This article is part of the Small Business Series intended to support the development and growth of small business. As a small business built to serve others like us, we believe small businesses are fundamental to a healthy market and democratic society.

Unlike investor-driven businesses, small business priorities are aligned with yours—long-term client success rather than short-term growth targets for quick investor exits.

I recently had an unfortunate interaction with a client (thankfully very rare) who was in breach of contract for a sustained and irresolvable simple failure to communicate (months of no collaboration on the list of revisions required for the final phase of the project). After the client rebuffed our offer to re-engage and we both agreed to close the project, the brother of the client (a young man trying to build his own startup who stepped in to help his sister), sent a private email to me with a final insult, “if you as the founder are still involved in the daily business operations, obviously you are a terrible businessman.”

It’s true that we never stuck Silicon Valley gold with one of those rare but highly published multi-million dollar exits that reinforce the myth of the “self made man” (a much loved story that ignores the all-too-common Ivy League connections that daddy’s tuition secured and opened the door to millions of investor capital). But is it really an insult if a founder is still involved in the daily operations of a business?

Just on a practical level, working with small businesses gives you the opportunity to benefit from founders with deep experience and invaluable skills that you will not find from a recent startup hire. But beyond your own benefits, two decades in business is success by any standard. It means a person consistently provided a great product, earned long term trust, made an honest living helping others, and achieved some measure of independence. In the Silicon Valley world of fast exits this looks like failure, but remember that this used to be the pinnacle of the American dream!

Over two decades I’ve seen a lot of competitors come and go. Yet we’ve remained in business because we focused on the quality of our platform, product and service by investing heavily in long term business relationships based on trust and a fair and equal exchange of value.

Two Opposing Business Models

There are two distinct models for business which we often fail to distinguish but which are historically and practically very different. Traditional “mom and pop” (family) businesses are part of a “value-centric” business model. It is a story of market relationships as old as human civilization, where growth comes from an honest exchange of value between customer and vendor providing real utility. This is important to distinguish from a “capital-centric” investor funded businesses model whose primary goal is not to the fair exchange of value based on utility, but instead the goal is to simply multiply capital for the investors. Long term there must be some exchange of value, and sometimes the product or service is even great quality, but that’s secondary to the primary goal of multiplying capital at all costs and by all means. 

The capital-centric model’s focus on endless growth is what distinguishes modern “capitalism” from traditional “markets”. Investor funded businesses that focus on growth at all costs are usually a house of cards which easily collapse, because all that injected capital is primarily used to prop up whatever narrative is necessary to create fast “growth” numbers that attract acquisition or allow for an IPO cash-out (return on investment for their investors). But if a business hits the end of the funding runway, and their narrative is no longer convincing for investors to fund another round, the music stops, and everything fails spectacularly. Because they didn’t build anything of value to back up the marketing narrative.

Without a doubt a capital-centric model sometimes works—with that amount of money you have to be extremely incompetent to fail. And it can make a lot of money for a few lucky early investors who picked the right winner who then cornered the market. But for every one winner the field is scattered with nine failed startups and billions of losses for investors (particularly late stage investors after early investors cash out in an IPO). It’s also important to note that contrary to the common myth, hard work and intelligence alone isn’t enough for an entrepreneur to “pull yourself up by the bootstraps”. If you don’t already come from a place with privileged connections, you will very rarely be given access to the capital necessary to compete. 

Backward Priorities Creates Broken Businesses

Unfortunately for the market itself, the investor funded startup usually produces an inferior product for the market. As an example, one of our biggest direct competitors to our Real Estate platform hellomarket.io, is a company that raised over $55 million in 5 rounds of investment since 2018. And yet with zero outside investment or budget we’ve created a superior platform and service over that same period, just by building what clients need on demand. So where did they spend all their money? 

