Commentary: For explosive growth, look to these two models of business

Commentary: For explosive growth, look to these two models of business

We need to reframe the conversation about SMEs and make sure we’re deploying the right sorts of support and incentives in our economy to help these gazelles grow, says one business observer.

office workers at work
Office professionals at work. (File photo: Unsplash/Mimi Thian)

SINGAPORE: It is time for us to rethink how we define “small business”.

In Singapore, small-and medium-sized enterprises (SMEs) have become synonymous with family-run hawker stalls, provision shops and cafes - businesses that we’ve celebrated as a source of optimism and part of the social fabric of the country.

However, what defines a successful small business today, particularly one that is an engine of sustainable job growth, is something entirely different from romaticised images of the past.

THE RISE OF THE SMALL BUSINESS

Most of our beliefs about SMEs stems from MIT researcher David Birch’s book The Job Generation Process. Decades ago, the seminal study disproved the once-unassailable notion that large firms were at the heart of the American economy.

From 1969 to 1976, Birch wrote, companies with 100 or fewer employees had created more than 80 per cent of all new employment. This was shocking information at a time when large corporations were king.

The study reverberated across Asia, including Singapore. Industry champions and policymakers woke up to the fact that small businesses compose well over 90 per cent of the economy and were responsible for a huge number of jobs created each year.

But this monolithic view of small business persists today. As technology transforms our economy, why do we still put corner cafes and the software start-ups in the same category? That’s how many mainstream experts still count SMEs in this era of smartphones, cloud computing, and online marketplaces.

cat cafe
A cat cafe in Singapore.

Business looks very different in 2018 than it did when Birch wrote his pioneering paper. For one, we’re doing a lot more of it online, in real-time and on smaller screens.

As someone at a company that works with millions of businesses around the world, including many high-growth start-ups, I see two emerging business models that are proving to be engines of explosive growth and have the potential to be game changers.

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MARKETPLACES AND ENABLERS

Marketplaces connect individuals - usually buyers and sellers - to each other. Enablers are companies that provide the technology and infrastructure that enable small businesses to scale up their business, or in the case of traditional offline businesses, take their business online.

These two models are creating new jobs using technology, and are enabling traditional businesses to tap into the Internet economy and reach new markets.

Much has been written about ride-sharing companies like Grab, e-commerce marketplaces like Amazon and online travel businesses like Airbnb, that match demand with supply.

Uber app
File photo of a person using the Grab app. (Photo: AFP/Mohd Fyrol)

But outside of these large tech platforms, a host of smaller marketplaces are cropping up in local markets and niche industries. These businesses get-to-market quickly and help their sellers and service providers, many of whom are often traditional organisations and SMEs, solve old problems.

Examples include Chope, a restaurant booking service that also shares special deals and offers with users; Giving.sg, a platform that enables donations to charities from interested donors; and Homage, a marketplace that helps Singaporeans find, hire and pay caregivers for the elderly.

Then, we have the enablers. These upstarts provide technology infrastructure and tools so that traditional SMEs can get going quicker and compete with much larger, entrenched market players.

TradeGecko, for example, provides software that helps e-commerce and wholesale businesses manage their inventory. HReasily offers companies a suite of HR tools from payroll to claim applications and leave management, and Xero makes accounting easier for businesses around the world with their cloud-based accounting software.

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HOOK ONTO A GAZELLE

In reality, all businesses start small but not all small businesses are the same. Going back to Professor Birch shows us why we should bet on these high-growth SMEs.

In 1994, realising that he had lumped SMEs of all ages and maturities together, he revised his thesis. In isolating the job-creating companies that we know today as start-ups, Birch called them “gazelles” — not because of their small size, but because of their expansionary quality; their sales doubled every four years.

By his estimates, these firms, roughly 4 per cent of all US companies, were responsible for 70 per cent of all jobs. Likewise in Singapore, start-ups defined to be up to 5 years old provided 24,300 jobs last year.

Singapore startup Glints matches young adults to internships and job opportunities
Founded by three young Singaporeans, tech start-up Glints aims to match young adults to internships and permanent employment opportunities. (Photo: Glints)

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We need to reframe the conversation about SMEs and make sure we’re deploying the right sorts of support and incentives in our economy to help these gazelles grow, thrive and create jobs.

Already, Singapore has been the home base for unicorns like Garena (now known as Sea), Razer, Lazada and Grab, and the start-up ecosystem was ranked 12th in the world overall and first for talent in the Genome Start-up Ecosystem Report.

Through long-term government programmes such as Block 71 and SMEs Go Digital, Singapore is already ahead of the curve when it comes to creating an environment in which gazelles can thrive.

Redefining what small business means could redefine how new jobs are created and sustained for years to come. I think that’s reason for optimism.

Piruze Sabuncu is the Head of Southeast Asia and Hong Kong at Stripe. 

Source: CNA/sl

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