HOW THE INTERNET CHANGED THE WORLDMay 2013 | Feature
“The internet’s biggest impact on SMEs has been as a great leveller, making it possible for a small firm to be a global company from day one, with the reach and capabilities that once only large companies could possess,” says Charles Roxburgh, a director at the management consultancy McKinsey, which has been researching the impact of the web on the global economy.
"They can reach customers, find suppliers and tap talent on the other side of the world – and also use the internet to provide significant marketing and brand muscle.”
McKinsey's work suggests the internet has been a hugely powerful enabler for many SMEs: in a survey of more than 4,800 firms in 12 countries around the world, it found that those which use web technologies grew more than twice as quickly as those with little internet presence.
Nor are the benefits that the internet offers available only to online businesses. While the web’s development certainly has spawned thousands of new ventures that could not exist without it, many more conventional businesses are harnessing its power to grow far more quickly than they would ever have dreamed of had they launched in the preinternet world.
The interenet is now making a major contribution at every stage of the value chain, boosting productivity wherever you look. Not only has the web fundamentally changed the way products and services are sold, but it has also revolutionised development, design, production and distribution. Even the smallest businesses now operate with the sort of geographically diversified supply chains and global workforces that until these past few years would have been the preserve of large multinational corporations. There is more to come. McKinsey’s research suggests that on a global scale, the internet is now responsible for 3.4 per cent of GDP (in the UK, it says, the figure is as high as 6 per cent) but will deliver much more. Large companies are part of that story, but it is small and medium sized enterprises for which the internet presents the most exciting opportunities.
BUILDING A COMMUNITY OF CUSTOMERS: AFG MEDIA
AFG is the company behind Morphsuits, the all-in-one fancy dress costumes that have become a common sight at stag dos, fancy dress parties and special events all around the UK. Founded in 2009, AFG had revenues of £1.2m in 2010 but has grown astonishingly quickly. This year, sales total £11m and the business is now expanding internationally.
Gregor Lawson, one of the three founding directors of the company, says AFG has social media to thank for its 300 per cent year-on-year growth. “Without Facebook, we simply would not exist in the way we do today,” he explains.
With little to spend on advertising or marketing in its early days, AFG’s strategy was to build a community of customers through its Facebook page – not everyone would buy a costume straight away, Lawson reasoned, but the more they participated in the community, the more likely they would be to spend money when the occasion arose.
"People underestimate the commercial power of Facebook,” says Lawson. “For every one person who does something on our page, another nine will ‘like’ it and another 90 will see what’s been done.”
AFG is scrupulous about engaging with everyone who posts on its page – even complainers become advocates of the business if you engage with them, Lawson argues.
In addition to the ideas its Facebook users come up with – not least a remarkable number of photos of Morphsuit wearers in ridiculous poses – AFG offers plenty of proactive opportunities to engage. It organises competitions and even meet-ups – a flash mob in Trafalgar Square, for example, attracted 200 Morphsuit-wearing fans.
“People think social media is flitty,” Lawson says. “I disagree – if you’re clear about your objectives and your customers, you can deliver real commercial advantages on Facebook.” AFG’s own statistics prove the point – they have 1.1 million Facebook fans and counting. And only a small proportion of those fans need to become customers to sustain AFG’s rapid growth.
ACCESSING GLOBAL SUPPLIERS: PRIMROSE
The business model at online garden products retailer Primrose developed as a consequence of the way search engines operate. Type, ‘barbecue’ into Google and the site it delivers you to has to pay the search giant for referring you – even if it then discovers you were after a £5 disposable barbecue rather than the £300 gas-fired models it sells.
The solution, says Ian Charles, one half of the husband-and-wife team who founded Primrose in 2003 and still run it today, is to make sure you sell every barbecue the customer might possibly be interested in – or water feature, or garden bench and so on.
“We realised we needed to expand into every possible type of garden product and to offer the deepest possible range in each case – to become the Amazon of the gardens world if you like,” says Charles.
“Fortunately for us, one thing the internet has done is made the infrastructure of sourcing free – it now requires far less of an investment to find the manufacturers.”
Primrose aims to offer greater depth in any given garden product range than its suppliers and therefore needs to source huge amounts of stock in an industry where manufacturers are based all around the world – often in inaccessible, emerging market locations. For a relatively small business, the cost of such a sourcing operation would traditionally have been prohibitive, but the internet has changed that.
Much of Primrose’s sourcing is now conducted entirely online. That has enabled it to build the sort of stock range that means customers who use imprecise, generic terms when using search engines – that’s most customers – will usually find what they’re looking for at Primrose. “This sourcing has enabled us to be real product specialists in larger and larger number of ranges,” Charles adds.
