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From shopkeeper to B2B business

Next generation Leicester?

Monder Ram and colleagues at De Montfort University in Leicester (England) have just published a paper Raising the ‘table stakes’? Ethnic minority businesses and supply chain relationships.

For readers from outside the UK, Leicester was one of the textile kingdoms in the days of empire and attracted waves of foreign settlement. Textiles are no longer a large part of their economy and De Montfort U, one of its two universities, is known for its leadership in the creative sector.

Against this background, Monder Ram researched “minority” firms who have moved from small retail businesses to B2B businesses in IT, business services or food.  His interest is whether it is really advantageous to reposition one’s firm in the supply chain of a large company.

Small shops who become suppliers to big companies

My interest is in the more general case.  How do small firms move from a traditional format of selling goods and services to consumers, or other small businesses, to a B2B format where they sell goods and services to other business for on sale to yet more businesses or the final consumers?

Working out your HRM policy from first principles

Monder Ram and his co-authors describe the changes in moving from B2C to B2B. These changes can be also be deduced from first principles for the case of any particular firm.  The process for defining our HR policy follows these steps.

  1. What is the pattern of our sales?  Or in the case of a start-up, what pattern of sales do we expect?
    1. What is the long term trend for our sector? What is the long term future of this line of goods and services?
    2. What are the seasonal fluctuations? (e.g., do sales increase at the end of the tax year?)
    3. What are the day-to-day short term fluctuations? (i.e., how long does it take to make a sale from first enquiry and how long does it take us to deliver the goods or services and receive payment?)
    4. We want to know the average amounts per month for the next 5-10 years and we want to know the variability.  Variability is important because detail is going to drive our ‘demand for labour’.
  2. What is the nature of our technology? (Now and for the whole future we envisage?)
    1. What technology, including professional techniques and standards, do we use?
    2. How does our technology limit individual input?  For example, if a car travels down the motorway at 70mph, a person can get to the job at a certain time and no faster (though probably slower).
    3. Now we can put technology with sales and work out our demand for labour for the next 5 to 10 years.  And we will work in some detail because that is the only way we can select and train people ahead of when we need them.
  3. Last, we can set up our HR policy.
    1. Unlike marketers who think relatively short-term, when it comes to people, we have to think long-term simply because it takes time to get people in place, working smoothly as a team, and practiced at what they do.
    2. We also have to consider the needs of employees. The work we offer must sustain their lifestyle, including their obligations to their family, and provide them with a trajectory suitable to stage of life
    3. A small family firm may have to think through how to incorporate outsiders who will play a large role in the success of their business.
    4. All firms look at their selection, training, pay, conflict handling and so on, to bring together a coherent system that delivers exactly the right skills at the right time to meet customer demand as it occurs.  The extent to which we mesh customer demand and labor supply is productivity.  All the mismatches, which of course are many, reduce our potential profits (and probably annoy our customer and employees).

Is it a good idea to move from running a shop to supplying big business?

Monder Ram and his colleagues seem to think that people are overenthusiastic about switching from B2C to B2B.  I don’t think we should be surprised that people are surprised when they discover the reality of their moves.   They are frequently!  We should rather have a process model of how people find out about a sector and how they deal with the dashing of illusions. A basic three-stage culture shock model should do – infatuation, disappointment, building a sound relationship.

Oddly though, people who live and work in a free economy often have dodgy ideas about the free market when they apply the principles of the free market to themselves.  We all see to think along the lines of what yours is mine and what’s mine is mine.  How many of us do not believe that we are worth more per hour than other people and in particular, people doing jobs we don’t like to do (like cleaning the floors.)

Yes, some people do manage to work the system and get more per hour than others.  That doesn’t mean they are worth more. They have just worked the system and often in a way that will bring the business to ruin eventually.

If we are paid more per hour than someone else, it is only be for two reasons:

  • We traded leisure time in the past to invest in skills (e.g., we listened in class rather than played on our phones).
  • We gve up leisure time now to work and bring in money.

Very simply, in a free market economy, our time is paid for equally (or the system is corrupt – which of course it is in many instances).  We should expect ‘swings and roundabouts’.  Our choice is only whether we prefer swings or roundabouts.  To be sure, we do have preferences, but they are only that – preferences – not statements of intrinsic worth.

