Too small to succeed…..?

So that’s that then. Tesco isn’t. Too big to fail that is. Britain’s mightiest retail steamroller has finally come a cropper according to its recent trading figures. Big helpings of schadenfreude all round. Furthermore one of their senior executives managed to (legitimately) offload a batch of shares just prior to the announcement being made and the double digit percentage drop in the Tesco share price that followed. You can almost feel sorry for CEO Philip Clarke. Following a retail superstar like Sir Terry Leahy was never going to be easy, although I suspect he is paid enough not to need our sympathy.

We can ponder endlessly as to what this means for retail as an industry and the British economy in general. However from a company perspective, logic dictated that it had to happen eventually. When you are so dominant in a market place, unless you are a virtual monopoly, there comes a time when real growth is just not possible.

Sooner or later bigger companies start to believe they can no longer achieve significant organic growth. That is normally when they start looking at cost cutting exercises and/or acquisitions and/or overseas expansion. Good news for executives, corporate finance advisors and travel agents. Often not such good news for shareholders and employees.

Unless they are in a really niche market, smaller businesses, whatever the economic climate, will always have an opportunity to grow organically. Moving from say 5% market share to 6% market share (i.e 20% growth) is much easier that moving from, say, 30% to 36%. When you only have a minute share of a market the potential is always there to grab more be it through innovation, aggressive selling or weak competition. Of course growth targets must include profit and cash as well as market share but fundamentally the principle is sound.

Too many smaller businesses get into the habit of thinking themselves small. It’s too difficult to grow in this market place. I need this or that or the other. The competition is too tough for us. Tesco have just proved that you can never be too big to fail. Maybe that will convince these smaller businesses to stop thinking that they are too small to succeed.

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