Economies of Unscale: Why Business Has Never Been Easier for the Little Guy
October 3, 2013 Editor 0
The American worker just can’t seem to get a break. Automation is wiping out whole job categories, from cashiers to machine-builders, while pressures from globalization, trade, and new Internet-driven business models have disrupted industries and displaced hundreds of thousands of workers. And the prescribed solution — education — is becoming increasingly unaffordable for most Americans.
But the tide is about to turn. A series of breakthrough technologies and new business models are destroying the old rule that bigger is better. By exploiting the vast (but cheap) audience afforded by the Internet, and taking advantage of a host of modular services, small becomes the new big. The global business environment is decomposing into smaller yet more profitable markets, so businesses can no longer rely on scaling up to compete, but must instead embrace a new economies of unscale.
Unscaling has emerged over decades. FedEx offered overnight delivery services in the 1970s, letting anyone ship a product anywhere, fast, at a modest cost. Around the same time, Chinese companies like Foxconn were developing less expensive approaches to manufacturing, and opening those facilities up to product designers across the globe. These two changes alone allow a lone innovator in Austin to build a world class product in China and ship it to Berlin — and that’s a revolution for someone with a good idea.
Two decades later, Amazon and eBay launched online marketplaces that allowed small businesses to sell their goods to global consumers, creating enormous marketing power even for the little guy. However, like an orchestra missing several of its musicians, these platforms did not offer the complete ensemble needed for small businesses to compete effectively.
That has now changed. New platforms abound: Facebook and Twitter for social marketing, YouTube for video distribution, and iPhone and Android for mobile. Payment processing was once a legal and financial nightmare, but today companies like Stripe and Square have made it simple for anyone.
Using such tools, companies that embrace economies of unscale compete with far larger competitors. Warby Parker offers prescription eyeglasses over the Internet at $99 a pair in dozens of attractive styles. They leverage a whole range of services — from the logistics of parcel carriers like UPS to customer analytics software and social media marketing — to build a new business with extremely high customer satisfaction rates. With only a couple dozen employees, they have taken on the world’s largest manufacturer and seller of glasses, Luxottica, which last year had a market cap greater than $13 billion.
Airbnb empowers homeowners to rent out their extra bedrooms to visitors from around the world through the Internet. The company buys services like payment processing, mobile interfaces, and social media to create its own marketplace, and today it competes with some of the largest hotel chains in the world. In just five years, the company now has 300,000 listings and 4 million renters.
Such unscaling is transforming the non-profit sector. Khan Academy, which offers thousands of lessons on almost any educational topic, employs YouTube for video distribution, uses new social collaboration tools, and uses advanced analytics to understand how students learn and refine its offerings accordingly. Khan receives millions of unique viewers every month and is transforming the way we think of education.
These new economies of unscale will be good for job growth, because they open up thousands of new market niches for exploitation. By buying specialized services, in customized form and at modest cost, companies can create unique products, find buyers from across the world, and secure profits. It doesn’t matter if a designer wants to build polka dot bird feeders — there is a hyper-niche market they can tap, using platforms like Etsy to sell it across the world. To succeed though, we first have to unlearn what we have been taught about business: We have to think in an unscaled mindset, where the emphasis is on a greater number of specialized products sold to customers who know exactly what they need. How we train our students for this world will be critical to securing their future employment.
It has been a tough few years for workers in the United States. But in a world with economies of unscale, we are empowered to take advantage of an extensive array of new, amazing services to build sustainable companies. The coming world is a world of fragmented niches, many with immense profit potential, as we start to discover products that better meet the needs of this varied world. Finally, the American worker is about to get a break.
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