So the conclusion of Ram and his colleague does not surprise me. We often chase after dreams thinking we are going to get something for nothing.

What are the downsides of moving into B2B?

Monder Ram and his co-authors also seem to point to the conclusion that some of the small B2B firms included in their study were little more than free lancers.  Some worked as much as 90% for one customer.  In many instances, tax officials and employment courts would not see their firms as enterprises separate from their customers.  My point is that the firms, and the people working in them, have chosen to work in the liminal world of free lancers where big firms are able to push variability and uncertainty.

There is a large policy and legal black hole in the United Kingdom about this kind of work but it still accounts for a only small % of employees in UK which is still dominated by corporate or bureaucratic organizations (I think. Correct me if I am wrong).

Also, in the creative sector, unstable employment has always been the norm.  So it is likely that people working on the edges of this sector, in social media for example, or IT, are seen as normal.

What is normal, and not particularly remarkable, is the HR logic.  Start with what you can sell and manage for variability.  If you can move the risk to someone else, a freelancer or a start-up, of course do so. But a big firm should only do so if they can manage the relationship. If they cannot, then they should understand they have got rid of the variability but they remain with the uncertainty.  Hence big firms like to employ people so that they can train them themselves.  They prefer job contracts which allow them to redeploy people to other tasks when business is slow.

A big firm that does not develop long term relationships simply does not expect to be around long.  The relationship they offer signals their business model.  Off-loading uncertainty onto free lancers should not be confused though with managing a supply chain a la Toyota. Toyota (at least in the classic form) does offer a long term stable relationship to its suppliers and provides suppliers with privileged information about itself for them to make their plans.  Off-loading uncertainty is something else. It is simply externalizing the liabilities of employment and going as far as tax and employment law allows.

If you are a B2B free lancer, what is the best way to think?

The freelancer or freelancing type firm, has exactly the same goal as the big firm: manage variability so they can sell the maximum number of person hours.  How do they do this?  I think that is what the firms in Ram’s study were probably trying to do.

What everyone has to understand, in their line of work, is the “social, economic and institutional context” in which we operate.  There is nothing magical or given about the customs which surround us. They are only customs that emerged over time because of decisions people have taken.  But customs are powerful. And they are riddled with peculiar psychological features.

Why for example did poorly qualified whites in South Africa support apartheid? They weren’t gaining a lot from the dastardly system.  The answer is simple – they thought they might lose even what they did gain without protection.

People engage in all sorts of protection rackets, often for the silliest of reasons.  We do need to understand the essentially political nature of the customs of business.  If Britain of today lacks anything, it is the social consciousness of why we do what we do and the purpose, or whose purpose, it serves.

Those people working in the liminal areas absorbing variability of demand – whether it is traditional to do so as in the arts or whether it is a new custom such as unpaid internships – those people need to understand the ‘game’ as surely any young black kid growing up in Soweto before apartheid collapsed needed to understand the system.  And they need to make their choices accordingly.

Assuming we cans simply ‘step’  into a better world makes no sense.  If the world is better, by definition there is some a protection-racket going on and we aren’t going to be cut in just like that.  But even more oddly, many people on the inside think there is a protection racket going on, even if there isn’t, and will do their damnedest to protect it.

Swings and roundabouts.  B2C or B2B.  Neither is intrinsically better. We make our choice.  And we go after what we want.

But we do need to be realistic.    Some of the demands of other sectors are real. We have to be able to do the work and match our supply of labour to variable demand.  Other demands are just plain odd.  Work it out and do the needful!  Have the skills to do the work. Have the management ability to organize the work.  And do the political work to side step people protecting a racket.

I don’t know too many small entrepreneurs who have a plan of action let alone show any solidarity with others.  @pcmcreative of Nottingham is an exception.  Most entrepreneurs I know just fling themselves at perceived opportunities hoping to benefit without really knowing what is involved.    It is time for us to think again in Britain about the essence of work but until then,  we all need to wise up.

What is the demand for our product or service and what is the timeline of sales?

What do we need to do to make good on the sale (and get paid)?

How do we equip ourselves for a good innings of 5 to 10 years?

It’s standard HR. It is not magic.  Though there is often some old boys networks involved.  Play that game too if you have to.  But it is standard HR.  Choose. Organize. Deliver.

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