ABSTRACT:

The global marketplace has placed increasing pressures on small retail businesses in the United States. Because of their natural advantages of scale, resources and leverage, large competitors can decimate local establishments. Yet in this difficult environment, certain small businesses thrive including some that are in direct competition with large chain stores. What are their secrets to success? Is the strategy of each successful small business unique, or do they share similar strategies?

This exploratory case study examines six successful, but very different, small retail businesses in a single geographic market, of which all compete against large chains. The study, performed through open-ended interviews with owners and managers, sought to determine what strategies these small businesses utilize to compete successfully with large national enterprises. Many common strategies were found, including ones previously unidentified in prior studies. Overall, these strategies emphasize (1) excellence in the cultivation of relationships, especially with customers, employees, suppliers, and the community; and (2) excellence in providing value. Implications for small businesses and for future research are discussed.

INTRODUCTION

The worldwide marketplace has changed the nature of retail business competition. A generation ago, the primary competitors of a small retail business were other small businesses in the same city. Secondary competitors included larger businesses in the general geographic area, within a few hours' drive. Today, however, small businesses compete directly against enormous national chain stores, as well as huge Internet-based and telephone-order businesses. Many local establishments have been forced out of business by competition from unfamiliar companies located in parts of the world they have never seen, which offer products and services at prices the small companies cannot match. Others have lost sales and profitability when large national chains have moved into the area. As Gillette (1998) observed, "Small ‘mom and pop' businesses across the country have found it tough to compete with Wal-Mart, with resulting closures causing a ghosttown atmosphere in some downtown areas."

Yet, in this time of increased competition, some small businesses manage to not only survive, but to thrive. How do they do it? What strategies do these businesses employ? Are there specific strategies that are common across successful small businesses from which we may draw inferences and theories?

Prior research provides only limited answers to these questions. While a wealth of literature is available on business strategy, the bulk of it focuses on large companies. Similar research examining small businesses is much less abundant. Moreover, the limited amount of research that does exist largely fails to pinpoint specific strategies used by small retailers who successfully compete against national discount chains.

A few studies in the 1980's and early 1990's addressed small business strategy from the perspective of Porter's (1980) three macro strategies: cost leadership, differentiation, and focus. Much of this research recommended that because large firms have natural advantages in cost leadership and/or differentiation, small businesses should pursue a focus (niche) strategy, competing on customer service, product specialization, and product customization, rather than on price (Covin & Covin, 1990; Watkin, 1986). However, more recent research has seemingly contradicted this "prevailing wisdom," finding that small merchants respond to mass-merchandisers' competitive pressures by placing greater emphasis on lower prices and increased promotional activities (McGee, 1996) and that aggressive pricing strategies are positively associated with performance among small retailers affected by the entry of a large discount chain (McGee & Rubach, 1997). Other early studies on small business strategy (e.g., Chaganti, 1987; Chaganti, Chaganti & Mahajan, 1989; Variyam & Kraybill, 1993) were similarly broad and focused primarily on manufacturers. The strategies identified do not translate well to today's competitive retailing environment.

In the last 15 years, a number of studies have examined various types of strategies in a small business environment. For example, several studies have identified strategies based on relationships with customers, such as excellent customer service and excellent products (Tagiuri & Davis, 1992); service policies oriented toward personal interaction (Lyman, 1991); and a focus on customer satisfaction, quality of services and products, and long-term customer satisfaction (Miller, McLeod & Young Ob, 2001). On the other hand, Cooper, Upton and Seaman (2005) found that although family business owners believe strongly in a customer orientation, they are not necessarily committed to formal customer relationship management initiatives. Nevertheless, the literature does indicate that strategies designed to foster strong relationships with customers are clearly identified with small business success.

Other strategies identified as associated with small business success include market orientation (Kara, Spillan & DeShields, 2005), innovativeness (Verhees & Meulenberg, 2004), quality practices that enable change and flexibility (Kuratko, Goodale & Hornsby, 2001), risk taking to provide new and cutting-edge products and services (McCann, Leon-Guerrero & Haley, 2001), shared cultural values between owner-managers and employees (Haugh & McKee, 2004), and high community values (Miller & Besser, 2000). Additionally, the existence of collective and cooperative small business behavior has been reported (Dollinger & Golden, 1992) but has not been linked to performance.

One study that approached the same research question as the present study but with a different methodology is Billesbach and Walker (2003), who conducted a survey of 58 successful small businesses located in areas where Wal-Mart had recently opened stores. They reported that the top 10 success factors used by successful small retailers in that situation are: customer service training, product knowledge training, adding higher quality products, adding merchandise lines, developing broader merchandise selection, adding unusual merchandise, improved store displays, dropping merchandise lines, adding different types of merchandise, and adding special customer services.

