Small Business Doctor

Our culture values specialization. Having specialized skills often leads to outsized material benefits. It also often results in praise and social status.

Consider the social recognition that would be given to a medical doctor who is a primary care family medicine doctor compared to that given to an orthopedic surgeon. They are both highly educated, highly skilled and hardworking individuals. They both make a whole lot more money than the average American. Yet the surgeon has higher social status. This higher social status is in spite of the fact that the family physician has a more central role in our healthcare system and has more influence over the health of a given community. In other words, the family doc has more power to shape the community than the surgeon does, and yet has a (slightly) lower social status. Why?

This same type of thing happens between companies as well. A big company is generally held in higher regard than a smaller company. Why does our culture prefer big companies more than smaller companies? Why does this cultural preference exist even though most individuals when directly asked would prefer to provide their friends with a word of mouth recommendation for a smaller company?

Because marketing.

Marketing efforts across generations of Americans have conditioned our culture to prioritize big companies over small companies and specialization over generalization. Which type of company does the bulk of the marketing, public relations and advertising? Big companies. What do big companies provide more than smaller companies within a value chain? Specialized and complex products and services.

Big companies exist down at the bottom of value chains. They deter potential market entrants by increasing the specialization and complexity of the products and services they offer. They love byzantine regulations and component incompatibilities, because only big companies have the internal resources ready to manage these burdens.

Specialization and complexity provide what economists call a moat around these companies. They protect that company and its revenue streams from competitors.

Without specialization and complexity in their product offerings, these big companies would not be able to compete with smaller companies. Why not? Because big companies have a massive amount of internal resources dedicated to dealing with the burdens of being big, specialized and complex. Their overheads are so large that they could not sell less specialized less complicated products in a competitive market and even cover their own internal costs.

Big companies specialize in specialization and complexity. They need to. It’s an economic necessity. Increasing product specializations and complexity are inherently good for big companies. Doing so drives and safeguards their revenues.

That, however, does not mean that specialization and complexity are good for consumers or for society. They usually are net negatives for society. Does the manufacture of automobiles that are so complex and specialized that not only does the average car owner not have the know-how to repair their own vehicle but would be unable to acquire the tools necessary for doing the job actually benefit anybody in society other than the big car manufacturer?

What if instead of the highly specialized and complex $2,700+ taillights found in current Ford trucks, taillights were interoperable across all Ford vehicle models or all American-made vehicles? Do the consumers who buy new Ford trucks actually derive $2,700 worth of value from these taillights? It’s doubtful.

Instead, new truck consumers have very little real choice about their expensive taillights. Nobody manufactures trucks with plug-and-play taillight interoperability or other significant functional product differentiation. Taillights are now all specialized, increasingly complex and essentially impossible to repair at home.