Changing World: Mom & Pop Online

May 24, 2020

The ongoing pandemic is challenging business owners worldwide, particularly small and medium business owners (so-called Mom & Pop). Large businesses, particularly tech-enabled ones have adjusted well and some have even benefitted from the pandemic. It is tempting to put forward the thesis that the pandemic will lead to the inexorable march towards dominance by the large corporations and the disappearance of Mom & Pop businesses. However, this is not true: many small businesses are successfully migrating online with the help of platform companies that provide them tools similar to those of large corporations. These range from website development & management, payments, logistics, credit, curation and demand generation. These platform businesses are thriving. For example, Shopify helps entrepreneurs build a website, get paid and manage the order flow / inventory across different channels. It doesn’t sell directly to consumers. However, the businesses it serves sell: the amount of sales facilitated by the Shopify platform has been growing at a stunning 89% CAGR and recently surpassed $61 Bn (see figure).

Sources: Shopify, Somar Analysis

These platforms bring several benefits to Mom & Pop entrepreneurs and the consumers they serve by aggregating their scale to develop best of breed technology. Among these benefits are:

  • Lower costs to entrepreneurs, some of which are passed to the consumer in the form of lower prices. These include payment acceptance, customer acquisition, website development and maintenance, logistics and software costs;
  • Wider choice for consumers by bringing previous neighborhood businesses online (e.g. restaurant delivery; craft artists)
  • Superior service through support of delivery, logistics, customer service and enabling credit and online / mobile payment.

Mom & Pop enabler businesses are extremely attractive. They benefit from high incremental margins as they build top tools once and sell them many times with limited incremental costs. They are also defensible due to network and scale economies. Somar has seen these businesses spawn around the world and has found very attractive investments. We are looking to finding more.

Leave a Reply

Your email address will not be published. Required fields are marked *