Why You Shouldn’t Mimic the Business Model of Large Corporations

When you’re running a business, it’s tempting to look at the success of large corporations and try to emulate their strategies. After all, they’re established, profitable, and have well-oiled systems in place. However, the reality is that the business model for SMEs (Over 97% of businesses in Australia) differs significantly from that of large corporations. Trying to mirror their methods can often backfire due to differences in resources, agility, and decision-making processes.

That doesn’t mean you can’t take lessons from what they do. You absolutely should observe and seek to understand their models, even cherry-pick the bits you can use. However, for SMEs, it is better to build a business model suited to your size and needs rather than adopting the blueprint of a much larger enterprise.

In this article we explore key aspects that make SMEs business models differ from large corporations.

First, let’s refresh our minds about what a business model is.

What is a Business Model?

A business model is essentially the blueprint of how a company creates, delivers, and captures value. It outlines the core aspects of a business, including the target customer base, products or services offered, revenue streams, and operational processes. In simpler terms, it’s the strategic plan that guides a business’s day-to-day activities and long-term goals. For SMEs, having a clear business model is crucial as it provides direction, helps identify key opportunities, and ensures that resources are aligned to achieve sustainable growth. Without a well-defined business model, it’s easy for a business to lose focus or miss out on potential avenues for success.

Read: 10 key elements of a Business Model

Scale and Focus: Bigger Isn’t Always Better

One of the most obvious differences between large corporations and small businesses is the sheer scale of operations.

• Large Corporations: These organisations typically operate on a global scale, selling a wide range of products or services across multiple markets. They rely on economies of scale, meaning they can reduce their costs by producing in bulk. Their scope allows them to dominate their sectors and spread risks across various markets.
• Small Businesses: On the other hand, small businesses usually target a niche market. This focus allows for more personal service and a closer understanding of customer needs. SMEs also have the significant benefit of agility. Unlike large corporations, they can pivot quickly to respond to market changes, which can be a huge advantage in a competitive landscape.

Why SMEs Shouldn’t Follow: If a small business tries to diversify too early or too broadly, it risks spreading its resources too thin. Focusing on a narrow target market often leads to stronger brand recognition and customer loyalty, which are crucial for small businesses.

Risk Appetite: Keeping It Balanced

Risk management strategies vary considerably between large corporations and small businesses.

• Large Corporations: Due to their significant financial reserves and diversified operations, large corporations can afford to take on more risks. They may invest in large-scale R&D projects, technology, and even acquisitions that carry significant risk but offer the potential for substantial rewards.
• Small Businesses: SMEs, with fewer financial resources, tend to have a much lower risk tolerance. A single bad decision could severely impact cash flow or even lead to closure. As a result, small business owners focus on stability and cautious growth.

Why SMEs Shouldn’t Follow: Adopting the aggressive risk-taking strategies of large corporations can endanger small businesses. SMEs should focus on maintaining healthy cash flow and incremental growth rather than high-stakes investments.

Learn how BridgePoint Group can help you define a sustainable Business Model.

Decision-Making: Flexibility vs. Bureaucracy

Decision-making in small businesses and large corporations couldn’t be more different.

• Large Corporations: With many layers of management, decision-making is often slow and bureaucratic. This ensures compliance and consistency but can lead to missed opportunities due to slow response times.
• Small Businesses: In contrast, SMEs often have flat organisational structures. Decision-making is faster, with fewer layers between the leadership and the frontlines. Small businesses can adapt quickly to changing market conditions, which is essential for their survival.

Why SMEs Shouldn’t Follow: Adopting the hierarchical decision-making processes of large corporations can stifle a small business’s agility. SMEs should embrace their ability to make swift decisions, which can give them a competitive edge.

Marketing: Personalisation Over Mass Appeal

Marketing approaches for large corporations and small businesses are worlds apart.

• Large Corporations: These companies have vast marketing budgets. They focus on large-scale advertising, global branding, and extensive public relations campaigns to reach millions.
• Small Businesses: SMEs often rely on personalised marketing strategies. Word-of-mouth, community engagement, and targeted social media campaigns are common tactics. Their marketing budgets are usually much smaller, but the intimate connection with customers can drive loyalty and repeat business.

Read: 7 Key Differences Between SMEs and Large Corporations.

Why SMEs Shouldn’t Follow: Trying to match the mass-marketing tactics of large corporations can lead to wasted resources. Instead, small businesses should focus on building strong relationships with their customers and leveraging local networks.

Supply Chain: Simplicity Is Key

Managing supply chains is another area where small businesses and large corporations diverge.

• Large Corporations: Their supply chains are often highly complex, involving multiple suppliers and distribution networks across various regions. These corporations invest heavily in optimising supply chains for cost efficiency and sustainability and may even hold enough sway with their suppliers to get their own way on prices, volumes and logistics.
• Small Businesses: SMEs usually have simpler supply chains, working with a handful of trusted suppliers. This simplicity allows for more direct communication and often faster problem-solving when issues arise.

Why SMEs Shouldn’t Follow: Small businesses that overcomplicate their supply chains risk losing the personal touch with suppliers and customers. Maintaining a simpler, more agile supply chain helps small businesses stay responsive and customer-centric.

Why Every Growth Plan Needs a Robust Supply Chain Strategy.

Business Model for SMEs: Key Takeaway

While it might be tempting to mimic the business model of large corporations, SMEs need to remember that they are fundamentally different entities. The business model for small business is about leveraging agility, personalised service, and focused risk management. Instead of following large corporations, SMEs should focus on strategies that maximise their unique strengths. Developing a business model for SMEs that reflects these differences will lead to more sustainable growth and a stronger market presence in the long run.

The strength of your business model will determine the success of your business. Speak to BridgePoint Group’s business advisors if you need assistance.