Small business profits from new consumers

Lisa Pagotto of Crooked Compass on Lion's Head in Cape Town, South Africa.

Consumers know what they want and, increasingly, they want a business to understand them. That’s why big companies extending their reach across the globe won’t force out the niche players.

The digital age has put virtually every product we need at our fingertips, while globalisation and the rise of mega stores have driven down costs. Discounts are deeper and promotions run longer as businesses strain to accommodate the demands of the fickle consumer.

Global giants from Amazon to Zara have the muscle to overpower many of their smaller competitors. However, don’t disregard the niche operators just yet. 

In May last year, marketing analyst David Newman, CEO of American media agency Broadsuite Media Group, predicted small business was on its way to “outpacing industry big shots”. He believes the 21st century is the age of the underdog, driven by our love of rags-to-riches success stories, and a growing desire among millennials to support smaller, local enterprises that are part of the community. 

As Newman explained in US business magazine Entrepreneur, without the layers of corporate bureaucracy to wade through or shareholders to appease, small business operators have speed and spontaneity to their advantage.

“We have the philosophy of clients for life. It’s a relationship.” Mark Chaskiel, FBI Travel

In the US, small business success is at its highest level since before the global financial crisis. The Kauffman Index of Main Street Entrepreneurship shows that small business survival rates reached a three-decade high of 48.7 per cent in 2016; that means almost half of new businesses in the US are making it to their fifth year of operation.

“In the age of digital innovation and transformation, small companies have burst out of the gate to disrupt traditional business moulds,” wrote Newman. 

“Today’s Fortune 500 list is a mere shadow of what it was in 1995. In fact, fewer than 50 per cent of those who were on the list in 1995 still remain today. That’s a big change in just 20 years and the evolution is continuing to happen even faster.”

Boutique accountants

For specialist Australian accounting firm Lowensteins, understanding its artistically creative clients and sharing in their passion has seen them become one of the country’s largest providers of consulting, business and taxation services to the arts community.

Small group tours with Crooked Compass visit old city of Nizwa in Oman.With offices in Sydney and Melbourne, the practice looks after close to 4000 visual artists, performers, musicians, writers and others from the arts and culture sector – including related industries such as art framers and transporters. Over the years, clients have included Australian artists Tim Storrier, John Firth-Smith, Margaret Olley and Arthur Boyd.

These accountants don’t just associate with their clients in the office; so close is the relationship you’ll find them at art exhibitions or gallery openings. The company has also become a voice for the art community, establishing its lobbying arm, the Painters and Sculptors Association.

It’s always been personal for Tom Lowenstein FCPA, who still works at the firm he founded 40 years ago. Introduced to the art world by his wife, Sylvia, the couple opened a small gallery in the late 1970s as a side project to his accounting practice. This exposure to artists led them to realise many were struggling with their financial affairs or having problems with the tax office. Gradually, Lowenstein took responsibility for liaising with the tax department on the artists’ behalf.

One of his first clients was artist John Olsen, and they now call each other friends.

The firm has a reputation for building genuine and lasting relationships with its creative clients. As Lowensteins’ Sydney director Adam Micmacher explains, there may be times when artists have found it difficult to settle their fees, so the practice may sometimes accept an artwork in exchange for its accounting services.

This has seen the business accumulate a significant collection of contemporary artworks through the decades, many of which are displayed on the office walls. It even employs a curatorial adviser to assist with the display and management of its collection.

“In traditional accounting firms you get paid in cash, so if someone hasn’t got the cash [to pay your invoice] you have to wait for it, or write off that debt,” says Micmacher.

“However an artist can sometimes have something else to pay their fees with. We have insight and knowledge of the artists and how their shows are going … which gives us an alternative way of getting paid.

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“The artists see us as investing in them by displaying their work in our homes and offices. It increases the level of relationship because we offer them something other accounting firms might not have been able to do,” says Micmacher.

As the company’s prominence as an arts specialist has grown, its artist clients often insist on offering up their best works because they know they will be appreciated and displayed in a place that other artists and collectors frequent.

