Small Giants: Companies That Choose to Be Great Instead of Big

by Bo Burlingham

Virtually every mass-market business best seller, from Iacocca to In Search of Excellence to Good to Great, has concentrated on the people in and the practices of large public companies, or companies that aspire to be large and public. So, too, are those companies the focus of most major business magazines and newspapers, not to mention the business shows on television and radio, or the curricula of business schools.

Along the way, we’ve come to accept as business axioms various ideas that actually apply only to those two types of enterprise.

Consider, for example, the conventional wisdom that businesses must grow or die. That’s no doubt true for most public companies and venture-backed tech start-ups. Steady increases in sales, profits, market share, and EBITDA (earnings before interest, taxes, depreciation, and amortization) are demanded and expected by investors, while decreases—or stagnation—send them running to the exits. But there are thousands of private com...

And what about the concept of “getting to the next level”? Although people use the phrase in different ways and different contexts, it always has something to do with major increases in sales—surely no one thinks that “the next level” involves having fewer sales—and there’s usually a management component as well. That is, you get to the next level when you can handle the demands of running a much bigger company. Because it’s the next level, the phrase implies that bigger is better. That may or may not be true for public companies, but it’s demonstrably untrue for a large number of private ones.

But that assumption ignores another equally obvious truth: What’s in the interest of shareholders depends on who the shareholders are.

They were also interested in being great at what they did, creating a great place to work, providing great service to customers, having great relationships with their suppliers, making great contributions to the communities they lived and worked in, and finding great ways to lead their lives.

good idea of what I was looking for: extraordinary, privately owned companies that were willing to forgo revenue or geographic growth, if necessary, in order to achieve other remarkable ends. By “extraordinary,” I meant the company had a distinctive vision and mode of operation that clearly set it apart from others in its industry.

I added some additional criteria as I went along. 1. I decided to restrict myself to companies started or owned by people who had actually been faced with a decision and made a choice. That is, they had had the opportunity to grow much faster, get much bigger, go public, or become part of a large corporation, and they’d made a conscious decision not to. 2. I decided to focus on companies that were admired and emulated in their own industries. I wanted companies that had the respect of those who might otherwise be their harshest critics, namely, their peers and their competitors. 3. I looked for companies that had been singled out for their extraordinary achievements by other independent observers. It’s always nice to have third-party corroboration that a company is, in fact, worthy of special recognition.

That’s the real payoff here. When you’re hell bent on maximizing growth, or when you bring in a lot of outside capital, or when you take your company public, you have very little freedom. As the head of a public or venture-backed company, you’re responsible to outside shareholders, whose interests you must always look out for. As the head of a very fast-growing company, you’re a slave to the business, which has tremendous needs. Either way, you’re constantly hiring, selling, training, negotiating, hand-holding, cajoling, mollifying, warning, pleading, coaxing, and on and on. While the experience can be exhilarating, it leaves little time for anything else, least of all thinking about what you really want to do with your business and your life.

Hammerhead Productions used an accordion structure, expanding with each new project, contracting when it was finished. Reell Precision Manufacturing had the closest thing to a corporate democracy I had ever seen, complete with two CEOs. Several of the other companies had turned themselves into educational institutions, teaching their employees about finance, service, leadership, and everything else involved in building a successful company.

Wasn’t it better to have a highly profitable $10-million company than a $100-million company that didn’t make any money? Wasn’t it better to have a business with a great reputation in its community and its industry—a company known and respected for its fabulous service, its unstinting generosity, and its happy, dedicated workforce rather than its size?

So he came up with three tough standards that any new place would have to meet. First, it would have to be capable of becoming as extraordinary a restaurant as Union Square Cafe. Second, it would have to enhance the value of Union Square Cafe. Third, it would have to bring more balance to his life, not less.

One competitor later told him, “You’re my best salesman. I get more business from you than from my own people.”

The notion that bigger—and more—is better has so pervaded our culture that most people assume all entrepreneurs want to capitalize on every business opportunity, grow their companies as fast as they can, and build the next Google or Facebook. That widespread assumption, in turn, can become another pressure to grow, especially when considerations of status and prestige come into play.

When Donald Trump was asked whether he was a good father, he said, ‘I’m a good provider.’ That horrified me.

