This has given rise to the concept of the long tail where new technology, low barriers to entry, and micro-marketing helps sustain a very large number of small firms – even in markets dominated by a few large firms.The use of web tracking cookies makes it easier for small firms to exploit website and search engine visitors to find out about their shopping habits, and target them through their website or through emails. Along with this is the rise of micro-marketing, where small groups of potential customers are actively targeted with advertising based on their existing or predicted buying activities.Some markets may have limited potential for growth, including niche markets which provide specialist or customised services.This many help explain why small suppliers to large supermarket chains and other large retailers may operate at or just below normal profit, hence scope for expansion is limited. This limits the revenue and profits attainable, and hence prevents organic growth.
Where monopsony power dominates (as with some transnational companies), the potential for small suppliers to grow is limited given that powerful buyers can push down the prices of suppliers.Hence, remaining small does not conflict with the profit maximisation objective. Profit maximisation may not be the driving force for all businesses, such as not-for-profit organisations.Small firms are often relatively easy to establish, and generally do not require complex rules and procedures to set them up.
This tends to be true for most service sector firms, where labour is the dominant factor of production, and technology cannot be effectively employed.