Small Businesses need to collaborate to drive innovation so they can grow even in tough times

Back in 1996 as Managing Director of Acumentum I was invited to lunch with the managing directors of Quantum Market Research, Campaign Palace, FHA, Geyer Design, Invetech, Cambridge Consulting and Mann Judd. What do these companies have in common we were all providing services that retailers wanted to buy; web design, market research, advertising, branding, interior architectural services, recruitment and accounting services.

Our companies all overlapped in skills and expertise but none of us were competitors. Over the next 10 years we met maybe more than 100 times. We enjoyed each other’s counsel, friendship and trust. In various combinations these companies shared tens of millions of dollars worth of business and we pushed and encouraged each other to become better businesses. We learned how to collaborate.

What is collaboration you ask? It is learning to be open, to be prepared to take risks with others to make all of the group more successful because as a group we can work together to achieve much more than we can on our own. The group collaborates to become more than just the sum of its constituents.

Acumentum would never have been selected to design ANZ Bank’s Intranet “Max” without FHA bringing us in to support their rebranding of the bank. Geyer Design, Quantum and FHA transformed Jeans West.

Survive now prosper later

Small to medium sized enterprises must collaborate to improve their productivity and maximise their wealth. The global financial crisis has reduced demand for services including information technology and communication services and to survive this crisis we all need to perform at our best. Anything less threatens our survival. Collaborating with similar likeminded companies will help you not only survive the GFC but will put you in an excellent position to accelerate your activities to enjoy the positive business cycle that will inevitably follow.

Whilst we might start out like the lone wolf we all soon learn to hunt in packs. Anthropologists inform us that when our forebears learnt to hunt in packs their daily intake of protein increased and they grew taller and stronger. In teams we learn better co-ordination, co-operation and collaboration which reduce risk and improve outcomes.

Our ancestors began their long journey toward our digital economy making and catching everything they needed to survive. Over more than 100,000 years the human race learned to specialise and organise into teams to maximise achievement. Examination of our complex economies particularly how we human behave clearly shows that team work, leadership and trust have significant impact on economic performance.

The importance of trust

Stories from our childhood glorify the wonderful inventions of the lone genius but in our working lives we have all recognised that today’s great inventions usually result from substantial collaboration, often from teams spread all around the world. It seems obvious that more complex problems are best addressed in teams. Using teams to solve complex problems takes more than good project management and co-ordination it takes real collaboration. Real collaboration demands time, resources and most importantly trust.

Massive collaboration dramatically increases the rate of innovation. When teams of experts work on a small piece of a very big problem and collaborate effectively, very big problems are solved in shorter and shorter timeframes.

Collaborating with others to create new ideas, to share and develop those ideas to create new value has been shown by economic researchers to be a superior strategy than individual invention. Researchers like McKinsey’s Beinhocker have shown that much greater economic value is being produced in economies that have high levels of trust because that is a much more productive environment for collaboration and sharing for mutual benefit.

Levels of Trust vs GDP per capitaLevels of Trust vs GDP per capita

Recently I finished reading Eric Beinhocker’s wonderful book The Origins of Wealth. This book helped explain why the collaboration strategies I had developed over 23 years of running my own business, worked. Beinhocker provides extensive evidence and theory on why organisations that can build on lessons learned and who create a culture of trust succeed where others fail. This graph clearly shows that economies that are built on high levels of trust generally have much greater GDP per capita than those economies with low levels of trust.

It is insightful to notice that economies with common characteristics often have similar positioning on this graph. The former communist countries have inherent lack of trust and poor economic performance. Notice that China is a major exception amongst the communist countries and may well benefit from their high levels of trust in building their economic performance over the coming years.

Solving the complex creates value

The small business environment covers the complex and chaotic to the complicated and simple. All small business operators know that if it is simple everyone can do it. Once a product or service is made simple, it becomes a commodity and then you must compete, either on quality of service or price, and it is usually price. Small ICT businesses have difficulty providing scale and competing on price. The best small businesses outperform others because they are flexible or nimble and more efficient or all three. They are able to make sense of the chaotic, master complexity and sort out the complicated.

In working through the complex I am often reminded of that wonderful quote from Oliver Wendell Homes that much admired American jurist, who said “I would not give a fig for simplicity this side of complexity but I would give my life for simplicity on the other side of complexity”. I believe very strongly that leaders in small business need to collaborate effectively with other small businesses to get to the other side of complexity and in doing so generate substantial value for their customers. By sharing this increase in value with their customers they build trust with their customers and customers value dealing with them. So small business should look for other small businesses working in complimentary areas, facing similar challenges where solutions to complex problems can create substantial value. Rapid innovation, delivering greater value to customers builds sustainable businesses that create more wealth for their shareholders, staff and customers.

Ever since Adam Smith described the influence of the invisible hand to describe the self regulating affect of markets and wrote in Wealth of Nations that increased specialisation in the division of labour increases wealth, businesses have focussed on what they do best. “Stick to the knitting” is a well warn catch cry. There is substantial published evidence that increased specialisation leads to increased wealth. Yet so many small businesses see the best way to grow their business is to do more things for their established customers. The opposite strategy of finding more customers wanting their “thing” is far more successful. But winning new customers on your own is hard; collaborating to share your customer base with trusted partners is far more successful.

Creating value from trusted relationships

Capitalising on the valuable trusted relationships is a sound growth strategy for most small businesses. Because these relationships are valuable don’t give them away easily. But when you are able to identify capable expert collaborative partners, when your ability to assess other suppliers in complimentary fields to your own you can provide your customers with valuable solutions to important problems they face, you are creating value for you, your customer and your collaborative partner. Because your customers trust you they do not have to do as much work evaluating a new product or service. But the bottom line is your customer trusts you. Don’t breach their trust because if you do you will destroy value.

How to collaborate

In choosing a collaborative partner seek out complementary skills and capabilities so that working together, sharing their ideas and developing new solutions additional value is created which you can choose to share with your combined customer bases.

Effective collaboration does need high levels of trust and cannot be achieved overnight. So make sure that the desired outcomes from any collaborative process justify the effort and resources required.

In these tough times small businesses may not have enough work to keep their valuable employees occupied. They may not be able to pay next month’s salary bill or valuable employees might be getting bored or frustrated at doing work that is below their skill level. If two or three small businesses with similar skilled employees share those employees they will be able to continue to provide staff with challenging work and share the costs to help them through the down turn.

The best strategies in the world are worthless until they are properly executed. So whatever the goal for your collaboration it must motivate action.

As you go about choosing who should be in your CollabIT group it is important to think carefully and do your due diligence on each other. Decide who’s in and who’s out. Then as you go about building trust and start collaborating to create new value take note of what works and share it with other groups.

In choosing who should be in your group it is important to be close enough in skills and expertise to be able to work together on valuable complex opportunities but you don’t want to be collaborating with your direct competitor. Experience shows that whilst there may be 5 or 6 companies in a collaborative group most projects are done with one or two collaborative partners at a time.
It is vital that you know what your core specialisation is. You need to ensure that you constantly improve this specialisation because over time if you stand still your collaborative partners may conclude you are no longer adding valuable specialised expertise to the group and they will move on.

Once a reasonable level of trust has been created very complex problems can be addressed. Because trust has already been established in the group lengthy legal agreements are not required before exploration for the new project can begin. Hence a good collaborative group adds value because they can begin more quickly than the traditional consortium.

Do you have a good story about collaboration? Would you like to share it with other small businesses? Visit CollabIT Victoria group on LinkedIN.