Ross Johnson can see the competition—they’re sitting just across the room.
His online-marketing and design-services company, 3.7 Designs, shares space at his Ann Arbor, Michigan office with three other firms that could be considered direct rivals. But more often than not, he says they actually end up helping each other rather than stepping on toes.
“Everybody has a slightly different focus, and I think that’s why it works,” Johnson says. A few years ago, he and a colleague leased a fairly large downtown office and, to offset costs, started subletting to other people in their business network. Over the years, the room has come to include some folks who do the exact same line of work, just with a different approach—including one that specializes in Web branding and another that concentrates on print work.
“Each firm has their specialty and ideal project or client type,” Johnson says. “When projects come along that require more capacity or capabilities than a single firm has on hand, we can employ the other firms for relief. And vice versa.”
His view: A rising tide lifts all ships.
Johnson’s company is in what’s known these days as a business cluster—an area where like-minded companies are in close geographic proximity (or very close in Johnson’s case). Ever strolled a city’s Restaurant Row or driven down a highway corridor chock full of fast-food joints or car dealerships? It’s the same concept; only now smaller enterprises in different industries are looking to benefit from closer access to complementary or competing services. The hope is the destination becomes greater than the sum of its parts.
It’s an idea that’s been around long before Silicon Valley, Hollywood, North Carolina’s Research Triangle, and Madison Avenue exploited the same proposition on a grander scale. For hundreds of years, travelers have flocked to towns like Mexico’s Taxco for silver or Santa Clara del Cobre for copper, Belgium’s Bruges for fine linen, or Venice, Italy, for glassware—places where hundreds of merchants have historically banded together, drawn by natural resources or other factors, and ended up luring customers as well.
“You can go and have your pick,” says Shel Horowitz, a marketing consultant and author of Guerrilla Marketing Goes Green: Winning Strategies to Improve Your Profits and Your Planet. “It’s not like the market is diluted [for the merchants], it just becomes big enough to support all of them.”
Lately, even the U.S. government has gotten into the act. Since 2010, the Small Business Administration and other agencies have been pushing what they call Regional Industry Clusters, including the NorTech technology initiative in northeast Ohio, Smart Grid developers in Illinois, and energy-efficiency startups at Philadelphia’s decommissioned Naval Shipyard. A 2008 Brookings Institute study suggested a federal approach to encouraging industry clusters would benefit regional and national competitiveness and boost the job market and overall economy.
Small businesses should try to “find organizations in your region that can connect you with other like-minded businesses in your industry,” says Rebecca O. Bagley, president and CEO of NorTech. “In Northeast Ohio, there many small businesses in our advanced energy and flexible electronics clusters that we have connected with larger companies and universities to develop strategic partnerships and collaborations. These relationships have led to funding, research and revenue opportunities that benefit both large and small companies, help to grow the clusters, and also create jobs.”
Across town from that Philadelphia Navy Shipyard venture, Frank G. Schaffer shapes and sells gems along one of the city’s original clusters—Jewelers’ Row—the nation’s oldest diamond district, which dates back to before the Civil War. He points to the city’s other historic business clusters—Antique Row, Plastic Row, Fabric Row—as examples of the legacy of merchants forming geographic bastions—for their peers and their customers.
In Schaffer’s shop, he works with tools that he says date back generations and have been in constant use for just as long. He acquired his diamond-cutting equipment from a neighborhood jeweler, who in his 90s and nearing retirement passed it along to him. Schaffer himself, now in his late 40s, started out in the business when he was 11 years old, learning the craft from his father. “I’m trying to continue a tradition that goes back to the 1840s,” he says.
And although he does a majority of his business at international gem trade shows and had considered a different location, the draw of the cluster has kept Schaffer here—even if he’s unsure about all the advantages of it. “The Street,” as the neighborhood is known among vendors, is struggling right now, hurt by soaring gold prices, the economic meltdown, and the subsequent drop-off in people buying jewelry. “I thought, here we are carrying on the tradition. If you’re going to sell jewelry in Philadelphia, the most logical place to be is on Jewelers’ Row—because everybody thinks about it first,” he says.
Still, the neighborhood remains a draw for shoppers—and businesses. In just the last two months, two manufacturers have moved onto Jewelers’ Row, which is traditionally a retailers’ stronghold, and started selling directly to the public. “You have people selling the same type of material and what’s happening on the Internet is coming to the retail sector, where the middlemen can’t survive.” Schaffer, though, is actually grateful for the new manufacturers locating at street-level: “It’s breathing new life into this neighborhood.” And maybe that’s the secret to getting over fears of new competition.
“Simply, make your wares better in some way than your competitors,” says marketing consultant Horowitz, “Once you get people to the neighborhood, many of them will go from shop to shop checking out the wares. Then it's up to you to provide a better buyer experience: higher quality, deeper education about the product, more selection, better prices, or friendlier service.”
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