Secret Behind Small Business Success

The Surprising Secret Behind Small Business Success

More entrepreneurs than ever will open small businesses in 2014. According to a recent report from the Global Entrepreneurship Monitor, early-stage entrepreneurial activity is the highest it’s been since the group began conducting research in 1999. Most won’t survive—one-third will still be around in a decade, according to a 2011 SBA report.

What does it take to survive? Aside from manic drive, moxie, hard work, creativity and luck … maybe a sense of connectedness to a community, local or more global.

Green Flash Brewing Co. of San Diego is a small team that creates distinctive beers sold to restaurants and bars all over the country. It’s a bit of a regional oddball. When Radius pulled data for our list of The 12 Best Cities To Launch A Startup in 2014, we looked at the proportion of the small businesses to all businesses, city by city. San Diego ranked dead last on this measure. It’s a place, after all, where you’re more likely to find a bio-med center than a craft brewery. But San Diego is also a spot where entrepreneurs can thrive because the place is so well-connected in other ways—in the prevalence of small businesses with Facebook pages, credit card acceptance, and online peer reviews that make reputations matters of public record. Social media has helped this brewer build a relationship with its customers locally and nationally.

In San Jose, Calif., Blackbird Tavern is a local restaurant, bar, gallery, and hub of creative nightlife in the center of Silicon Valley. It’s thriving—which is odd, considering it’s the latest tenant in a building that’s turned out a string of failed tenants after its original owner was forced to close shop after the tech bubble burst in 2001. Why? A restaurant that sources local coffee and spirits and features work from local artists, Blackbird Tavern aims to be a “third space,” a concept coined by urban sociologist Ray Oldenberg to define our social surroundings separate from home and work.

In New York City, home of the dwindling book publishing industry, now down to a mighty six houses, comes a startup called Oyster. It borrows the subscription model that has succeeded in online listening (Pandora and Spotify) and online watching (Netflix NFLX -1.32% and Hulu), and makes it available for e-reading. Oyster customers pay monthly fees for unlimited access to over 100,000 books–available anywhere a customer can download the Oyster app. New York, of course, is full of small businesses that bring a technology edge to traditional industries. A delicious irony: Oyster’s model is a throwback to 19th century subscription libraries.

Her Campus Media is competing in one of the most crowded and pre-eminent academic capitals of the world—Boston. An online publication, Her Campus Media is written by women college journalists for “career-minded, distinctly fashionable, socially connected, academically driven, and smartly health-conscious” young women. While most stories read more like Glamourmagazine than Great Expectations, the site has a pleasing mix of controversial topics, popular culture and career advice—reaching out to college chapters around the country.

In Austin, Tex., Vital Farms is a clear alternative to the poultry conglomerates and the environmental depredation of fecal-dense coops. A network of 40 small family organic farmers, Vital Farms is the nation’s largest producer of eggs produced by hens raised in pastures, not cages, and counts Whole Foods Market WFM +0.19% (its Texas neighbor) among its largest customers. Vital Farms started out in 2007 as a local operation with a few dozen hens; now the eggs are available across the country – finding people who care increasingly about the sourcing of their food.

It wasn’t that long ago that Seattle’s Ranier Avenue was a series of uninhabited buildings in the crime-ridden neighborhood of Columbia City. Then La Medusa opened in 1997. Serving Sicilian dishes made from locally-sourced ingredients, it was one of the first of a string of small businesses, like Tutta Bella Neapolitan Pizzeria, to move on the block. Today the restaurant rubs elbows with weekend brunch hotspots and artisan bakeries–a transformation that hints at a community-oriented small business’s power to pave the way for more small businesses.

Panic was one of the first tech startups in Portland, Ore. Setting up shop in 1998, with a shareware program called Transmit, Panic has continued to develop apps (including Web editing, usenet, status boards and cryptographic network protocols) for Apple AAPL -1.12% devices. The company survived the dot-com bust, and thrived. But it also helped pave the way for a tech renaissance in Portland—a place, our data at Radius shows, where each technology job creates four additional jobs.

It can even happen in Vegas. Madrivo is an integrated marketing agency that helps companies acquire customers digitally, offering heat maps, performance metrics, price sensitivity data and the like. Growing at 400% year over year, it is an example, too, of how the gaming capital of the U.S. is transforming itself into a vibrant technology hub – and how one small business can help impact an entire city.

Why Small Business Communities Grow In Clusters

Retail Organic Food Business, Largest Organic Retailers

Against All Odds — Launching A Retail Organic Foods Business

The dramatic rise in sales of organic foods and beverages from $1 billion in 1990 to $26 billion in 2013 has encouraged many aspiring entrepreneurs to start organic or natural foods businesses. The fact is it is relatively easy to start selling a natural foods product on line or from your own storefront—all you need is a brand name, a website, source of supply from a local farm, a location, and a Paypal account. In other words, you can start your natural foods business with a relatively small up-front investment.

But, because the entry barriers are low, this means there is a high likelihood that the business will discontinue or fail within the first 5 years. More than 47% of retail based businesses fail within the first 5 years, while on line retail businesses have an even higher rate of failure. So how do natural foods businesses carve out a niche and overcome the odds that allows them to sustain over time?

