkets because they were marked as ‘locally produced’ or ‘premium.’ An added benefit is that these products tend to be high-margin, both for the suppliers and the stores.” When Donnelly asked an executive from a large supermarket chain why they didn’t assist small suppliers by providing them with affordable data, he responded “that he had never even thought about it. The data gap and its possible consequences hadn’t crossed his mind.” His chain is apparently not alone; and, Donnelly and Simmons aren’t very sanguine that large corporations are going to change this situation in the near term. In the current fiscally-constrained environment, they don’t think that government help will be forthcoming either. As a result they ask, “So where does that leave small businesses? Is their situation hopeless?” Those are excellent questions. They reason that if neither corporate or government assistance is going to be forthcoming, there is only one other place that small businesses can turn — to consumers. They explain:

“After all, the ultimate source of data is the consumer. Shouldn’t shoppers have a say in what happens to their loyalty-card information? If they value small firms, shouldn’t they be able to ensure that these firms have access to a consistent flow of market data? That idea may seem farfetched, but so is the concept of product delivery by drones. The difference between the two is that Amazon, with all its money and power, is well capable of taking a crazy idea and turning it into reality; like many mammoth corporations, it can afford to deploy cutting-edge technologies in the pursuit of greater growth and greater dominance. Small firms simply can’t do that — at least not on their own. But in the ordinary consumer, small firms do have a powerful ally. If they could somehow tap into that power, the artisan firms might just be able to garner enough competitive advantage — or at least achieve enough of a competitive balance — to continue providing enriching, satisfying jobs and valuable products to millions of people the world over.”

I suspect that companies that have loyalty programs would push back by saying that they give consumers value for their data in the form of discounts and special offers and that consumers already provide value to small firms by purchasing their goods. Those purchases are reflected in the loyalty data and become of the decision-making process of the company as to whether they will continue to stock such goods. That may all be true; but, Donnelly and Simmons would argue that both the company and the supplier could do better if they collaborated. I suspect that one thing that keeps large companies from assisting small suppliers is that such assistance might be resented by larger suppliers if they weren’t given the same assistance. Companies would have to be guaranteed that they could not be sued for offering such assistance solely based on the size of company. The details, obviously, would have to be worked out; nevertheless, Donnelly’s and Simmons’ strategy is worth considering. Consumer advocate groups might take up the cause.

 

Although implied throughout Donnelly’s and Simmons’ article, lack of access to Big Data analytics, not just lack of access to data, can hamper small businesses. Small businesses can’t afford to employ the analytic teams to process and interpret Big Data even if they had systemic access to it. The fact is, however, analytic teams can be replaced through the use of affordable software that democratizes analytics by incorporating the functional capabilities normally performed by such teams. Steve King, a small-business expert and author of an Intuit report, entitled “The New Data Democracy: How Big Data Will Revolutionize the Lives of Small Businesses and Consumers,” writes, “Emerging availability of data and analytics — call it a new democratization — gives small businesses … greater access to cost-effective, sophisticated, data-powered tools and analytical systems. This new data democracy will deliver meaningful insights on markets, competition and bottom-line business results for small businesses.” Small businesses will never gain the edge they need without democratizing both access to data and access to analytic capabilities. Fortunately, companies like mine, Enterra Solutions®, can provide systems that incorporate analytics. For example, our Hypothesis Engine dynamically generates insights from data and analytics and presents them to decision makers — if it has the right data to analyze. That’s the rub. Even affordable analytical software requires access to the right data to be of any use. As Donnelly and Simmons argue, some of the most important data, especially for small suppliers, is not readily available to them. It is owned by the large companies to which they supply their goods.