Smaller companies harness digital transformation to level up

Photo of Rayna Lesser Hannaway
Polen Capital Headshots by Kayla Mendez Photography.

By Rayna Lesser Hannaway (pictured), co-manager of the OYSTER US Small and Mid Company Growth Fund

The global pandemic has accelerated inevitable structural trends. This process unleashed a wave of creative destruction – spurring a new age in e-commerce and a rapid evolution of the virtual economy.

This digital transformation has also created a Darwinian landscape, where the strong are getting stronger. In this world, small and mid-sized companies with bold vision and strong management capabilities have been disproportionate beneficiaries, as they take advantage of pandemic-induced shifts.

Smaller  companies have capitalised on technological innovations to scale up and tap into once inaccessible talent pools. Previously, when organisations without vast networks of premises  wanted to hire talent, they were constrained to their respective areas.  Now, increased adoption of digital technology and video conferencing has helped to level the playing field and enabled management to access talent all over the world simply and cost-effectively.

This is not only beneficial for firms, it is attractive to prospective employees who want to tap into the trend of increased workplace flexibility. This structural change enables small-cap firms to compete directly with multinationals – who previously held the advantage  by offering access to the world’s capital cities and major hubs.

Digitalisation can also facilitate a deeper connection between more nimble firms and their customers. The virtual world enables the development of more streamlined and profitable business models built on innovation and engagement, enhancing customer journeys.

Smaller caps, bigger ideas 

For small and mid-cap firms the growth potential can be transformational. American restaurant chain Wingstop leveraged digitalisation to offer customers enhanced value during the pandemic. Ahead of the Covid outbreak, the firm explored all online service options enabled by the latest digital innovations and developed a model where most revenue is generated by customers eating outside the store.

This put the firm in an excellent position to serve new and existing customers in an extremely challenging environment. In addition, the firm is led by a management team with a bold, yet robust approach to growth. They take a disciplined and tested approach to opening new stores, driven by a long-term vision of becoming a top 10 restaurant brand globally.

Another good example is RH, an American luxury home-furnishings company. The firm goes beyond simply selling high quality furniture; it focuses on creating unique experiences for customers –  and the company is bringing its ability to create unique experiences to the real estate and hospitality industries. With populations mostly confined to being indoors through the pandemic, the firm has provided a growing customer base with memorable – and crucially – shareable experiences.

This experiential offering also minimises marketing and social media budgets, as customers essentially market the brand for them through word of mouth. By thinking of how customers can better interact with their brand, and providing them with the tools to do so, the company created a deep connection with customers and fuelled its own growth in a turbulent period.

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