Most likely the lion’s share of that money went to marketing, advertising and sales, to sell an inferior product. They used their Silicon Valley connections (one investor is former CEO of Zillow) and massive resources to convince key players in various brokerages to recommend their platform. They exploded onto the scene, growing faster than they could keep up (clients noticed that they over promised and service suffered). Their success was not because they had a better product, but they grew because they had capital. And then with this privileged position they used variable pricing to manipulate clients into paying as much as the market will bear, overcharging 2-10x more than our prices. 

This may be good for early investors that exit while the growth curve looks parabolic, but it doesn’t create the best product for clients. If investor funded startups don’t pivot to focus on the quality of their product and honest pricing, the late stage investors are also going to lose money because they will fail as we take all their clients.

Traditional Business Philosophy

Even before I understood the subtleties of economics, we always followed a different philosophy of business. My ethics don’t allow me to pursue the typical capitalist goal of chasing empty growth. We believe in trustworthy long term business relationships, which are based on honest pricing that cover actual costs to deliver high quality services with a small, reasonable profit that allows us to stay in business to continue providing high quality service to clients. 

We have created a platform that is undeniably more robust, with websites that are far more flexible and optimized for conversions. All of this was funded by loyal clients that chose us because we earned their trust. We have zero outside investment or investor pressure to cut quality to increase profits. Despite being at an incredible disadvantage financially, we attract clients based on the quality of our product and service itself, through word of mouth. We don’t cut corners on support and we spend our effort improving the product out of pride in what we are creating. 

This is an anomaly in the market, but having the best product is the only way we can compete against the onslaught of marketing dollars that investor funded competitors throw against us.

Pay for Quality of Service Not Branding

When you use the service of a big brand, remember that a large percent of the price you pay is going to fund branding and marketing for growth. But every dollar spent on marketing is money that is not being directed to develop a better product or service. The goal is fast growth, with the hope that they can corner the market long enough to give the investors a sweet exit.

In contrast, when you work with a small business, you are working with founders and employees that are invested in the success of the business based on long term business relationships. Small businesses don’t have the luxury of growth through marketing, so they must outperform on quality and service. That’s great news for clients.

Equal Exchange of Value vs. Maximizing Profit

One of the core tenants of capitalism is that a business will “charge as much as the market will bear”. That’s accepted as normal, but in reality it is an extremely immoral imperative. In the best of circumstances it encourages the artificial inflation of costs based purely on narrative (e.g. brand X is perceived to be exclusive and rare even though the quality of the product may be less). And in times of crisis or in conditions of effective monopolies it results in price gouging and exploitation (e.g. emergency supplies during a flood, or perceived or effective supply control to keep prices artificially high).

The market wouldn’t normally bear these high prices, but in many cases the barrier of entry into a market is too high (e.g. cellphone companies in the U.S. where prices are 10x higher than the same service in Europe). Or in cases like our own industry, people simply do not know small business alternatives exist and they choose the known option that they’ve been exposed to with enormous amounts of marketing. But when given the opportunity, clients who switch are ecstatic about the difference in quality.

Small Business Opportunity

Capitalism’s investor funded model is a powerful and dominant narrative in business, but it’s not the only model. Given its problems and inherent misalignment with client interests, it creates a great opportunity in the market for small businesses to capture clients based on delivering better quality and service. 

For all its advantages, an investor funded startup has an incredible handicap. It is stuck in an aggressive cycle to demonstrate endless parabolic growth, in order to convince new investors to keep funding even more growth before they run out of cash from the last round. The focus is on growth, cutting costs, growing market share. But if product and service quality wasn’t already a company cultural priority, it will continue to suffer in this environment. 

So small businesses can step into this market and provide a great alternative for any customers that have the courage to look beyond the marketing. It’s not easy, but great work will always be noticed and rewarded. Don’t chase growth at the expense of quality. Don’t compromise traditional ethics. Treat people fairly and respectfully. And even if that doesn’t translate into a unicorn exit, it will establish a solid, reliable business that you can be proud of.