Show Me The Small Firms, Or, Why I No Longer Hate On Detroit Hipster Coffee Shops
I'll admit it, I've been a longtime critic of small-time Detroit entrepreneurs like the quintessential proprietor of a hipster coffee shop. These business owners, and those like them (e.g., food truckers, small-scale farmers, or yuppie-focused retailers), were people I often criticized because their businesses aren't disruptive. Those businesses probably won't "scale big" and they're not germinating from particularly novel ideas. I didn't think they'd really "move the needle" to make the city prosperous again, either. I actually still don't. But now, I'd like to eat my words - one micro idea that's actually executed is incalculably more valuable than a "big" idea that never makes it out of someone's notebook. Even if that micro idea is (another) **sigh** coffee shop.
For the past few months, I've read about or heard about many entrepreneurial success stories. Every big, global, value-creating company I've come across was started by a small group of people with a lot of discipline, passion, and luck. Apple didn't start off with hundreds of billions of dollars in shareholder value and neither did Starbucks. For that matter, neither did my mother's UPS Store franchise. All these business started with zero customers and dream. What they have in common is that someone actually did something to make these ideas into operating businesses. Once they were businesses in actual operation, it took a lot more work to make them profitable.
In Detroit, for a long time , I've been wishing for more people who had big ideas for companies or social enterprises. I even put a working group together to do some thinking about how to get people in Detroit to think bigger. The problem is that lots of people have big ideas (myself included) that they talk a lot about, but never do something about. Ideas that are never implemented never create any value - that's a fact*.
Let's go back to the hypothetical entrepreneur in Detroit starting a coffee shop. Say they produce one cup of coffee for one dollar and sell it for two dollars. That's one dollar of value that's created. That's one dollar more than a business with only the potential to create $1 billion (but that never gets started) will ever make. Potential doesn't pay the bills and doesn't pay wages either. What we need in Detroit is businesses that create value; so many businesses only ever amount to potential value. I no longer care if the business is a coffee shop or a software company. Profit is profit and new jobs are new jobs**.
Moreover, if all businesses started as super small companies, who knows what the small businesses in Detroit could become? Maybe someone who opens a food truck will become a farm-to-table mogul. Maybe a retailer with an innovative twist will grow their operation into the next nationwide urban department store. Who knows. The way I see it, we'll be a lot more likely to have a big hit if we have many hundreds of seemingly small new businesses instead of only having one idea with a high likelihood of making it big. We need small firms. Lots of 'em.
Of course, I'd love it if lots of people in Detroit were starting edgy, disruptive companies left and right. I really do believe that those sorts of businesses will create more value in the long run. But maybe if we have more successful entrepreneurs - of all stripes - those entrepreneurs will help teach other entrepreneurs - of all stripes - how to make it. If we play our cards right, and mentor those who are up-and-coming, maybe we could have an entrepreneurship multiplier effect in Detroit and those people starting food trucks will help a nascent tech company get of the ground later on. I sure hope so.
Sure, for a long time I thought it was a waste of time and money to start these businesses and celebrate them as if they were "saving" the city^. You might've called me an "entrepreneurship snob", and if you did you'd be right. But I've come around. Now, if a business is actually creating value in the real world it's okay in my book, even if it's a small scale company. We can worry about launching big ideas once we have a largess of small-time entrepreneurs already crushing it on the streets of Detroit.
For what its worth, I think we can (crush it).
*- For my business school friends: Strictly speaking, you can never create value (i.e., have a difference between willingness to pay and cost) if you never produce and sell a unit, right?
** - I'm assuming here that the profit and new jobs aren't coming at the cost of some intolerable, social externality.
^ - For what it's worth, the media acting like Detroit is back because we've opened a few retail storefronts is incredibly foolish and shouldn't be what Detroit aspires to be. Why? Frankly, because I don't think that will generate a tremendous amount of wealth in the long run. But the media's savior-making habit is beyond the scope of this post.