The future of the mom and pop shop (revised again...)

The local mom and pop shop, the small business entrepreneurs, are the foundation of American entrepreneurship and enterprise.  However, they have been under severe attacks in two main fronts: the major chains, and the Internet.  Most of the local grocery stores have all but disappeared when a Walmart, Target, Tom Thumb, Safeway, and the others appeared in their area.  With greater selection and lower prices (that only a major chain with overwhelming bargaining power over suppliers can offer), the local grocery store could not compete anymore.  I used to buy a lot from the local hobby shop, but I realized that no local store could hold the variety of parts that could only be found through the major distributors and ordered online.  The Internet (including eBay, Amazon, and other venues) arrived as a blessing and a curse.  Retailers follow the MSRP guidelines by manufacturers, but when a local store offers a product—it has to charge sales tax, whereas when an “Internet store” offers the same merchandise—it does not typically charge sales tax, which could be significant.  They have to ship the goods, but due to advantages in location, lack of warehouses, economies of scale, and no need for retail staff or prime real estate location—they can even absorb shipping prices (and thus offer “free shipping”) and be more profitable than the local retail store.  When I buy a $100 product at the local hobby store, I have to pay $108.25 (including sales tax), but when I buy it online, I can find quite a few eBay stores that offer the same for the $100 MSRP, with free shipping, and no sales tax.  Yes, I have to wait, but isn’t it worth saving the $8.25?  There is no doubt that the Internet (with eBay, Amazon, PayPal and more) is a blessing for the buyers, but is also a curse for the local mom and pop shop.

So what is the future of the mom and pop shop?  The answer hit me when I was building my 16 pound F/A-18C radio controller jet.  I needed a landing gear.  None of the local stores were even familiar with the plane, let alone had the right landing gear in stock.  They didn’t even know where I could find one.  None of the major hobby distributors or manufacturers had somethings that was specialized enough.  They only had the "generic" landing gears that would appeal to as big a market as possible.  After conducting some Internet research, and participating in some of the specialized Internet forums, I found a manufacturer of such a landing gear.  This was a small store (mom and pop?) in Ohio, and as it turned out—the only one in the world who builds such a landing gear.  I ordered it, and had to pay whatever the owner asked, because there was no alternative (since there is a small chance that my wife reads this blog—I will not disclose the price…). 

But it didn’t hit me until now—the future of the American small business, the foundation of our economy, the embodiment of the entrepreneurial spirit, is not the local shop.  It is the highly specialized shop.  This is where the blessing of the Internet plays a role.  With eBay, PayPal, and Amazon you can ship anywhere (in the world!) with little to no hassle.  Marketing is simple, if you know where to go.  I would never have heard of Ed Dobias (who owns and operates RC Crafters in Ohio) if his name was not mentioned in the forum discussing that F/A-18C.  But I did, and I reached him, and he had exactly what I needed, when nobody else did.

Whenever I teach entrepreneurship, marketing, and strategy, I recommend (strongly urge) that you be a big fish in a small pond rather than a small fish in a large pond.  You cannot compete with Walmart.  Don’t try to compete locally.  But you can create something that a very small niche (albeit global) needs, and you might be the only person in the world building it.  You do have access to all of your customers (worldwide), if you only know where to look.

Let me try a numerical example.  Hypothetically, the market for radio controlled (RC) airplanes might be $100m annually worldwide (it is actually significantly larger).  The local market where a single store is located could be $1m, which might not be large enough to even support one store.  Customers will likely be making their purchases online anyway to save the tax, so that store might not even generate $1m.  However, the market for a single (yet necessary) part of that hobby (say, the F/A-18C landing gear) might only be $100K annually.  Add to that a few other landing gears, make them well, and you have a global market worth $1m or more, that you will “own”, and build the best product for it.  This market is easy to reach (if you go to the right Internet forums), and the products could be easily shipped (using eBay and PayPal).  The large players in this market will ignore this niche, which is too small for them to even consider, but you can serve it proudly and profitably. 

The new mom and pop shop is not local.  It is highly specialized and global.

I published this original blog post in 2011. In that original article the following note was included: "Note: this article mainly discussesproducts, and not services.  Many services, which require you to attend personally (such as the local barber shop) will always remain local and continue to compete locally successfully.  Other services, though, that do not require your presence to provide the service (such as tax preparation, for example), could be offered remotely."

Since I launched "Large Scale Creativity," I became fascinated with the emergence of Internet marketplaces, such as envato, fiverr, udemy, and others. Where your talent is not required "on site", you can offer your special services through a marketplace. On one hand there are people like you, who know how to create something very well, and have the tools to create it. On the other hand, there are people who need what you have. Maybe they need it once, and maybe twice. However, they can't find you, and you can't find them. Until the advent of the marketplace. 

I wanted a nice logo for my website. fiverr is full of logo designers offering such services. I consider myself quite creative, even on the artistic side, but not as good as the designers who offered me 8 options for my logo. Then I wanted a nice intro video for all my videos. It would probably cost me between hundreds to thousands of dollars to get the tools needed, weeks to get to learn how to use those tools, and months to get reasonably good at them. And I would still not have the talent. However, it cost me $5 to get the intro designed, $5 to get the colors of the template to match my logo design, and another $5 to get it in HD. I got it within 3 hours of placing the order. And the designer? He is working from home. Already has the tools and computing power, the experience and the skill he can prove. He got the order. I'm sure it didn't take him more than 3 minutes to create my intro. And he got $15 for it. His rate therefore could be up to $180/hour, or more than $350,000 a year. If he did that full time. 

Oh, and I'm using udemy to deliver my content as online courses...