Imagine two groceries stores. One is in a small town of a population of 1000 people and it is the only grocery store within a 30 mile radius. The other one is in the middle of a larger city, and there are 100,000 people living with a 20 mile radius of the store, and there are three other competing grocery stores in that radius. Let’s say for the sake of this example that both stores have the same profit margin on all goods sold, say 3%. Pop quiz, which one would you like to own?
For years, the causes of income disparity between businesses have been debated. Everything from the quality of ideas, products, and employees/management have been argued as the main reason why some business succeed and grow into multinational firms, and why others stay small or fail altogether.
What I would argue is a more simple answer for the disparity: market size. Take the grocery store example above (yes there was a reason why I made you go through that). While the small town grocery store is the only store in town, it can only catch a fraction of 1000 people’s income. The store in the big city, while competing with three other stores, has the potential to catch a fraction of 100,000 people’s income. Both stores may offer the same goods, sales promotions, and services. But just the fact that there are more people in the larger store’s market greatly increases its income compared to the smaller store, and with that higher income comes the likelihood of expansion.
How does this apply to today’s small businesses? Once you have your products down and you’ve secured quality employees, the only thing stopping your business from high growth is your market size. But how do you achieve a large market size?
The key today is the internet. Outside the already established firms, most successful new businesses have promoted themselves through social media marketing and networking. Compared to other types of marketing, the internet cheaply allows you to access thousands of potential customers. And while a larger pool of potential customers doesn’t guarantee growth in sales (customer demand usually dictates that), it does give you a greater chance of reaching that next level of business.