The New Technology Ecosystem That Will Power Small Business

In 1937, a young economist named Ronald Coase took on a big question:  Why do firms exist?  While seemingly obvious, economists at the time had no explanation for why businesses would maintain resources instead of just acquiring them when needed.

The answer he came up with was simple, but powerful. Coase pointed out that greater resources led to greater access to information and lower transaction costs. Therefore, as a business grew, it  would become more competitive.

In the past, technology increased advantages to scale.  Big businesses could afford sophisticated ERP systems while small businesses shuffled papers or had hodgepodge of software that didn’t work together.  Now, that’s changing and an entire ecosystem is emerging in the cloud that is giving small businesses the capabilities of big ones.

A Rescue On The Cheap

In the TV reality series, Bar Rescue, host Jon Taffer arrives at a struggling establishment and immediately declares that it’s the worst he’s ever seen.  The place is dirty, the food rancid and the staff untrained.  When the owners protest, he positively explodes.  “I don’t embrace excuses, I embrace solutions” and then gets to work.

During the next five days, he conducts a complete overhaul, bringing in a chef to change the menu, a top-notch mixologist to train the bar staff and a complete renovation of the space.  Yet amidst all the activity, one improvement seems to always work its way in—he bequeaths the owner with a top notch POS system from one of his friends in the industry.

While the other improvements Taffer makes are real, the POS system makes them all work.  The waitstaff no longer has to yell into the kitchen or pass tabs of paper that get lost, ticket times are reduced, orders don’t get lost and everyone is happy.  It seems that if only the owner had invested in a POS system earlier, many problems could have been avoided.

Yet, the truth is that nobody needs a big shot to get them a fancy POS system anymore. You can download apps like Intuit POS, Square Register or a clever startup like Leaf, add a few cheap mobile devices and get the same functionality for a fraction of the what a comparable system used to cost.

Managing Float

Staying with the reality show theme for a moment, anyone familiar with the genre will notice that there are quite a few focused on real estate.  With rents high and interest rates low, buying houses has become an attractive investment.  The only problem, of course, is that now you have to chase tenants for rent any month.

SparkRent offers a simple solution.  For a $1 transaction fee, you can automate the process.  Tenants pay online, the money goes directly to your bank and you receive a notification.  The system also lets you monitor status and send reminders when payments are due, as if you were a professional real estate management company with a big system.

Bill.com provides a similar service for small businesses, who have lots of payments going back and forth.  This is a much bigger problem because if you don’t keep track of receivables, you can see your income siphoned away in the form of 0% interest loans to your customers.

Large corporations have long been aware of how crucial it is to “manage your float”—keeping your accounts receivable in line with your accounts payable—and have large accounting departments and sophisticated systems to optimize the process.  Yet now the technology is getting so cheap and simple that Mom and Pop shops can do the same.

Staying In The Front Room By Automating The Backroom

Nobody goes into business to shuffle papers, but go to just about any small business and you’ll notice a small desk somewhere piled high with forms and notes.  Work orders, time sheets and other process oriented tasks can take up an inordinate amount of time and effort.  Yet these chores as well can now be automated cheaply and easily.

TSheets takes a lot of the work out of managing employees by allowing employees to enter their time through a mobile app (and can verify through GPS, whether they are where they say they are).  Mavenlink goes even further by offering a project management system that lets you prepare estimates, track tasks, manage budgets and even send invoices.

What makes all this stuff so useful is that they are not stand-alone applications, but can be integrated with other technology.  When Apple launched the App store, it created an entire ecosystem where just about anybody with an idea can  harness the power of smartphones.  Intuit is now creating a similar environment around QuickBooks.

How To Build An Ecosystem

By this time, just about everybody has downloaded an app to their smartphone.  You just go to the app store, click on what you need and in a minute or two your device has been transformed.  Intuit is now applying the same principle to Apps.com, which allows just about any small business application to integrate seamlessly with QuickBooks.

Ronny Tey, a Group Marketing Manager at Intuit  says that the company’s aim is to become the “global operating system behind small business success” and stressed three principles which are essential to achieving that goal:

Radically Open:  The first principle of the QuickBooks ecosystem is that outside developers have as much access to SDK’s and API’s that internal developers do, so that they can build the best products possible.

That doesn’t mean that Intuit doesn’t develop its own apps where it sees an opportunity—SparkRent is one example—but it does mean that independent developers aren’t handicapped in any way.

An Even Playing Field:  All developers on Apps.com get the same chance to be featured, so a key partner like Salesforce.com has no built-in advantage over a kid hacking away in his bedroom.

Partnership Approach:  When an app proves successful, Intuit will help it build its business through forming a partnership.  Intuit partners get access to marketing support, which will help them reach the right customers through co-marketing efforts and promotional space within the QuickBooks software itself.

While not as flashy as an iPhone or as technologically sophisticated as IBM’s Watson, the potential of the QuickBooks ecosystem should not be underestimated.  The SBA estimates that the 23 million small businesses in America generate 54% of all U.S. sales, so even a relatively small improvement in efficiency could have a very large impact.

Yet even more importantly, as small businesses increase their access to powerful technology, they are overturning Coase’s key insight about the benefits of large firms.  As information advantages diminish, the key competitive assets are passion and purpose, rather than scale and access.

– Greg