A review of these articles reveals the following shared characteristics: First, nearly all the studies used a survey methodology in which the researchers pre-defined the universe of potential strategies examined. Second, the strategies identified on the survey instruments are, for the most part, derived from literature that is decades old. Third, the samples often include either very small companies (1-2 employees) or comparatively large ones (up to 500 employees or more) that are not typical of traditional small retail businesses. Fourth, with few exceptions, the samples lump manufacturing, service, wholesale, and retail businesses together, and they often include either no retail merchandising businesses or only a very small percentage of such businesses. Some studies have been conducted in countries outside the United States, where the impact of large retailers and/or internet vendors had yet to be fully felt by local establishments, or in lines of business not affected by such large vendors. Finally, most of the studies either did not measure firm success or relied on self-reported measures of success. In summary, there is a paucity of research that identifies the specific strategies currently being used by small retail establishments that are succeeding in competition against large chain stores and internet vendors.

While this topic has not been extensively researched academically, it has been of interest in professional journals and the business press. Several popular books on this subject have been published (e.g., Stone, 1995; Taylor & Archer, 1994, 2005). Additionally, a number of articles in trade journals have enumerated various strategies for small retailers to "beat" the large chains, including personal relationships with customers and excellent customer service (Biberman, 2001; Hoover & Hoover, 1999; Rubenstein, 1989; Stone, 2000).

We conclude that a need exists for research specifically directed at the question of what strategies are used by small retail businesses that compete successfully with large national companies. This paper attempts to fill this void by reporting the results of an exploratory study examining successful retail establishments in a single metropolitan area into which many large, national chains have entered in the last decade.

METHODOLOGY

Six successful and growing small local businesses that are in direct competition with large competitors were selected for this study. Four are primarily retail merchandisers (lawn and garden store, sporting goods store, grocery store, and electronic products store); one is a service retailer (bank); and one is a combination of retail merchandising and retail service (appliance store). In personal interviews with the owner-managers, the researchers asked variations of a single question: "What are the things that make you successful?" Follow-up questions went along the same lines: "What else do you believe makes you successful?" "Is there anything else you do that makes you successful?"

A key feature of this research is its use of an open-ended, unstructured interview methodology and a qualitative, interpretive analysis of responses. Nearly all prior studies in small business strategy have used a survey methodology and a statistical analysis of results. Advantages of that methodology include statistical significance and reliability, as well as generalizability, while disadvantages include a loss of detail through aggregation and problems with some aspects of validity. For example, in a survey of small business strategies, the strategies are identified in advance by the researchers, not by the owner-managers. Thus, it is not clear whether the constructs selected beforehand by the researchers are inclusive of all relevant constructs of interest; the results only show how the participants rank the constructs supplied on the questionnaire.

The methodology used in this study is particularly useful for exploratory research for several reasons: First, because the interviews are in-depth and open-ended, they may uncover new variables relating to small business success that were previously unknown. In-depth interviews have the advantage of allowing owner-managers to select their own factors of success without being influenced or steered in a particular direction. Second, by collecting qualitative information in a non-aggregated, non-averaged manner, this type of research may provide information at a level of depth not capturable by questionnaires. Third, the selection of a very small sample of businesses allows for the inclusion of only businesses that are successfully competing directly against large national discount chains; thus, the results are undiluted by small businesses which are either struggling for survival or are marginally successful. Finally, by limiting the sample to a single geographic area, potentially confounding variables such as differences in culture and city size are eliminated.

BUSINESS ENVIRONMENT

All six businesses are located in Cache Valley, which is located in northern Utah and southeastern Idaho, with a metropolitan population of approximately 100,000. The primary city in Cache Valley is Logan, Utah, with a population of 50,000. Ten years ago, the business landscape in the area was dominated by small businesses. At that time, K-Mart was the only large discount store in the community. Small businessmen's largest concern was sales lost from local patrons leaving the city to shop in the Salt Lake City metro area 80 miles away.

In the last decade, the business landscape in the area has drastically changed. Small business owners no longer complain about retail sales dollars leaving the area; instead, they are now facing far more formidable perils, much closer to home. Large national chains – including Wal-Mart and Sam's Club – have moved into the area, wiping out many local businesses. For example, the local hardware store closed when Home Depot and Lowe's both moved into town in the same year. The local pet store went under when PetsMart opened. Several local auto parts stores closed when AutoZone and Checker both came to town. Many local businesses have also been adversely affected by increasing Internet and 800-number sales.

However, during this same time period, a number of local businesses have survived, while a few have experienced remarkable growth and success. It is these successful firms that are of interest. What do they do to be successful? Are their individual strategies unique or do they exhibit a similar pattern across such businesses? In the sections that follow, each small business and its strategies for success will be described, then a summary of the strategies of all six businesses will be summarized and discussed.

