The ideal business is small, simple and circular.

Small

Businesses get big for a number of reasons but those reasons are for one ultimate purpose, to get higher return on capital. Big businesses, however, do not enhance the well-being of people and planet as much as small businesses.

Some businesses, by their very nature, need to be large-scale to operate at all. A railway or international airline, or certain utilities, for example. However there are compelling reasons why the ideal business is small, namely:

Small businesses are inherently more effective and less wasteful. Whilst big businesses can be highly efficient at providing a return on capital, that is not the same as being effective at providing goods and services. Big is not so good as small.

Small businesses are likely to be local. This means that all income from labour and from capital stays local. This is an important factor for creating sustainable communities. Since big businesses tend to be central their income is imported from the regions, and even from other countries. Big box stores like Walmart in the US and The Warehouse in New Zealand have decimated locally owned stores (and other businesses) in small town high streets in many parts of the world. They often sell cheap imported goods and the profits are then exported to another part of the country or, in the case of global companies, to another country entirely. Local businesses may also sell imported goods but they are much more likely to source some products locally as well. These businesses need other local businesses to service them as well – accountants, lawyers, designers, printers and so on.

Small businesses are real. As the size and centralisation of businesses has increased over the past 100 years they become more complex and abstract. They provide work that is often extremely specialised – think of factory or assembly-line work. It can be difficult for staff to know what real value they are creating. A small business, on the other hand, usually allows staff a more holistic view of the business and they have a better understanding of how their role fits into its success. Unlike the absent shareholder/owners of big business, staff in small businesses are likely to work alongside the owner. This provides better opportunities for input into decision making and management, and therefore, more meaningful employment.

Small businesses are more about people. One of the reasons businesses get big is to take advantage of the economies of scale provided by automation. Automation is considered to be easier to manage and cheaper than labour. Automation is very useful if the purpose of the economy is to provide profit to shareholders but quite useless if the purpose of the economy is to provide more work to people – along with all of work’s benefits to well-being.

Small businesses have less external costs. External costs are the costs paid by society for products and services that create pollution, greenhouse gas emissions, harmful waste and indeed any waste. Because small businesses create less waste they have less external costs. Also, big businesses make much greater use of automation (and hence their higher productivity per person) but machines have much higher external costs than workers. If businesses increase productivity by automating and therefore laying off staff they are adding costs to society-at-large through the provision of unemployment benefits and other social costs related to unemployment (for more on this subject read: “Should there be an automation tax?”).

Simple

By their very nature small businesses tend to have simpler systems and structures. This is why they are more effective. Since a small business is more agile it can change and adapt quickly, and without adding complexity. If a process is ineffective or inefficient a small business can completely change how it does things relatively easily. A big business, on the other hand, has so much invested in its systems that any substantial change would be very costly, so change is incremental and is also often an add-on which might fix a problem or take advantage of a new opportunity but it also adds complexity to the business which is ultimately wasteful.

Big businesses are much more complex and therefore need a higher proportion of people to manage them. The growth of the ‘managerial class’ over the past century is considered to be linked to increased affluence and consumer lifestyles.

Circular

Small businesses are inherently less wasteful than big businesses but the ideal business would be circular meaning that it has no waste at all, including emissions. A circular business model:

  • does not systematically increase the amount of waste in the environment
  • does not systematically degrade the environment with toxins, greenhouse gas emissions and pollution
  • reduces the amount resources mined out of the earth’s crust

To be circular a small business would need to co-operate with many other businesses which big businesses can’t to do as easily as a small business.