Wayfinders believes that if we play our cards right we are stronger together. The 20th Century was great for global trade. Many products today have components that come from different countries, and we enjoy the diversity of products at affordable prices that global trade makes possible. Many developing countries are included and are growing their own consumer markets for goods we make here. This is all good.
At the same time, the massive global economies of scale benefit from geographic concentrations of related industries. We see these industry clusters in places like Silicon Valley’s IT sector, Alberta’s oil patch or southern Ontario’s manufacturing belt. Regional cities become hubs attracting investment and skilled talent from around the world. This is where people get the highest leverage, the highest return on their investment.
What happens then is a brain drain from locations that do not have a specialized industrial base that is large enough to be globally competitive. There is also an investment vacuum in those drained areas as investors can make more money in those attractive hubs.
If you’re not in one of those global industry hubs then your local economy is subject to continued erosion from outside attractions. While no entrepreneur is likely to start a business for the purpose of diversifying a local economy, smart entrepreneurs who sense a commitment to their community will find ways of tapping into local resources and leveraging them for community benefits. What this means is that when a local economy is based on some shared goals, mutual respect and trust, then we can all be more successful. Here’s how.
Its All Psychology
Every business finds inputs, adds value and sells their outputs. With the sales revenue that exceeds your input costs you buy more inputs and invest in the businesses capacity to add more value. Even consultants and service providers have inputs, though usually in the form of information.
Finding input suppliers and customers can take time, effort and money. You want to reduce the resources taken in those searches so you have dependable suppliers and regular customers. Then you can focus on building and maintaining the value you add between the inputs and outputs.
When local businesses like yours find good local suppliers they can depend on, with quality inputs at a fair price and on-time delivery, you want to keep them. In order to find these suppliers you will want to meet them face to face – meet the owner if you can, or a local manager. Until you look the people in the eyes and share some time talking together, you have failed to invoke the social bond. You have not established that the supplier is trustworthy. You have not fully conveyed the fact of your own humanity and ability to fulfill your side of the transaction obligation. There is suspicion on both sides. If you do not actually meet and talk, your brain tells you that your work is not done. You are not committed and remain somewhat skeptical.
If you are experienced in business, or in human relations in general, you will have noticed that people avoid you when they feel they cannot deliver on promises. They avoid contact. Its easier to deceit and cheat when you’re anonymous in the big city, or belong to a different community where you’re not held accountable. Incidentally, you can learn how to improve your people-reading skills to pick up on these signals.
What has been found to be successful for boosting local economies is to simply promote and support a more human business environment. Create space for people to connect with one another as whole individuals without the pressure of sales tactics.
The Networked Community
One hundred and fifty years ago across North America and much of the world, most people were farmers. They were independent business people and they relied on one another to get many things done as they had for centuries. Not only did they specialize and trade in different crops and livestock, but they actually helped each other build and sustain the community. They built churches, schools and hospitals. They helped each other harvest crops, raise barns, entertain, make quilts and preserve foods. They knew who they could trust and who to steer away from. Similar patterns of cooperation took place in all healthy normal cultures.
It was not all fun and games! There were extended families that stood up for each other and there were factions and feuds. But there was always some collaboration going on. We can’t live and make progress without it. The spirit of entrepreneurship has captured a lot of attention due to the great success of many individuals. We rarely hear about the four out of five who fail in the first five years of business. There is a lot of glamour associated with entrepreneurship, and along with that, a lot of mythology and misinformation. The individual succeeds, more often than not, by working with people, not coercing, bribing or exploiting them. We’re smarter than that!
What happened in the 20th Century was a combination of things. Mass production manufacturing, mass marketing and mass consumption took away from independent business. They also led to urbanization, which disrupted extended family networks and organic communities of mutual aid. The natural sense of community does not scale up very well above threshold population levels. In many ways, today’s office workplace has replaced community. Governments offer public services where extended families and communities used to serve the disabled, the very young and the very old. Institutions across the board have changed the fabric of our society and culture.
Yet our native social instincts evolved for a more intimate world in which extended families and community networks played much larger and essential roles in everyone’s success. After 150 years, we are starting to recognize that bigger is not necessarily better! We are now becoming more aware that we need something more. Something is missing, not only economically, but in terms of personal meaning and fulfillment.