FINDINGS

Darrell's Appliance Service and Sales was started in 1970 by a service technician named Darrell Ricks. For three decades, the business was located at the family residence in a tiny farming community about 10 miles from Logan. Recently the business moved into a beautiful, new facility on the outskirts of Logan. While the original proprietor is still actively involved in the business, three generations of his family are currently employed in the business. Of Darrell's 18 employees, 10 are family members. Darrell's local competitors include such giants as Sears, Lowe's, and Home Depot, as well as other locally-owned appliance centers. Additionally, other large competitors are located in larger cities a moderate distance away. In the last 10 years, as competition has increased, Darrell's sales have increased tremendously. Service revenue has nearly doubled, while merchandise sales have more than quadrupled. The owners and managers of Darrell's were interviewed in a group setting by the authors, who asked, "What are the things that make you successful?" The following are their responses:

Relationships with Customers:

• We treat customers with respect. We want them to say "I feel like somebody" when they come into our store. Each customer is important; we can't afford to ever say, "Stick it to them; we don't care if they come back."

• We know our customers... many, we know by name. Some come into the store just to visit.

• We focus on customer service. If we take care of service, sales will follow. The national competition can't touch us on service; we service everything - even what we don't sell.

• Complaints are usually caused by misunderstanding; our approach is to talk to them and say, "We value you as a customer. How can we make this right?"

• We are honest with our customers. We don't push sales on service calls; we don't try to sell them something new if their malfunctioning appliance can be repaired cost effectively. We lay out the options, then give the customer the choice.

• We do not pay commissions based on sales.

Relationships with Employees:

• The national competition can't match the quality of our employees - they have very high turnover. We hire good people, train them extensively, and treat them well so they will stay. We want to keep employees a long time for two reasons: first, it is very costly to train; and second, repeat customers prefer to see a familiar face.

• When hiring, we interview extensively.

• We rate employees with a score based on customer relations/people skills; dependability/integrity; tenure; knowledge/expertise/competency; appearance/personal habits (including grooming and cleanliness); and personality/attitude/teachability.

• During employee training we teach our culture, customs and values.

• We are committed to continuous education for our service people. We send our technicians to every seminar and school there is.

Relationships with Suppliers:

• We belong to a large national buying group. This allows us to band together with other small businesses to get a good price for our inventory. We can now sell products for less than we used to pay for them. This buying group is a very important key to our success. We could not compete pricewise with the national chains if we were buying on our own.

Relationships with Community:

• We seek top-of-mind name recognition. Our advertising is for long-term name recognition. We try to have people hear our name three times a week. Ten years ago, 85% of our customers came from yellow page ads. Now, it's mostly word-of-mouth and reputation. Only 10% of our customers now find us in the yellow pages.

• We want to project a certain image in the community. We spend extra for chrome bumpers and wheels and nice paint jobs on our service trucks.

Product Line:

In our product line, we focus on value. We want to offer the best value for every day use; a combination of quality, dependability, and features, at a reasonable price. Not something cheap, but something good, with the price in the ball park with the competition.

• Customers' tastes are changing. Products are changing. Technology is changing. We want to always be on the leading edge of those changes. Because we are small, we are able to respond to trends faster than the big chains.

Other Strategies and Philosophies:

• We were here first. If we do things right, the big stores can never catch up with us. If we take care of ourselves, we have no worries about the competition. We are more afraid of standing still than we are of our competition.

• We care about our business. We do it for fun. We grow it for fun. It's the American Dream. We love it.

Anderson's Seed and Garden is a third-generation family business that a decade ago was struggling, but is now very successful. It is located in the old downtown business district of the city, not on a main thoroughfare or prime location for this type of a business. Yet, since the current proprietor took over from his parents, it has flourished. Interestingly, Mark Anderson has both a BS and MS in history and had originally planned to get a Ph.D. and teach in a university setting. Instead, he is thoroughly enjoying running the family business. He is a well-known figure in the community from his weekly newspaper columns and community cable TV programs. Here are his responses to the question of what makes his business successful:

Relationships with Customers:

• What we really sell is not product, it's information. People come to us because we solve problems. We have a three-step process: first, identify the problem; then, we solve it with a product; and finally, we teach the customer how to use it. We never just sell a product; we make sure the customer is prepared to use it properly. If we sell a pesticide, for example, we tell the customer the proper mixing ratio and write it on the bottle.

• We can't solve problems unless we can get the customer into the store. We seldom give information over the phone. When someone calls, we encourage them to bring in a sample of the problem – a patch of dead grass or a dead insect, for example – so we can properly diagnose the problem. Once they are in the store, we can lead them to the product that will solve their problem, and they will buy it from us.

• We don't pay sales commissions.