One of the keys is a differentiation strategy that has a clear value proposition. In other words, making sure that the benefits natural foods business provides is crystal clear to the consumer and differentiated from local competition. In many cases, the benefits and differentiation of successful ventures in this space have to do with a commitment to social purpose. My colleagues and I identify a “social purpose business” as one that is for profit (economic mission) and makes a social impact on the marketplace (Neck, Brush & Allen, 2009, The Landscape of Social Entrepreneurship, BusinessHorizons). I have observed that many of the new start- ups in the organic food retail sector are not only offering a new organic food alternative, but a founded on a principle of changing our life style to be healthier. This commitment to a larger societal mission drives these businesses, differentiating the venture and attracting a loyal customer base.

For instance, I had the pleasure of meeting Kiki Heinzer, a Stanford alumna and Jodi Remenap, a private chef, who launched KLEAN, a premium meal delivery service for the purpose of weight loss, weight management and nutrition, located in Hollywood, Calif.

The business was inspired by Kiki and Jodi’s concern with the growing problem of obesity in our society, which, they believe is related to lifestyle, demand for convenience, and a rise in the use of GMOs, additives and preservatives in our food chain. KLEAN delivers proportioned meals that are macronutrient balanced to subscribers six days a week. They spend as much time assessing the proportion of ingredients and the food groups in the meals as they do sourcing, cooking and preparing. Most important- they have not compromised flavors in any way. Customers get fabulous meals delivered conveniently and they lose weight and improve their overall health.

Another example is NatureBox, co-founded by Gautam Gupta, a former venture capitalist and Babson alum, and Ken Chen, an internet marketing entrepreneur. The NatureBox team was also motivated to help change eating habits and solve hunger problems. NatureBox delivers their own brand of healthy snacks made from minimally processed and wholesome ingredients. They donate a portion of their profits to provide free meals to the hungry through national food banks and community based organizations.

Then there is Mission Root, founded by Soham Patel and Barr Hogan, a company dedicated to providing Ayurvedic beverages to detoxify and boost your immune system. Mission Root provides an array of beverages which can be purchased in retail stores. Like KLEAN and Nature Box, the founders are dedicated to solving problems of hunger and nutrition, donating 5% of their profits to Akshaya Patra, a school meal program.

The theme is clear. Entrepreneurs able to overcome the odds in the rapidly growing retail organic foods sector have more than an organic product. They have a commitment to changing society.

Top 5 Largest Organic Retailers in North America

1. Wall-Mart

Wal-Mart serves more than 200 million annual consumers, through more than 8,446 retail units. The company continually has outstanding financial success, with fiscal year 2010 sales estimated at $405 billion.

People are divided about Wal-Mart’s waltz into organics. They’ve been accused of improper organic product labeling and of sourcing low-integrity organics from factory farms and Third World countries.

NPR notes that Wal-Mart may deserve a chance due to their current partnerships with local farmers. Plus, the sheer size of Wal-Mart allows them to lower organic food costs for consumers. With their world-wide reach, Wal-Mart has the potential to create significant positive change in the organic market if they play their cards ethically

2. Whole Foods Market

Whole Foods Market arguably offers more organics than any other large retailer. Thousands of organic items, including private-label organic products are offered at Whole Foods and sales are estimated at 8.0 billion for 2010. The company employs 54,000 team members and runs more than 270 stores in North America and the UK.

A recent consumer survey by World Society for the Protection of Animals (WSPA) voted Whole Foods the most “Humane” grocer. However, the company is involved in the controversial sourcing of organics from China and many consumers joke about Whole Foods’ “Whole Paycheck” costs. Whole Foods will need to continue to step up their game if they want to keep hold of their successful organic retail standing.

3. Trader Joe’s

Trader Joe’s is an anomaly in the organic market because they don’t market organics products specifically, but rather, “Innovative, hard-to-find, great-tasting food” products at a reasonable price. With estimated sales of 8.0 billion, Trader Joe’s offers upscale grocery fare, including a popular private-label brand, in 325 stores across 25 states.

Organic advocates note that Trader Joe’s needs to step up and provide greater transparency about their organic food sources. They’ve been accused of carrying factory farmed organic milk vs. real organic milk. Still, Trader Joe’s scored the No. 3 spot in a 2007 ImagePower Green Brands Survey. Trader Joe’s friendly customer service and admirable prices will likely bring consumers back, no matter the organic issues they face.

4. Safeway

Safeway is one of the largest U.S. food retailers and sold 40.8 billion in 2009. The company operates 1,712 Safeway stores, along with many regional supermarket companies and employs more than 186,000 full and part-time employees.

O ORGANICS is a private-label Safeway organics line that launched in 2005.O ORGANICS includes more than 300 certified organic food items such as milk, chicken, salads, juices and entrees.

Safeway is far from perfect though. For example, Safeway often has little organic produce available and has been accused of carrying factory farmed organic dairy products. Still, Safeway’s growth in organics is steady and O ORGANICS is often cited by consumers as cost-effective alternative to other organics.

5. Costco

Costco revenues include sales of $69.9 billion and membership fees of $1.5 billion. The company runs some 527 stores and employs over 103,000 team members.

Costco is a top 5 organic retailer by virtue of their sales records and a wide consumer base, but it’s hard to say if consumers trust Costco organics. Costco has been accused of factory farmed milk and a hit or miss organic selection. The chain also lacks an abundance of organic produce.

Still a report by the Hartman Group notes that organic purchases are growing at club-style stores, plus Costco notes that they’re doing their organic homework. If they can infiltrate the organic market, bulk-style organic purchases do have the potential to save consumers money.