In March 2017, about a quarter of the Lowensteins’ collection, 255 pieces, was auctioned, helping the firm fund business expansion and invest in works by emerging artists.

At the time, Lowenstein told the media, “At first I was sad to sell part of our collection, but now realising it will be replaced over the next 20 years of collecting with something equally magnificent, I am now happy.”

That unique selling point

Finding your point of difference is a good strategy, particularly when you’re facing the buying and selling power of the major players.

FBI Travel began in the late 1970s as a travel agency serving the local Jewish community in Melbourne. Although it has evolved and diversified to become a globally competitive company with a A$40 million annual turnover, it still operates out of just one bricks-and-mortar office in Melbourne’s Caulfield North.

Founder and chief executive Mark Chaskiel says although scaling the business has meant becoming affiliated with partners, it remains owner-operated. That means it has no head office, and no public company directing what it sells.

FBI Travel doesn’t pay its staff incentives, doesn’t mark up taxes and surcharges, and although it does receive commissions from hotels, that doesn’t mean the agency’s bookings are heavily tilted towards some and not others.

Tom Lowenstein FCPA “We removed incentives a few years ago because we wanted our advisers to work for our clients, not for themselves,” says Chaskiel.

“We still work on the principle of the client and matching them with the right hotel or the right trip. We hope the client will come back and thank us and maybe book more trips with us, rather than us going for a short-term gain of getting a good mark-up but never seeing the client again.

“We have the philosophy of clients for life. It’s a relationship.”

A number of children and even grandchildren of FBI’s repeat clients are now customers.

Related: Does your business have a USP?

For many years the company flew under the radar, but now it is taking on the big guns on its own terms. FBI Travel is the 2017 Australian Federation of Travel Agents award winner for the best single location retail travel agency and has taken out Luxury Travel magazine’s gold award for best luxury travel agent for the past three years.

Chaskiel says his business, while not the biggest, still has the market strength to offer a competitive price to clients. In addition, FBI Travel’s personal connections with the hotel or operator mean you get extra bang for your buck – breakfast included or an unplugged walking tour of New York city instead of the usual hop-on, hop-off bus tour.

“It’s not what you know, it’s who you know,” he says.

Sustainable business

Lisa Pagotto, founder of tour operator Crooked Compass, says significantly scaling her business isn’t on her agenda.

Her company offers small tours to emerging travel destinations and showcases the lesser-known side of popular holiday spots. The tours immerse the traveller in local culture, visiting diminishing tribes or meditating with monks at a Nepalese monastery.

Pagotto is conscious of treading as lightly as possible. “The regions we go to will get destroyed if we become a massive global company with 1000 people a year coming through,” she says.

Mount Hagen Cultural Show in Papua New Guinea.“We are very mindful of our impact, especially in permit areas, and recognise that we are very privileged.

“One of our biggest points of difference is the personal touch … I’ve spent a lot of time building up my contacts and relationships, it is something I’m always cautious of protecting.”

Pagotto has worked in the travel and tourism sector since 2003. Crooked Compass evolved from her personal travel blog, into a small tour operator offering six tours in 2014. A year later, that had grown to 90 small group tours.

The typical Crooked Compass traveller has time and money (an average tour costs around A$500 per person per day). They are most likely aged between 45 and 70, and are prepared to hike for two hours or endure a rough night’s sleep for an experience others won’t get to have.

Pagotto says companies like hers can co-exist with corporate giants because their markets are different. In addition, even with all the information accessible online, you can’t beat local knowledge when it comes to off-beat destinations, she says.

“Good luck finding a house to stay in, where you can watch someone doing their body paint for a celebration, or finding a hunter-gatherer tribe that makes poisonous arrows out in the bush in Tanzania,” she points out.

Business with a conscience

National Australia Bank’s executive general manager for business direct and small business, Leigh O’Neill, says new generations of consumers are emerging and with them comes a different purchasing mindset to their parents. Gen Y and Gen Z tend to be well-read and price is not as important to them as purpose. They want to support businesses with a social conscience – whether that is sustainability, alignment to particular ethics or ideals, or just giving back to their community.