• I don't hide in the office. I can pay someone else to do the tedious bookwork. My wife and I are our best sales people – we can make two to three times the sales of anyone else. We spend our time personally interacting with customers.

• We try to handle complaints fairly, but we don't automatically give a refund. One thing we struggle with is drawing the line where it becomes the customer isn't right. If a customer comes in and argues that a product didn't work and we know it always works if used properly, we try to educate rather than just caving in and giving a refund. We want to solve the problem. Giving a refund won't solve the problem.

Relationships with Employees:

• We are very careful in our hiring. We hire for personality, not knowledge. We can teach knowledge and provide experience, but we can't teach someone to be outgoing.

• We try for continuity. Ninety-five percent of the time, you can see the same person who helped you the last time you were in the store. This is a college town, and many of our employees are students, so we try to hire freshmen or sophomores who can return next year. We are generally able to keep our employees for three years.

• We hire people before we need them. We hire and train in January and February, so they are already up to speed when the busy season starts in March. We spend 2-3 hours a day working on product knowledge until busy season.

• We don't want "sales people." We want friendly, courteous people who are part of a team effort.

Relationships with Suppliers:

• We belong to a large, voluntary buying group. This helps us with keeping prices down. It also gives us some help in advertising and product knowledge. At the annual meeting, we meet with other people in the same business, and pick up something new every year.

Relationships with Community:

Our advertising model is designed to bring name recognition. We rely first on word of mouth, then on our weekly newspaper column and our local TV channel show on gardening, and finally on occasional call-in radio shows.

• We emphasize heritage, service, and knowledge. People actually trust us more than the university agricultural extension agent. (In fact, the agents call us sometimes when they don't know the answer!)

Product Line:

• We carry a larger selection of products than the big stores. Thus, we are more likely to have a product that will work best for a specific problem.

• Because we are small and independent, we are able to respond quickly to trends and to take advantage of them.

Other Strategies and Philosophies:

• We do not worry about the competition. We have too much to do to worry about them. We know what we can excel at and we focus on that.

• What does concern me is getting too big too fast, overexpanding, stretching things, and in so doing, losing the interaction with our customers.

• We have an identity – a personality. It's not "Anderson's Seed," it's "Mark Anderson." It's me that's on TV; it's my wife and me who are in the newspaper. The big stores are nameless and faceless. Our advertising is not just information, it's our personality.

• I love doing this. It's fun.

Al's Sporting Goods, a full-line sporting goods store, has been in the city for 82 years. Because Logan is located in a mountain valley where many residents take advantage of the opportunity to ski, hike, mountain bike, and camp, sporting goods are a significant market in the locale. A few years ago, Al's moved from an older, small (6,000 square foot) building to a very attractive, modern, spacious (33,000 square feet) facility. Their main competition comes from "the marts" (Wal-Mart, K-Mart, Shopko and Fred Meyer), Gart's (a national chain of sporting goods stores), and various local specialty shops. In the last ten years, as the large national competitors have moved into the area, Al's sales have approximately tripled. The owners are not directly involved in running the day-to-day business. We interviewed the manager, Chris Thompson, who indicated the following keys to its success:

Relationships with Customers:

Our employees are key to our success. We have on staff twice as many employees as Gart's. It is a big cost to us but that's why people come here. We pay more for salaries, but that's our business model. When you come in here, there's always someone to help you.

• We hire employees who are experts, who actually use the equipment and have a passion for the sport. Customers will be fitted by someone with expertise.

• We do not pay commissions. We don't want our people to push the highest-priced items. Yes, we emphasize sales, but even more emphasis is placed on good customer service.

Relationships with Employees:

• We have good employees; there is a surplus of good people in this valley who want to work here, so we can be selective.

• We look for people with friendly personalities. Think of the TV show "Cheers"; that's what we want: people who come across, make a connection, and feel like family.

• We try to find people who will stay with us for a while, and we ask them to commit for at least a year when we hire them. Repeat customers like coming back to the same person.

• We do extensive training, including bimonthly training in each department where we focus on products and trends in that specific sport so our employees will know what's coming, what our strategy and thinking is, and how each brand fits into the picture. Additionally, each employee receives one-on-one training, based on what we feel that employee needs to work on.

• Wages and bonuses are based on long-term performance, not just sales. We evaluate employees annually using what we call a "360 evaluation" in which all peers evaluate each employee on a confidential basis, as well as using customer feedback and supervisor evaluation.

Relationships with Suppliers:

• We belong to the largest sporting goods buying group in the nation. This gives us a tremendous advantage and allows us to price at or below the national chains. We couldn't do it without our buying group. If we were by ourselves, we would pay 25 percent more for our merchandise. Also, the buying group does research for us and spots trends in the market that we can exploit.

