When to sell to the big boys
When Dixons says it's sniffing around for an off-the-page outfit tobuy, what's the reaction of someone who has built up a business in thisarea?
Is it a problem or an opportunity that a cash-rich multiple is out there looking to take over an existing concern and transform it, in terms of its size and scale.
Competing against Dixons isn't a very happy prospect. Ask Escom, or Kingfisher or Thorn. So the other obvious alternative is to be the one who sells out to Dixons in the first place.
Many people would relish the prospect of selling out for a tidy sum.
As many venture capitalists will tell you, it's part and parcel of being a successful entrepreneur that you engineer an appropriate exit point from your entrepreneurial venture at a price that rewards you for your endeavours.
By that point, the business should have reached a size where a different set of managerial skills are required, anyway: the entrepreuneur should give way to the experienced manager. Professionally and emotionally this may be a hard switch for a company founder to make (ask Steve Jobs of Apple fame about that), so the founder's best option may be to sell out and start another small business. Or maybe you just retire gracefully to your villa in Spain ...
A precedent for this model in the computer retail business has already been set - by Dixons, in fact - when it paid out a tidy sum to the inventors of the PC World format. After a shaky start where Dixons had a dispute with PC World founder Jan Murray over the valuation of the company, PC World has worked well for Dixons, adding considerably to the group's bottom line.
Another example would be Whitbreads' purchase of the David Lloyd health club chain. But in that case David Lloyd did stick around, and a violent culture clash ensued.
But what about the people who love their business, enjoy success, but don't want to lose the pleasure of working on a smaller, more local scale; the people who neither want to sell out to a Dixons or a Whitbread, nor want their business to become another Dixons or Whitbreads in its own right?
In the last issue of CRN, I suggested that small companies don't necessarily have to measure their success these days by how quickly they become big companies. It is perfectly possible to envisage a retailer with four or five stores within a single region competing effectively against the multiples, and, through off-the-page and Internet marketing winning business farther afield. A person could live well on such a model, and probably even have time for life-enhancing stuff like families, travel, sport, art and various hobbies.
OK, at first sight, it sounds a bit dull and unambitious. But don't be deceived: there is room in this model for more and more revenue growth even if the basic infrastructure of the company remains the same. The secret, as in most retailing these days, is in the brand.
Imagine, for example, building up such a strong brand identity that you no longer have to sell just computers. Think of Sainsbury selling petrol, Tesco offering financial services or Virgin selling just about anything and everything.
Diversifying into other markets under the banner of a single brand, a small company could continue to stay small in terms of core infrastucture and company culture, even though revenues and profits continue to grow.
Already surrounding a basic computer purchase is the software, the support, the finance, training, teach-yourself books, networking, internet access ...
A smart computer retailer is already operating in all these markets, probably out of the same shop. Is it really such a great mental leap to add, say, a clothing range for computer geeks, coffee and cigarettes for consuming while you sit at your home computer - or even a whole internet cafe?
Certainly there is a stockholding issue here. Adding more inventory and overhead means locking up more cash. But then, that's exactly why you want to stay small, stocking a little bit of everything and watching closely to see how quickly each item moves off the shelf. Is this not a better way to grow revenues than betting the farm on a few games each Christmas - the same games that are being sold at roughly the same price by everybody else in town.
The real issue is who would want to work for a company that has no ambition to become bigger, where the boss keeps things small so that he or she gets to take home more of the profit, rather than sharing it amongst shareholders or armies of employees.
The trick with staff is to provide exactly the right mix of freedom and responsibility. If the company is small, usually the staff can work in a more informal, relaxed way. And it's amazing how highly people rate a relaxed, friendly working environment as a reason for going to work.
Promotion and a sense of getting on are also important to people, though.
So handing over projects, like developing the online side of the business, or expanding into a completely new area, can be a great way of handing out new challenges - and even some form of performance-based profit share could be part of the deal. Who knows? You may even feel inclined to go into some form of joint venture with your staff, one that enhances the overall value of your retailing model.
None of this is earth shattering news for an independent retailer with any nouse. It does, though, demonstrate that it isn't inevitable that we'll all eventually sell out to a Dixons in order to make our fortunes out of computer retailing. And, thankfully, we don't have to take them on at their own game either.
Tim Wright is a freelance journalist.