F500 Handbook: How to Build a Fortune 500 Enterprise from Scratch (an intro)

It’s never been easier to build a F500 enterprise from scratch. This Brief describes the market dynamics that now allow for almost anyone to replicate the capabilities of a F500 company overnight. It also analyzes what the democratization of the enterprise means for the American economy. Later Briefs in this series will discuss the specific enterprise capabilities that a small business can readily take advantage of in today’s economy.

By way of background, small business already plays a significant role in the United States. There are a lot of businesses in the United States – roughly 30M – and a lot of them are small – 99.9% of those businesses have fewer than 500 employees. Small businesses also have a major impact on the economy – they employ just over half of all private sector workers and have been responsible for, depending on the estimate, between 60-80% of the past decade’s net new jobs.

While the American economy has a long history of entrepreneurship, more recently, the internet has enabled a set of powerful market forces that make it possible for even the smallest of businesses to behave like F500 enterprises. These include:

1. Capital efficiency – Yes, small businesses face greater capital constraints in the current economic climate, but they also require much less of it. This is certainly true in information or digital industries where trends such as cloud computing, online communities, and open source are driving costs down significantly. Take game development as an example. In the offline/retail world, it might take $30M to develop and market the game. In the online world, even wildly popular games like Friends for Sale require less than $1M to develop and market. By the way, capital efficiency isn’t merely a digital phenomenon. Even “offline” businesses require less capital as they source goods and services from all over the world through sites like AliBaba and Elance.
2. Application (or service) proliferation – The internet has fueled a proliferation of business applications and services that used to be exclusively available to large enterprises. Almost every back office process, from common things like payroll processing to more obscure ones such as travel & entertainment expense tracking, can be run via an online service now. And these services are proliferating at even faster rate as developers/providers move into vertical specific areas and markets such as Salesforce’s AppExchange and the iPhone Store emerge.
3. Access to expertise – Need help solving a particular business problem? No matter how obscure, the answer is probably out there. From closing the books, to developing a call center script, to sourcing a metric ton of iron ore from China, the internet provides small businesses with a deep bench of expertise that was only previously available to large enterprises. It’s like having the world’s largest bench of business consultants available on demand.
4. Modular workforce – One of the more interesting dynamics created in large part by the internet is the emergence of a massive modular (some people might call it virtual) workforce. This workforce is cost effective, specialized, and also available on demand. Say your business requires a customer service department. It can be up and running literally tomorrow. The department will be staffed by stay at home moms in Iowa, but they will be trained via an online collaboration tool, use an enterprise class call center solution, and have remote access to your systems. The same goes for most other major corporate functions.
5. Market expansion – Whether a small business has its eye on a local/regional market or the entire world, it’s never been easy to get to market. There are the obvious examples like Google AdWords which receives a lot of deserved attention for allowing small businesses to advertise effectively and efficiently. Then there are the less obvious examples such as Etsy which allow purveyors of arts and crafts to reach a global audience.

On balance, vesting small business with enterprise capabilities is a good thing for the economy, both in terms of “hard” economic concepts such as job creation, but also in terms of “soft” concepts such as innovation and efficiency. Some of the more notable soft benefits include:

1. Greater innovation – More entrepreneurs equals more innovation. Entrepreneurs are free to solve the world’s problems and meet market demands as they see fit. Innovation prospers in smaller business spaces that are unencumbered by the group think and rigid hierarchies of large corporate structures. Sure, sometimes the small business will fail, but in the aggregate, the value created by the wins will grossly outweigh the losses.
2. Efficiency wins – Markets with large numbers of participants tend to be more efficient than ones with small numbers of participants. The enterprise class small business is well suited to fill the nooks and crannies of today’s economy in an agile and efficient way. They also keep bigger players honest by moving fast to solve problems and meet demand.
3. Built for information – Small businesses are better suited to the information economy, particularly given their ability to drive greater innovation and move more efficiently. The next set of market leaders in the information economy will come from today’s small businesses – businesses with a set of F500 capabilities behind them that can spend more time on the stuff that counts (deep strategic thought) and get to market faster.
4. Economic resiliency – “Too big to fail” is a common refrain in today’s economy. A better strategy would involve something like “too many to fail”. Having a large number of smaller businesses participating in the market creates true economic resiliency – if one goes down the others fill in the gap. And with enterprise capabilities built in, each individual small business is more resilient itself.

The internet, globalization, and capital are all creating a business climate where small businesses can act like big ones. This will have a profound impact on the economy, how we conduct business, as well as who wins and loses on the global economic stage. In part 2 of this series, we'll examine how capital efficiency is helping small businesses everywhere grow more efficiently.