Relationships with Community:

• We are a landmark in this area. We have a reputation.

• We are involved in the community and sponsor Little League, races, bicycle events, etc. People know us.

• We play on the fact that we are "locally owned."

Product Line:

We try to have something for everyone. We carry high-end specialty products and low-end products like the "marts," but 60 to 70 percent of our sales are on moderate, intermediate products. We have a bigger variety than the big discount stores and also than the small specialty shops.

• An advantage of being independent is that we are much faster to respond to opportunities. We can take advantage of special buys and close-outs. With our buying group and independence, we have the best of both worlds.

Other Strategies and Philosophies:

We set prices based on the competition. We will match or beat anyone's advertised price, including Internet prices, and we'll refund the difference if you find it cheaper after you've bought it from us. That's one of the advantages of being independent - we have pricing flexibility. I check Internet prices before setting out our products.

We do a lot of advertising. We pick a theme and make an event out of it. Rather than two ads in consecutive weeks with one bike and one tent in each, this week it's bikes, and next week it's camping. We have a large lawn in front of the store where we set out all the bikes and have a huge bike sale. People notice all the bikes and stop by. We'll stay open late and have a midnight madness sale on bikes. We'll set up a huge awning and have free hot dogs and soft drinks. Interestingly, we usually don't have to discount the prices steeply; often, the prices are actually the same as our everyday prices in the store, but we sell a ton because there's so much traffic.

Our new facility is nice. It's in a good location, there's a lot of foot traffic, and it's attractive.

• Our employees who are successful have a passion for the sport and love to talk about it and share their knowledge. Likewise, management has to love business. You can't be successful unless you love it!

Lee's Marketplace started as a small (20,000 square feet) grocery in a small residential community 10 miles from Logan. In 1994, Lee's took a risk and constructed a new building across the street, doubling its size. Then, in 1999, it opened a second store in Logan. Lee's sales have increased more than 400% during a time when competition has increased tremendously, as Sam's Club opened and both WalMart and Fred Meyer expanded to include groceries, all within a three-year span. Following are the proprietor's answers to the question of what makes his stores successful:

Relationships with Customers:

• We care about our customers. If you solely go on price, you're not going to win against the big stores. They will be 3-5% below you. So we have to do something they can't do. We hire real bakers and real produce guys. At Wal-Mart, they're all minimum wage. We provide better service and expertise.

• I meet with customers and employees every day. They know I'm here and involved, and that I care. People I don't even know say "hi" because they recognize my voice from my radio ads.

Relationships with Employees:

• You're only as good as your employees. They are both the funnest and the worst parts of this business.

• You must have and communicate a vision and mission of what you want from employees.

• We have found that as we provide a good work environment, good people come to us seeking employment. It comes from top management down. We can be selective.

• We send our people to specialized schools sponsored by trade organizations to improve their expertise.

Relationships with Suppliers:

• We belong to a very large buying group of 550 independent grocery stores. This gives us tremendous buying power. Sometimes, our group pools with other co-ops to get even better prices. Our buying group also gives us excellent information and consulting resources for major business decisions, including technology, computer systems, benchmarking, store development, research on financing, and even architecture. We don't even have to ask - they conduct market studies and come to us and make recommendations. For example, our 1994 expansion was their idea. They came to us and said that, based on their market studies, we either had to expand or die.

Relationships with Community:

• We are a part of the community. People identify with us because we sponsor community events and organizations.

Other Strategies and Philosophies:

• You have to go out on a limb to succeed. We've taken some big risks to get where we are. Too many small business owners don't want to put the money and effort in to really succeed. They just want to survive. But if you have that attitude, you probably won't survive.

• We always keep investing in the business. When things get tough, you need a reserve. We are honest, upright and straightforward in our accounting procedures. We leave a lot of resources in reserve for the business.

• You must have a passion for it. You need to be there every day. An absentee owner doesn't succeed when times get tough. I enjoy what I do.

• Location, location, location. In the grocery business, location is extremely important. People will often shop at a grocery store they don't particularly like just because it is convenient.

• You need a vision, and it has to evolve. When you get there, you need a new vision. I get out and about to see other cities, and I walk their grocery stores to get ideas. We also attend seminars and classes regularly to check out new processes and ideas.

• The scary part of any family business is passing it on to the next generation. Many small businesses fail when the younger generation, who has been pampered in luxury all his life and has no work ethic, takes over. We are preparing our son to take over as a second generation proprietor. We will not just give it to him. We have outlined a very specific course he must follow, which includes a high quality college education, as well as working out-of-state in other environments in internship positions.

