"Local businesses recirculate dollars in their communities. An analysis of bookstores in Austin showed that, of every $100 spent in a locally-owned store (Book People), $45 were circulated back into the community, whereas only $13 made its way back into the community when $100 was spent at the nearby corporate chain store (Borders)."
Presumably the community local to wherever the Borders dollars end up is ok with this.
My point is that this kind of analysis stops half way. So what if business A doesn't channel its dollars to community A? Maybe it channels them to community B instead, or spreads them out over communities A, B, C, D etc. Perhaps there is a problem, but to figure out whether there is, the more important point to analyze is: when you add it all up and average over all businesses, is it a wash? After all, those dollars must be going somewhere, and I would think that they're making some communities somewhere pretty happy.
This quote is one of those intuitively plausible things that turns out not to be true: "the more important point to analyze is: when you add it all up and average over all businesses, is it a wash? After all, those dollars must be going somewhere, and I would think that they're making some communities somewhere pretty happy."
It doesn't work that way. Think of the "lifespan" of a typical book-buying dollar:
(a) A dollar in circulation is created along side a corresponding dollar of debt. Banks are not getting dollars out of their vaults when they make loans. They are typing some numbers into a computer and creating entirely new dollars.
(b) The dollar passes from hand to hand in various transactions, eventually reaching our book-buying consumer.
(c) Someday, the dollar will likely cease to exist when it is used to retire debt. Even before then, the dollar can wind up "parked" (noncirculating) in large accounts that are held in reserve (e.g., in cash or in constantly rolled over treasuries).
A dollar spent at a big corporation like Borders is much more likely to reach state (c) sooner. This missing spending doesn't move to some other community, it just never takes place.
Also, if I buy a book from Amazon instead of the local bookstore, then I can spend the money I save (from Amazon's discount off the list price) on other local businesses, such as restaurants. And the UPS driver who delivers the book to my door presumably lives in the local area, so he's going to be spending much of his salary in the local economy as well. His local job might not exist at all if not for the extra demand that Amazon and other non-local companies make on delivery services. I'm skeptical whether the analysis that was cited accounts for all these factors.
Good point, but if you have centers of innovation and ownership, they will inevitably pull wealth out of the less successful places. This leads to inequality and a disharmonious nation-state (I sound like the Chinese government, don't I?). But really, there is a cost even to the "home of the borders" when their customer bases are slowly losing the ability to buy books.
Wal-Mart for example cannot survive without local economies providing people with enough to spend on their bread and butter. If we end up in a situation where most wal-mart towns are paid by welfare, then we're in a very inefficient system. It could get to be that way if everything gets centralized in commercial hubs.
I find the argument about fostering more investment in smaller companies compelling. There is a distributed systems aspect to it, which might enable higher overall returns because of increased network effect (e.g. a business not only benefits from a direct investment, but also from investment in other business in the same ecosystem)? Is there something here that bigger funds are missing, or is there data/evidence against it? Maybe it just becomes to complicated expensive to manage a ton of small investments vs a few large ones in
a centralized manner? Maybe I'm missing something?
"Local businesses recirculate dollars in their communities. An analysis of bookstores in Austin showed that, of every $100 spent in a locally-owned store (Book People), $45 were circulated back into the community, whereas only $13 made its way back into the community when $100 was spent at the nearby corporate chain store (Borders)."
It's interesting they used book people as an example since they were a major force behind the "keep Austin weird" local business campaign.
Its great to see people recognising the importance of local businesses! They're the core of most communities, and if we let them die then the community around them also dies, and will be hugely difficult to bring back again.
We're working on this problem for food shops at Hubbub[1], providing a way for people who would like to support local shops to order online, and receive delivery at a convenient time. Through doing that they get better (and often cheaper) food, and the money stays in their local community, rather than going to a multinational chain of supermarkets.
If you're as passionate about supporting local shops as we are we'd love to talk to you, we're hiring now! Check out the details at http://developers.hubbub.co.uk/ or drop me an email.
How do you get local retailers to participate? In my experience, small store owners are so self-involved that they don't want to put any time and energy (let alone money) into cooperation, and are utterly averse to innovation.
Basically, anybody I know who has ever tried anything in this area now thinks "fuck it, let them get killed by big chains and online shops", because there seems to be zero survival instinct in this industry.
Where I live, and I believe it's the same in most of the UK, shop owners still close their doors at exactly those ours when the consumers with any kind of buying power want to shop, despite all the competition. They don't even want the support of cold hard cash in exchange for goods, let alone anything "online".
Another way of looking at it: There are millions of businesses trying to target local businesses, and they're all calling many times a day. If you're a small business you have so many pitches coming your way, you have to say "enough's enough" at a point and focus on your core business.
"Its great to see people recognising the importance of local businesses! They're the core of most communities..."
It makes sense.
Most people also don't realize that SMEs both in Europe and in U.S. represent more than 50% of the GDP. SMEs are the real backbone of the economy but they don't get as much spotlights as big corporation do.
There are a number of startup idea here, the most apparent of which is just a market (or portal) for your local market. If you've built your market you can then take the same approach and software a couple hundred miles down the road and start all over again in a new market.
This is intensely interesting to me. The source mentions http://missionmarkets.com/ which seems like it has a bit too much business speak to be approachable by smaller investors, but has a number of good ideas to help address risk.
I think... I need to start doing more research in this area.
There are some really amazing ideas in this article -- Direct public offering being the most intriguing. I imagine a local, kickstarter platform that would enable local businesses to raise funds and issue DPO shares. The main challenge seems to be that local businesses fall into the high-risk, low-return part of the risk-return graph. But then every WalMart, Microsoft and Google did start out as a local story. This is indeed revolutionary.
This startup out of NYC is doing something similar: www.smallknot.com (I saw a rep give a talk at a TechStars-hosted local business event).
This is the kind of thing that's hard to do on a nationwide basis so there's plenty of opportunity to do something similar in other markets, I'm sure!
Local business tech is hard: inherently more human sales required per dollar of revenue generally. But clearly it's the way to create lots of small-medium sized businesses with local specialties.
Presumably the community local to wherever the Borders dollars end up is ok with this.
My point is that this kind of analysis stops half way. So what if business A doesn't channel its dollars to community A? Maybe it channels them to community B instead, or spreads them out over communities A, B, C, D etc. Perhaps there is a problem, but to figure out whether there is, the more important point to analyze is: when you add it all up and average over all businesses, is it a wash? After all, those dollars must be going somewhere, and I would think that they're making some communities somewhere pretty happy.