It seems to be working – despite the entrance of giants such as Tesco to online garden products retailing, growth of up to 40 per cent a year has proved sustainable.
TAPPING TALENT: UNRULY MEDIA
Unruly Media makes and distributes social video campaigns for some of the world’s biggest companies, as well as many smaller businesses. It’s a business that wouldn’t exist without the internet, but for Unruly the web is also hugely valuable for back office operations such as recruitment.
“The internet opens up the passive talent pool,” says Deana Murfitt, the company’s chief people officer. “Prior to the internet there were lots of people sitting around who were ideal for the kind of jobs we recruit for, but there was no way of getting at them.”
Thanks to sites such as LinkedIn, Murfitt explains, Unruly has effectively been able to transform part of its human resources team into an “in-house head-hunter”. For the majority of roles for which the company recruits, the process is to identify the skills and experience needed and then to scour LinkedIn and other talent databases for candidates who might be suitable.
One obvious advantage is hugely reduced spending on recruitment agencies, but “our approach is about the quality of candidates sourced as well as the expense of finding them”, Murfitt adds. By cutting out intermediaries such as recruitment agencies, Unruly can be sure it targets only those people with the exact skillsets for the roles it is looking to fill.
Tapping talent in this way has other advantages too. “This is extra helpful for us, and for all small businesses, because the brand may not yet be recognised in the marketplace,” Murfitt says. “If you can build up your online profile, by building up lots of collateral around the type of employer you are, the kind of culture you have and the values you look for in people, you can build up your profile and reach out to passive candidates over the internet.”
Unruly has been so pleased with the results of its internet networking that it now offers staff a bonus if they are refer successful candidates for jobs. Murfitt explains: “It’s like an ecosystem of connected people who are all interfacing across the internet to try to find the right person for the role.”
BUILDING A BRAND: BROADBANDCHOICES.CO.UK
As viewers of daytime television will know, brand is everything in the price comparison business – several competing personal finance sites have spent a fortune on advertising in an attempt to build it. In the home broadband sector, however, Broadbandchoices.co.uk has chosen to set out its stall a little differently.
“In a business-to-consumer market like ours, brand is really important but the proposition has to be absolutely right too,” says Michael Phillips, the managing director of Decision Technologies, the owner of Broadbandchoices.co.uk. “We’ve spent a great deal of time building an engine that has every tariff in the marketplace – nobody lists as many packages as we do, so nobody can claim our level of expertise.”
Since launching in 2005, the company has worked especially hard on its user interface, directing customers to an extensive list of potential broadband deals and then using a succession of filters to narrow down the choice. In a market that isn’t entirely commoditised – people are looking for different speeds, for example, or to bundle their broadband with TV and a phone service – this is crucial to the customer experience.
“Broadband is getting more complicated all the time,” Phillips adds. “Our job is to help people prioritise the variables in order to make the right choice for them.”
The business has, in other words, used the power of its technology to build a brand that is based on quality rather than ubiquity. And it is now in the process of doing the same thing in international markets such as Spain, France and Germany.
The great thing about the internet, however, is that once your brand value is established, ubiquity follows more quickly than ever before. “What’s really exciting is that in the broadband price comparison market there has been no definite brand leadership established yet and that’s a huge opportunity,” Phillips says.
ACHIEVING GLOBAL REACH: WORKSHARE
For Workshare, the internet has delivered global scale in a remarkably short space of time. Founded in 2009, Workshare provides businesses with a highly secure cloud-based document management service that enables users to share files with colleagues and clients of their choosing. Those files can be accessed via PC, laptop, tablet or smartphone and worked on by any user granted the right access privileges – the system also tracks all changes made to documents. Workshare targets markets such as legal services and financial services, where there’s a high concentration of skilled and mobile workers operating in a regulated and sensitive environment. Other examples include the pharmaceuticals industry, as well as government services.
Ordinarily, it would take years to build trusted relationships with such businesses and even longer to achieve critical mass. But not for Workshare – while it has only a handful of overseas offices, it already has hundreds of customers in 65 countries all around the world.
Anthony Foy, the company’s chief executive, says that in addition to the right product offering, it is the viral distribution model on the internet that has enabled Workshare to achieve such reach so quickly.
“Every one client that subscribes to our service typically invites five others to join them – and every one of those five then invites three more contacts of their own” he says. “We haven’t got round to tracking what those three contacts do yet, but you can see how the maths works for us.”
Clearly, the numbers begin to add up very quickly, and have already done so for Workshare. But Foy believes there is plenty more growth to come – “we’re nowhere near the point yet where we run short of potential new clients,” he says. Independent research from Gartner supports that view – it thinks this market niche will be worth $8bn by 2014.