Lynn's Audio and Video is a second-generation home entertainment store with a stellar reputation for quality, state-of-the-art merchandise, knowledge, and service. At the recent sale to celebrate its 45th anniversary, Lynn's customers reveled in nostalgia, reminiscing about experiences such as buying their first black-and-white television set at the store, many years ago. The current owner, Bret Hancey, purchased the store from his father, Lynn, two years ago. Lynn's is in competition locally with large retailers such as Wal-Mart, as well as with a local rival store named Stokes. Best Buy recently opened a store in Logan, less than one block from Lynn's. Additionally, for large entertainment center purchases, many local customers shop in the Ogden and Salt Lake City markets at large box stores. Naturally, Bret has concerns about the direct and indirect competition; however, he is not worried about the future. The following are his answers to the question of what makes his store successful:

Relationships with Customers:

• We offer more. Most of it is service. We service the customer from the time they walk in the door until the product is installed in their home and operating properly. The large stores just drop it off. They don't care whether you know how to hook it up or whether it works. Frustrated customers of large stores often call us to help them set it up when they can't figure things out. We also service the products; we are the only retailer in the area that has an in-house service department on-site.

• The other thing we offer more of is knowledge. We are the "answer place". We are where people call when they buy something at Wal-Mart and can't get it to work. Half of our calls are from people who have recently purchased a product elsewhere and need information on how to hook it up.

We work hard to develop relationships with customers. Shopping here needs to be a good experience. Customers are greeted, waited on, and helped, and this helpfulness extends all the way through delivery. We want them to feel good when they walk out the door. They are not pounced on when they walk in, but they get the help they need. We teach our employees to have empathy for the customers; to place themselves in the customers' shoes.

• We emphasize honesty and integrity. We never use false or misleading advertising. I once had to fire a salesman who was my top producer, because of his high pressure tactics and lies he told customers. He couldn't believe I would fire him, but my relationships with customers are more important than this month's sales numbers.

Our sales people are paid with a mixture of salary and commission. My father never paid commissions, but I find that a small commission helps incentivize employees to stay on top of product knowledge. However, less than 30 percent of our compensation is commissions. The national chains use one or the other; either straight salary (which leads to poor customer service, lack of knowledge, and no incentive to sell) or straight commissions (which leads to pushy salesmen who become enemies to each other).

• The large stores bonus employees based on selling extended warranties; we don't do that. We offer extended warranties, but don't push them. We let the customer make an informed choice.

• I spend a lot of my own time on the floor, greeting customers and working with my people.

• When a customer has a complaint, if they realize you do care, they'll usually respond.

Relationships with Employees:

I'm selective in hiring. I do all the interviewing. Two-thirds of our new hires have no prior sales experience. I'm more interested in their personality. I want to hire a "people person" who relates well to others. I don't care for high pressure salesmen. I've tried hiring people with excellent resumes (selling cars, clothes, etc.), but they seldom work out. They don't fit our culture.

I try to hire people who have a passionate interest in and love for audio and video technology. I want people who will learn as much as they can about the products. The large stores have sales clerks who have very little product knowledge. I fire people who don't want to learn.

After I hire someone, I personally spend a lot of time in training. Additionally, we have a sales meeting a week for group training on new products and technology.

• We maintain a friendly work environment where everyone is on a team together.

Relationships with Suppliers:

We belong to a very large buying group, which allows us to be competitive on prices. We were one of the first businesses in the valley to join such a group, 20 years ago.

Relationships with Community:

• We have a strong tradition in this valley. People know who we are and what they can expect of us.

We support local activities. We try to do more than just donations to athletic teams.

Product Line:

Service and knowledge are 2/3 of our success. The other 1/3 is that we only sell the very best brands. Not necessarily the most expensive, but the highest value (quality for the price). We select products like a knowledgeable consumer would. We don't carry junk brands. We also don't carry products that can't be serviced or are so expensive to service that no one will want to fix it. For example, our least expensive car stereo is an Alpine for $159. When customers ask for $50 throwaway units, we just send them to K-Mart.

Other Strategies and Philosophies:

• Some people assume the large stores will be cheaper, but their overhead is enormous. Our pricing is competitive, and we will match any legitimate price on the same product.

Lewiston is a small farming community located 20 miles from Logan. Lewiston State Bank has served that community since 1905. During the 1990s, competition in banking in Cache Valley increased significantly, with large banks merging and buying each other out, and with several large, statewide credit unions moving into the Logan area. Yet, during the last 10 years, Lewiston State Bank has grown more than 300%. In 1996, they opened a branch office in the outskirts of Logan that is successfully competing with the larger banks. The following are the answers given by the President of the bank to the question of what makes them successful:

Relationships with Customers:

The big banks make decisions in Salt Lake City or San Francisco. We are able to provide better service because we make decisions here.

We emphasize person-to-person service. We have a goal that a customer should never get the answering machine when they call. We want a real person to answer the phone.