Kuwaii's Kristy Barber with one of her Melbourne seamstresses.“We encourage small business owners to be conscious about their social footprint,” says O’Neill. “They should consider their options to act responsibly and not be shy about telling this story to their customers.”

Fashion label Kuwaii is a brand opposed to the high-turnover, high-waste, high-pollution model of mass-market clothing ranges.

Instead, Kuwaii’s owner and designer Kristy Barber pursues the slow fashion model. She orders minimal quantities of garments made from high-quality materials, and has them all produced within 15 minutes’ drive of her retail outlet in Melbourne’s hip Brunswick.

The former bookkeeper started her business in 2008 straight out of fashion school, believing that mass-market fashion had become unsustainable.

“I could see no options for the consumer other than just rows of bland clothes on every high street in the world. I wanted to stand up and say ‘there can be little guys too, and there can be people who do things differently’. I wanted to stand up against them and provide an alternative,” Barber explains.

The brand is very personal, and it is driven by passion – two things Barber says have struck a chord with her customers. 

“My customers range in age from 18 to 60, so I think it is a community [rather than a fashion] mindset,” she says. “They don’t decide things solely on how much it costs; they also consider the social costs. Consumers have the ultimate power at the end of the day, and will speak with their wallets and drive change.”

It’s a combination of Kuwaii’s unique style and intimate service that has kept Maree Fitzgerald wearing the label for three years.

“Small is good. Small is OK. Small is lovely because I am opposed to those big models.” Kristy Barber, Kuwaii

Not one to shop at department stores, Fitzgerald says she likes being looked after in store and helped to find a style that is not only looks good on her but that is made to last.

“They are a bit expensive but I have worn these trousers every week, I think. And when the soles on my shoes wear out, you can send them back and they will fix them,” she says. “Staff even remember your name. You don’t get that in H&M.”

The boutique nature of Kuwaii means the Australian wedding faux pas that went viral on social and mainstream media in September – when six guests at the event inadvertently wore the same dress, all bought from a clothing chain – is unlikely to happen to Fitzgerald.

“Kuwaii is not in Sydney [where Fitzgerald now lives], so you don’t get many people wearing the same clothes.”

Although Kuwaii has doubled its turnover in the past three years and sales are growing at an annual rate of 20 per cent, Barber is not focused on opening more outlets, but rather on getting better at what they do with what they have.

“Part of the key of our success is not ever having grand plans for world domination,” she says. “Small is good. Small is OK. Small is lovely because I am opposed to those big models.”  

5 tips for small business

New generations of consumers are driving change in the way we do business. NAB’s executive general manager for business direct and small business, Leigh O’Neill, says younger consumers have a different focus from their parents when deciding on purchases and being loyal to a brand. Here are her  top five tips for small businesses:

Keep it personal

Show customers you remember how they like their coffee, or emboss their name on a leather luggage tag. Make them feel noticed.

Know your purpose

As a group, Gen Y and Z are driven by understanding a business and aligning with a purpose. They will actively seek out businesses with shared ethics and ideals. Being an active participant in your local community can differentiate you from the global competition.

Stay simple

Put yourself in the shoes of your customer and look at the end-to-end journey from their point of view. Look for potential sources of frustration and iron them out. Simplifying doesn’t have to mean an instant big change. Small, continuous improvements can make an impact, too.

Embrace e-commerce

Mobile devices are fast becoming the most common platform for researching and buying goods and services. NAB’s National Online Sales Retail Index for the period ending August 2017 showed that Australians spent A$23.28 billion via online retail in the previous 12 months. The sector is growing strongly, with year-on-year growth for online sales in August up 10.3 per cent compared to 2016. Small-to-medium businesses attracted just over a third of these online sales. 

Be social

Social platforms can play an integral role in the business-customer relationship. Have a clear plan about your digital strategy. Facebook can be an effective way of getting online referrals, and using quality photography on Instagram can market your products in the best light.

Read next: People, planet and profit: the power of social enterprise

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December 2017
December 2017

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