Do independent enterprises really matter?

In an episode of The Bottom Line broadcast on 27 October 2016, Evan Davis examined the pros and cons of 'Selling Your Corporate Baby' with Liz Earle, co-founder of Liz Earle Naturally Active Skincare, William Kendall, chairman of the soft drinks company, Cawston Press, and Jules Coleman, co-founder of an online domestic cleaning service, Hassle.com.

The programme featured three seasoned entrepreneurs reflecting on their experiences, including the feelings of relief and regret that can accompany the sale of a business that you have either founded or nurtured over an extended period. In this follow-up discussion, we will be exploring the issues raised, posing a few additional questions to the guests, and highlighting relevant research evidence.

When preparing this discussion, I was particularly struck by the following statement from William Kendall, who sold the Fairtrade chocolate business, Green & Blacks to Cadburys in 2005 for £25m, having previously built up and sold another premium brand, Covent Garden Soup back in 1997. In an interview for the Daily Telegraph (24 Oct 2015), Kendall remarked:

I regret selling Green & Blacks to Cadbury. It was a mistake. A great shame. I can say that now that Cadbury has pretty much disappeared, bought out by Kraft and now Mondalez. I wish I’d kept hold of it.

So do independent enterprises really matter? Should we actually care whether our favourite food and drink is lovingly crafted by the friendly people who run that small but perfectly formed local enterprise? Are sell-offs always a death-knell to independence, in which distinctive products and services are reduced to brand identity, mass-produced and ultimately undermined by the distorted commercial logics of a remote and unaccountable megacorporations? It’s easy to romanticise small businesses, and equally tempting to demonise their larger counterparts. So let’s consider a few arguments on either side.

Why ‘big’ might be better

Here are three stand-out arguments in favour of the big guys:

• A larger parent company will have the resources to invest in your best ideas, so it’s likely to be the best way to remain innovative, scale up your product or service, and disseminate the benefits more widely – yes, there are cases of corporations using their acquisitive powers to shelve, or even strangle, innovative ideas, but innovation is the more likely outcome.
• Large firms are often better regulated and almost always better resourced – they have the potential to promote your more enlightened approaches through to smaller firms in the supply chain – yes, some also use their power to break rules, evade taxes and lobby against progressive changes, but (again) it doesn’t have to be that way.
• This is how capitalism works, (a few) small firms are bound to grow into big ones, whether it’s via acquisition or organic (internal) growth. There will still be opportunities for the next generation of start-ups in the ‘interstices’ (spaces) left behind as the big firms grow – yes, big business does sometimes crush smaller rivals, but that’s ultimately a failure of political institutions.

Why ‘small’ might still be beautiful 

I have again selected three (closely-related) arguments for remaining independent:

• Independent enterprises can preserve important founding values, particularly when they’re rooted in a locality or in particular values-based organisational forms, such as family firms, cooperatives and social enterprises in particular. Here there is are real risk that values will be dissipated after a sell-off – but small firms can also be overly conservative, hosting values and practices that are best consigned to history.
• Independents are often sources of real originality and difference, which rarely survive the transition to corporate life. This may be preserved if the parent corporation takes a deliberately ‘hands off’ approach, but it is difficult to resist pressure to ‘grow’ the brand – and in the context of environmental limits to growth scaling may not be the right the answer, even if it generates short-term financial returns.
• Independents often have close links to local communities and environments, particularly in sectors such as food production where the distinctiveness of the ‘terroir’ cannot be replicated. And this is not simply an emotional case – networks of smaller firms can also be more economically and socially resilient in comparison with ‘footloose’ corporations that can wreak havoc through disinvestments and relocations.

There are, of course, many more arguments that could be presented on either side. The jury is out, so I will close with a few questions that we hope to return to in a future update:

1. What could be done to encourage entrepreneurs to retain and build their independent businesses, given the scale of the financial rewards for selling to corporates? (e.g. legislation, changing incentives, educational initiatives)
2. Where independent ventures are sold to corporates, is there any way of preserving their distinctive identity and core values against the pressures to rationalise and extract the maximum value for shareholders?
3. Corporate takeovers of independent commercial ventures might be seen as ‘the market at work’ but what about social ventures, which have a distinctive mission beyond profit-making (e.g. in areas like health and social care) – how can they be protected against corporate capture?
4. How might the era of corporate takeovers of independents be reversed (i.e. is it possible for corporates to be broken up in order to spawn a new generation of independent commercial and social ventures)?