Adam Smith’s “Wealth of Nations” supposes that economies will develop most fruitfully near navigable waterways. This is because no method of transportation is cheaper. Raw commodities will be manufactured into processed goods and both raw and finished goods, in excess supply, can be shipped inexpensively to other regions cost effectively.
This will support growth of cities around these navigable waterways. This in turn will reinforce labor specialization and further development of niche manufacturing. These manufactured goods can also be shipped when in local excess. And onward the cycle will go. Trains extended trade but still did not break waterways from transportation cost leadership position. Today the internet continues to change the equation further.
Smith also states that small towns tend to have higher profit margins. We have found this to be true in our search for great businesses in rural Indiana. Higher density cities tend to have higher density of specialized businesses. While this is good for the greater economy, it makes things more competitive at the individual level. This competition drives down profits in many low niche companies. Back in the country, several rare gems still exist at good prices. I believe it’s because there are fewer potential buyers competing for these rural companies.
One of the premises at Little Engine Ventures is the existence and exploitation of enabling technology. This is our “digital river.” We can now connect and deploy enabling technology very inexpensively. We can digitally transport talent to rural areas very inexpensively. Examples for us include mobile and remote order processing. Today we have various staff able to receive and process customer orders from various locations at a reduced cost to the company and higher compensation to individual employees.
Some of our companies serve a tight geography. Our customer density matters a lot. Some of our companies benefit from a density of employees but serve a dispersed customer base. The internet plays a role in each.
How are you using the digital rivers for your small business?