Resisting the Temptation to Grow
Conventional business wisdom holds that size and growth equal success. However, author Bo Burlingham challenges that notion by chronicling 14 small, successful, privately-held companies in his book Small Giants: Companies that Choose to Be Great Instead of Big (Portfolio). The book looks at companies such as microbrewery Anchor Brewing, energy-bar maker Clif Bar, and folk singer Ani DiFranco's record company, Righteous Babe Records, and examines the success some small companies achieve by taking the road less traveled and focusing solely on being the best at what they do.
BusinessWeek staff writer Stacy Perman recently spoke with Burlingham about Small Giants (first published in 2005 and reissued this year in an updated version). Edited excerpts of their conversation follow:
When a small business is launched, isn't one of its primary goals to become bigger?
Actually, the first goal of most small businesses is just to survive. Once they achieve that goal, people usually have a picture in mind of what success is going to be. It may not be fully articulated, but it will be there. What happens is that once you reach a point in the process, you have to make choices. The problem is that many times we don't know that we have choices. We think what we're supposed to do with a business is to grow it as fast as possible and to get it as big as possible.
The point of my book is to say that you have a choice of what you want to accomplish. You can be great company without getting big as fast as possible.
Well then, does size matter?
In business, it's very easy to confuse big with better and size with greatness. But when you think about it, that isn't really true. Is Exxon (XOM) our greatest company? Is General Motors (GM) our greatest company? The point of my book is to get people to ask themselves: What does it mean to be great? Different people have different answers to that question, but everybody benefits from asking it.
The answer isn't necessarily that there's anything wrong with wanting to build a large public company. But do it with your eyes open. There are trade-offs. Whole Foods (WFMI) was a small giant in Austin, Tex., and [Chief Executive Officer] John Mackey decided to go public. It allowed him to do many things he couldn't have done if he stayed small, but he also lost some things. [Howard] Schultz [CEO] of Starbucks recently recognized that for all the great things that Starbucks does, it lost something in the process [of becoming a giant].
Great companies, particularly as defined in American business, tend to be big like IBM (IBM) or McDonald's (MCD), yet you define a great company as a small giant. Explain.
The people in my book focus on relationships with all of the people they come into contact with: employees, suppliers, their communities. They judge their success and greatness by the strength of those relationships.
One of the criteria I used to select all of the companies [I included] was that they had the opportunity to get much bigger, faster and chose not to. Second, these are companies that are considered by their peers to be the best at what they do. Third, I looked for companies that had been recognized by independent third parties for their contribution to the world and to society. And finally, [I chose] companies that had been around long enough to experience both the ups and downs of business.
Are there some kind of criteria to determine whether a small company will be great if it remains small?
I happen to focus on private, closely-held companies owned by people directly involved in the business. The reason I did that is because of the fact that the people making decisions didn't necessarily put the return on investment first. It's not that they didn't care about the return on investment, but that wasn't the most important thing they were looking for.
The point was to focus on the major question of what exactly makes a company great. These companies really asked themselves that question, and focused on achieving greatness [based] on their own standard. They have benefited as a result.
In general, when it comes to "greatness," small private companies seem to be overlooked in favor of the Chryslers (DCX) and the Microsofts (MSFT) of this world. Why is that?
Basically, all of the coverage in the media or by academics is on large, publicly-traded companies. Probably the assumption is that's what readers want to read about. The problem is that the focus on large public companies is so overwhelming it tends to equate good [with] large with all businesses—that is demonstrably untrue.
Jack Welch says you should be No. 1 or No. 2 in a niche. That may or may not be true for large companies, but it's absurd for small companies. The idea of grow or die may be true for large companies, but it's demonstrably untrue for most businesses out there.
What are the advantages of staying small?
The advantages have to do with the ability to develop deep, intimate relationships. It becomes an integral part of the community. Take Whole Foods or Starbucks. They're great companies, but they aren't rooted in any community. And staying small allows you to develop a culture. It gets difficult to create one the larger you become. And some argue that it affects quality.
How hard is it to resist the temptation of growth?
It requires great strength of character. There are so many pressures for a company to grow once it has reached a certain stage from advisers, bankers, employees, family, or other people. The companies in my book had the option to sell for a large amount of money, but they bucked common wisdom.