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TECH TALK: SMEs and Technology: IT Wal-mart

November 12th, 2003 · No Comments

Sam Waltons Made in America is a must-reading for entrepreneurs and managers. It is an extraordinary story about how Walton went from owing a single dime store in rural America to creating the worlds largest retailer. As I was reading the book recently and thinking about the problem of SME distribution, the answer came to me: we needed to have the physical equivalent of a Wal-mart-like store to showcase IT for SMEs, reachable in perhaps no more than 20 minutes (a distance of about 10 kms). But before we look at the solution, let us take a ride back in time and consider what we can learn from the remarkable organisation Sam Walton built:

In the fifties and sixties, everything about America was changing rapidly.

All the kids who had grown up on farms and in small towns had come home from World War II or Korea and moved on to the cities where all the jobs were. Except that they werent really moving to the cities;they were moving to the suburbs and community into the cities to workThe downtowns of big cities started to lose population and business to the suburbs, and the big department stores had to follow their customers and build brand stores out in the suburban malls.

In the small towns [where we were], you didnt see much of the mall construction and fast food neon that you saw everywhere else. You saw the small-town commercial centres start to shrivel up. A lot of our customer base had moved on, and the ones that remained werent stupid customers. If they had something to buy,they wouldnt hesitate to drive fifty miles o get it if they thought they could say $100. Not only that, but with the introduction of TV and the new postwar car models, being modern had become a big thing. Everybody wanted to feel up-to- date.

[It was the] strong customer demand in the small towns that made it possible for Wal-mart to get started in the first place, that enabled our stores to thrive immediately, and that eventually made it possible to spread the idea pretty much all over the country. For many years, we lived entirely off the principle that customers in the country and in small towns are just like their relatives who left the farm and moved to the city: they want a good deal as much as anybody. When we arrived in these little towns offering low prices every day, satisfaction guaranteed, and hours that were realistic for the way people wanted to stop, we passed right by that old variety store competition, with its 45 percent markups, limited selection, and limited hours.

While the big guys were leapfrogging from large city to large city, they became so spread out and so involved in real estate and zoning laws and city politics that they left huge pockets of business out there for us. Our growth strategy was born out of necessity, but at least we recognized it as a strategy early on. We figured we had to build our stores so that our distribution centers, or warehouses, could take care of them, but also so those stores could be controlled. We wanted them within reach of our district managers, and of ourselves in Bentonville, so we could get out there and look after them. Each store had to be within a days drive of our distribution center. So we would go as far as we could from a warehouse and put a store. Then we would fill in the map of that territory, state by state, county seat by county seat, until we had saturated that market area.

This saturation strategy had all sots of benefits beyond control and distribution. From the very beginning, we never believed in spending much money on advertising, and saturation helped us save a fortune in that department. When you move like we did from town to town in these mostly rural areas, word of mouth gets your message out to customers pretty quickly without much advertising.

Instead of the distinction between cities and small towns, think of large enterprises and SMEs. Instead of the distribution centre, think of the Internet. Instead of the consumer products, think new technology. Now re-read what Walton has written, and you get the idea. SMEs too are aspirational, wanted state-of-the-art solutions. But there is no one selling to them. Sam Waltons thinking is needed when it comes to setting up the SME stores: take a second- or third-tier town or city (preferably, an industrial cluster) and consider setting up the IT equivalent Wal-mart, not just to sell products, but more importantly, to provide solutions and services.

Tomorrow: Tech 7-11

TECH TALK SMEs and Technology+T

Tags: Tech Talk

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