Quick Take: Fortune favors the adaptable

Predicting the demise of the small distributor? Think again.

Survival of the smallest

The Darwinian forces of evolution favor not the fittest species, but the most adaptable. Prognosticators predicting the demise of the smallest distributors, often pegged as earning $5 million to $15 million annually, would do well to keep this in mind. There are several “doom and gloom” arguments against the underdogs: Faced with the need to invest $1 million or more in digital capabilities, small distributors will sell out if they can, or simply cease doing business. Or, the big guys will put their boot on the throat of unscaled and unsophisticated small guys, leveraging scale and winning on logistics, e-commerce, and artificial intelligence.

I refuse to make predictions, particularly the dark-side kind, about the disappearance of one type of business or another. When faced with an existential threat, businesses respond by making incremental adjustments, experimenting, and buying time until the dust settles, and fast-moving markets stabilize. I take my inspiration from Dr. Ian Malcolm, the fictional chaos theorist played by Jeff Goldblum in Steven Spielberg’s Jurassic Park. Discussing the impossible resurgence of genetically engineered dinosaurs, Malcolm argues that survival happens simply because “life finds a way.”

In this Quick Take, I offer three scenarios for the survival of small distributors, based on my experience and ideas—not supported by customer research, financial analysis, or economic theory. I offer thin gruel, but truth be told, no thinner than those that argue: “It’s obvious, right? Small distributors are doomed, just like the dinosaurs!”

Scenario one: Oversimplification of customer migration

It’s easy to find statistics touting the dominance of online selling in B2B markets. Customers want e-commerce, right? And the shift to online buying accelerated massively during the pandemic. It’s only a matter of time. Small distributors can’t hope to match the online capabilities of their massive masters, including Amazon Business, and so will go out of business. Except they haven’t.

Online sourcing options for business customers are not new and are offered by marketplace platforms and many distributors (Grainger, for example). Switching is easy, multiple options exist, and prices are fair, if not rock-bottom low. So why haven’t customers switched? What are they waiting for?

Scenario two: Oops, Home Depot didn’t put small guys out of business after all

Back when The Home Depot was opening stores at a frenetic pace, the conventional wisdom was that the giant retailer was growing by putting small hardware competitors out of business. Except it wasn’t. A definitive study emerged, demonstrating that medium-sized competitors were the victims of Home Depot’s share gains. (I’ve lost my copy of the research, but still googling.)

Medium-sized competitors were in trouble because they were neither fish nor fowl. Lacking the scale of Home Depot, they were outcompeted on logistical efficiency, marketing savvy, and especially, the ability to wring price concessions from suppliers. Medium-sized distributors with a worthwhile base of customers rushed into the arms of large acquisitive competitors. Or they went bankrupt.

Small competitors survived the onslaught. They had already learned how to compete as hyper-local businesses, with intimate and personal customer relationships, on just the right corner or perfect part of town. When Home Depot came along, they were ready. I suspect that today’s small and supposedly vulnerable distributors are more resilient than the prognosticating elite allow.

Scenario three: Solopreneurs with a tech stack

I have heard reports of a new small-distributor business model founded by entrepreneurs with a deep passion for a particular industry or customer need. Examples include food service, gas and welding, and safety. These business innovators hate corporate life for its worker-bee, drone-like jobs. They want to generate wealth—maybe not at the Oprah level, but enough to thrive. Mostly, they want control over their destiny.

As next-generation solopreneurs, they are hyper-savvy about digital technologies, but not of the kinds associated with e-commerce platforms and artificial intelligence. Instead, they operate with no (or very limited) payrolls. They leverage a tech stack with easy automation right-sized for every small business need—finance, accounting, customer relationship management, inventory management, customer support, and more. Gig workers and fractional support are tasked instead of full-time employees. And surprise, surprise, at top-line revenue as low as $5 million, solopreneurs are likely to earn a very attractive bottom line, supporting their life ambitions and personal commitments.

Your take

My scenarios for the survival of the smallest are hypotheses. I’m looking for facts, stories, arguments, and introductions. What is your take? Should we chat? Can you share examples? I believe the smallest competitors deserve the largest respect, and I am happy to advance their cause if I can. Please share your comments below or reach me at mark.dancer@n4bi.com.