More organizations are recognizing the optimum scale-up. Many companies are now outsourcing a lot of their work to other companies and to independent contract workers, also known as ‘gig-workers’.
Economies of Scale
We have seen the advantages of mass production and mass marketing leading to globalization of companies and markets. The same principle applies to local companies and the economies in which they are embedded. When a company grows the cost of producing a unit of output goes down. That is because the cost of installing the production processes is spread out over the life of the production process and the volume of output. As companies automate with machinery the cost of manual labour goes down. Labour is a variable cost. The machinery purchase and installation is a fixed cost. In other words, the cost of producing another unit does not increase over the cost of the last one as it would for labour costs.
Supply chains tap into economies of scale. When your suppliers know they have a secure long-term contract with you, they can invest in more equipment and offer a volume discount. When businesses depend on one another routinely they form a supply chain. Each company in the chain adds value. They see this at the shipping and receiving dock where staff are busy receiving inputs from suppliers and sending value-added goods to their customers. To put it somewhat differently, long-term supply contracts provide a volume discount in a way similar to the economies of scale achieved with automation of your own processes.
The costs of doing business are reduced when people can routinely and implicitly trust one another. Not only are you able to focus more on creating value, but because you worry less about being cheated, you can also afford to be more innovative. Supply chains are good for everyone and good supply chains depend on good relationships. Sustainable trusting relationships depend on good communications and actually knowing one another face-to-face.
Industry clusters grow out of complex supply chains. When there are a number of companies adding value in the same industry the local industry forms a cluster. Some of the companies may be in direct competition. Companies in the same industry, say forestry, may need workers with the same or similar skill sets and knowledge in somewhat different roles (from loggers and truckers to saw mill workers). Workers have more choices here and so there is an inducement to move the family to the community and set roots. Companies then have more choices among workers.
In many cases specialized suppliers, such as parts suppliers or safety training companies, will be attracted to the community because they see sufficient local demand for their products and services. Other value-added companies, such as wood fabricators, may see an economic advantage to locate close to their input sources. The same is true in tourist destinations, farming centres, manufacturing hubs, research centres or any other industry communities.
There is a local synergy effect wherein the whole is greater than the sum of the parts and every participating local business is better off.
As we look at the tight-knit local supply chains forming industry clusters we can also look across industries and see how many companies in different industries help support one another. Packaging companies may supply packaging materials for food manufacturing as well as toy manufacturers and the local craft industry. The same is true for finance, office supplies and employment agencies. This supports the business case for educational institutions as well, which makes the community still more attractive to outside businesses and workers.
These additional service companies are often not industry specific, but serve all local industries. Perhaps one local industry, say a lumber company, alone would not be able to justify a local office supply company. But when another industry starts up, say tourism with hotels and restaurants, then suddenly a local office supply store becomes viable.
Business ecosystems also include business associations that offer business networking opportunities and “collision spaces” in which people find or create new opportunities just because they had an unexpected conversation. The ecosystem will also include key people who naturally connect and introduce people to one another who could discover mutual interests and eventually do joint ventures or start new businesses together.
So now we see how community-based economics works. When people and their companies mix it up, they collectively create a better space for everyone. But there is more. We can introduce better ways of bringing people and their goods and services together. Obviously, the web has changed the way global commerce is conducted in the 21st Century. Can similar applications of ecommerce be used to advance the interests of local communities?
I believe the answer is ‘yes’. Many people today are working independently, often providing services or customized goods. How do they find each other? How can they book time and space and work collaboratively on projects? Wayfinders is developing a platform that is optimized for them. It includes the advantages of cloud-based technologies and software as a service with the best practices of community-based business associations. Its platform retains the best of our humanity and complements our talents with the best of open-source computer technologies.
The platform allows for a great range of diverse natural talents, skills and wisdom to be optimally applied to local supply chains and industry clusters and to enrich the local business ecosystem. Each participating entrepreneur is able to pursue their greatest potential, offer their greatest value and receive appropriate rewards.
Using data analytics and collaborative innovation, the Wayfinders Business Co-operative will offer a continuously improving platform for local businesses community-based economic development.
As Wayfinders’ platform takes off, it will set up in other communities around the word and support international trade among small businesses. Local businesses can then tap into global supply chains, regional industry clusters and the broader business ecosystems. The best all worlds!