We offer a personal touch the big banks lack. We like to get in and work with people. As president of the bank, I often spend time in the foyer, personally visiting with customers. Our biggest challenge is not losing the personal touch while we grow.

It's more important to us to take care of a customer than to take care of an account. Some of the large banks are using formal "customer relations management" models that try to mathematically determine which customers are profitable, so they can focus attention on them and dump the customers who supposedly aren't profitable. We don't do that. We care about every customer.

• We don't require our people to market. We don't commission or bonus them for sales.

Relationships with Employees:

Our employees are very important to us. We try to hire people who will stay with us a long time. Personal relationships are the key to our business, and we want consistency in the faces people see when they walk in the door.

When hiring, we look at how well the person will fit in with our customers and staff; how they are with people. Can this person build relationships with customers?

After hiring, we try to teach them our culture.

We use Internet training programs for technical knowledge, supplemented by hands-on personal training. Also, we have a branch-wide staff meeting each month as well as individual group meetings monthly.

Relationships with Suppliers:

We belong to two organizations of community banks. By pooling together, the small banks can afford experts and lawyers in various specialty areas. These organizations bring us information on legal issues, compliance, and policy, so that we have almost the same kinds of information resources as the big banks. They also provide us with some training programs.

Relationships with Community:

• We're here. We know the territory. We know the people. We've been here 100 years.

• We don't formally advertise much. It's not much more than "we're here" and we let people talk about us. Word of mouth is our best marketing.

• This bank is not for sale. Many small banks start up then sell out to larger banks after 10 years or so. We're in it for the long term, and we run it that way. Our customers trust us.

We try to make sure we're a presence in the community. We support local events and organizations.

Product Line:

We offer our customers choices. We have ATMs and an Internet site, but we don't force people to use them. We let our customers have the option. Many of our customers are attracted to us because they like our traditional ways of doing things and they feel frustrated with the changes in the big banks.

You need to find a niche but remain flexible. We watch the big guys because they create needs. They do advertising and create demands for things that didn't exist before. We can't do everything they do, but we find out what we can do and do it well.

Other Strategies and Philosophies:

Be what you say you are. A bank must be trusted, so we do things that establish trust. We constantly ask ourselves, "Are we providing what people want?"

SUMMARY AND ANALYSIS

Clearly, the managers of these six small businesses hold specific beliefs about what makes them successful. Collectively, they identified 40 strategies, which are compared in Table 1, organized per the six groupings used in the discussion above.

LINK HERE FOR TABLE 1

An important contribution of this study is the validation of strategies previously identified in the literature. As expected, many of the 40 strategies have been identified in prior studies, such as excellent customer service, quality products, focus on customer satisfaction, innovativeness, risk taking, high community values, product knowledge, advertising, aggressive pricing, and flexibility in responding to new trends.

A second contribution of this study is the identification of strategies not previously discussed in the research literature. For example, the owner-managers of each of the six small businesses in this study stated that their membership in a large, national buying group was one of the key factors in their success. They expressed that such groups not only give them tremendous buying power that approaches the prices paid by national chains, but also marketing, market trend, legal, and other specialized expertise traditionally classified as strategic advantages of large firms. Although Dollinger and Golden (1992) previously observed that small manufacturers engage in collective and cooperative strategies, this relatively recent phenomenon of many small retail businesses across the country banding together on a large scale for strategic purposes has not previously been identified as an important strategy for small business success.

Another previously unidentified successful small business strategy found in this study is an emphasis on careful hiring; specifically, hiring for personality, rather than expertise/experience. Likewise, emphasizing low turnover, indoctrinating employees on in the culture/customs/values of the firm, creating a friendly work environment, hiring employees who have a personal passion for the product, and hiring/training new employees before they are needed, are strategies newly identified in this study.

An unexpected new finding is that most of the business owner-managers specifically stated one of their keys to success is that they do not pay commissions to their sales staff and/or do not use high pressure sales tactics, preferring to create a helpful, friendly, cooperative, respectful shopping environment.

Interestingly, although these six small businesses each expressed a strong customer orientation, they did not generally follow practices based on the Customer Relationship Management (CRM) model. In fact, one manager expressed disdain for certain aspects of that philosophy, saying CRM was one of the weaknesses of his larger competitors that his business exploits. Rather than identifying "profitable" and "unprofitable" customers and treating them differently, these businesses expressed that they treat all customers with respect, caring, personal interaction, problem solving, fairness, and honesty. This finding is consistent with Cooper et al.'s (2005) finding that family business owners do not use formal CRM initiatives.

An interesting observation is that many of the strategies commonly included on research survey instruments for small business success were not mentioned by the owner-managers in this study. Of particular salience are those that had been identified as "top 10" strategies in Billesbach and Walker's (2003) survey of successful small retailers (i.e., adding merchandise lines, adding unusual merchandise, improved store displays, dropping merchandise lines, adding different types of merchandise, and adding special customer services.) A third contribution of this study is to point out this inconsistency. Additional research is recommended to determine why these strategies rated highly in that survey but did not surface in this study's interviews.

THE CACHE VALLEY SMALL BUSINESS MODEL

Not every interviewee identified the same set of strategies. However, considering the unstructured and open-ended nature of the interviews, the degree of similarity of the responses and the number of strategies identified by more than one business is remarkable. The final contribution of this study is that there appear to be two consistent themes across all of the businesses, and embodied in the 40 strategies:

1. The cultivation of excellence in long-term relationships with customers, employees, suppliers, and the community; and

2. The pursuit of excellence in value – not just meeting the competition, but consistently beating the competition in product value, choice, service, and quality.

The results suggest a combined overall strategy embodying both dimensions; namely, excellence; i.e., excellence in long-term commercial relationships and excellence in value of products and services. Four of the six categories of strategies specifically addressed key relationships of the business (customers, employees, suppliers, and the community). These strategies stress the importance of excellence in the cultivation of these relationships, whether it be customer service, employee training, or joining with other businesses into product buying groups. The product line category emphasized excellence in quality, choice, and responses to market conditions. What is more, many of the "other" strategies and philosophies – passion for the business, excellent facilities, and vision – are also related to pursuing excellence.

Not all small businesses operate by this same model. Many emphasize quick sales at the expense of long-term relationships; low-wage employees, with high turnover; cheap product lines, with little concern for quality of product or service; and little connection with the larger community. Though such strategies would appear to be inexpensive in the short-term, we found no small business in Cache Valley that has been able to thrive over an extended period of at least 10 years using such strategies.

LIMITATIONS

As in any field study, there are limitations on the validity and generalizability of the findings of this study. One important limitation regards the potential for Type II error in the findings. Because the interviewers asked only open-ended questions, the findings may not include all strategies that are important to the success of a particular business. For example, the authors do not know whether Anderson's Seed, Al's Sporting Goods, Lee's Marketplace or Lewiston State Bank place an emphasis on honesty. All we know is that Darrell's Appliance and Lynn's Audio and Video mentioned honesty as a key factor to their success. It is possible that the other businesses also emphasize honesty, but that the interviewees did not think of that factor during the interviews. Likewise, we don't know how Al's Sporting Goods, Lee's Marketplace, and Lewiston State Bank handle customer complaints; what we do know is that the other three businesses mentioned complaint handling with empathy and fairness as critical to their success. Thus, the potential for false negatives is high. Future empirical research is recommended to measure how many successful small businesses utilize each of the strategies listed in this study.

A second limitation of this study is that the owners' evaluations of the effectiveness of various strategies is based solely on their perceptions. Thus, this study does not examine whether the strategies cited by these small business owners actually contribute to their success. Future research could use a larger sample and statistically compare successful small businesses with less successful ones to determine which strategies are the most robust.

Another potential limitation of this research relates to the possible existence of self-serving attribution bias and actor-observer attribution bias among entrepreneurs when they enumerated the factors that contribute to their business success. Self-serving attribution bias is characterized by a willingness to take credit for success while denying responsibility for failure. Actor-observer attribution bias relates to differences in perception between people who observe an event versus those who are part of the event and whose behavior is being examined. Rogoff, Lee and Suh (2004) reported that entrepreneurs tend to attribute success to internal causes and to attribute barriers to success to external causes, and that outside experts are less likely to do so. While we acknowledge the possibility of such bias in this study, we believe it is largely irrelevant to the research question. The implication of the question, "What makes you successful?" is "What do you do that makes you successful?," rather than "What external factors make you successful?" While external factors undoubtedly do affect success, they are not controllable and are, therefore, irrelevant to the research question of what strategies result in small business success. Thus, attribution bias, to the extent that it exists, is not considered a serious limitation in this exploratory study.

A final limitation of this study relates to generalizability. Although we have no reason to believe the strategies cited by these business managers could not be used successfully in other geographic areas, nevertheless, because all the businesses in this study are located in a single, relatively rural metropolitan area, it is possible that the results are not generalizable to other markets. Further research is recommended to explore this issue.

CONCLUSION

This study makes four main contributions. First, it confirms that many strategies previously identified in the literature as associated with success in small businesses are applicable for small retail businesses facing competition from large national discount chains. Second, it identifies a number of strategies for small business success that have not been previously discussed in the literature. Third, because some strategies examined in previous studies were not mentioned by the interviewees, this study raises the question of whether these strategies are as important as once thought. Finally, the study provides an overall conceptual framework for small business strategy based on excellence in relationships and excellence in value. REFERENCES

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