He would compare himself with the most famous entrepreneurs in the world and wonder what they had that he lacked. He was so focused on his shortcomings that he couldn’t see—or give himself credit for—the real contributions he had made to his community and the positive impact he had had on the lives of people around him. It was as though all that counted for nothing if he hadn’t achieved what the world considered the pinnacle of success as measured by the size of his company or his personal fortune.

Indeed, you could argue that a small giant’s mojo comes, in part, from an active appreciation of a business’s potential to make a positive difference in the lives of the people it comes into contact with.

Like Righteous Babe, they were all so intimately connected to the place where they were located that it was hard to imagine them being anywhere else. Zingerman’s was almost synonymous with Ann Arbor, and Anchor Brewing was a San Francisco institution. CitiStorage was Brooklyn to the core. Reell Precision Manufacturing and the Twin Cities went together like, well, a horse and carriage. The same could be said for Clif Bar and Berkeley, ECCO and Boise, O.C. Tanner and Salt Lake City, Hammerhead and Studio City, and on and on. And the influence ran both ways. The companies shaped their respective communities, and the communities shaped them.

It’s the same with some businesses. Every community has its own character, which is sort of a spiritual terroir. If you’re really rooted in that community, it’s going to have a big impact on the way you are.”

Small towns, he believed, impose a kind of accountability that was missing in the modern music business, as well as in most other parts of the corporate world. By way of illustration, he told a story about a well-known promoter who produced a concert that DiFranco did with Bob Dylan. They were playing at an outdoor performance space near a major northeastern city. “We found out that the promoter was adding a $5 parking fee to every ticket even though the parking came free with the venue. It was a sneaky way for him to make an extra $25,000 to $50,000 without giving anything to the artists.

Buffalo had shaped Righteous Babe in other ways. “There were a lot of reasons why this company shouldn’t have succeeded, and location was one of them,” noted Grunert, the designer. “On the surface, it’s a disadvantage to compete in a national market from a city like Buffalo. But Scot and Ani have used its qualities to their advantage. They’ve benefited from lower overhead, having printing and manufacturing available at very competitive prices, being able to afford a comfortable lifestyle—for both the business and its employees. Righteous Babe has been able to carve out a spot here much more easily than it could have in a larger market.”

Although new to their respective fields, they were unquestionably talented. As a result, the albums, catalogs, and marketing materials they produced were fresh and imaginative but hardly amateurish. In 2003, the music industry recognized their work by awarding DiFranco and Grunert the Grammy for best packaging.

Righteous Babe also drew strength from the Buffalo ethos, the sense of being the scrappy outsider and underdog, fighting against the odds. It imbued the company and served as a motivator for everyone, including Fisher.

He said it never even crossed his mind to look for space in one of the suburbs, which would have been much cheaper. Leaving San Francisco would have been unfaithful to the company’s heritage.

Anticipating that parking would become a problem, Goltz had bought his own parking lot for his customers. It was across the street from the building that houses his home and garden store, down the block from the framing shop and the art gallery. The ambiance of the stores—employees referred to them collectively as the campus—reflected the vitality of the neighborhood, and vice versa.

It supported a multitude of social programs and had a 2080 program for employees, wherein the company donated at least 2080 hours per year—the equivalent of one full-time person—paying employees to do volunteer work in causes they selected themselves.

Reell’s three founders made social responsibility the cornerstone of the business, pledging “to do what is ‘right’ even when it does not seem to be profitable, expedient, or conventional.” The company’s highest purpose, they said, was “to make worthy contributions to the common good.”

A human-scale company in a single location can be part of a community without dominating it.

What such a company can’t do—and, more important, what its people can’t do—is interact with a particular community on a level that defines them both and provides a uniquely gratifying experience all around.

And expand Food Gatherers did. In its first year, it rescued and redistributed eighty-six thousand pounds of food. Seventeen years later, it was doing between two and three tons per day. By then, it had twelve full-time employees and an annual operating budget of $1 million, of which Zingerman’s contributed the largest share,

And yet, interestingly, the company was careful not to use its community work as a marketing tool. “We don’t keep it a secret,” Saginaw said. “It’s a small town. If people go to a lot of fund-raisers and always see our name, they can connect the dots. But we don’t market around it, and I don’t trust companies that do—that use their charitable work as a blatant marketing ploy. We do it because it’s the right thing to do. We do it because it’s part of our mission.”

You can’t buy joy. It’s wonderful.”

While all of the companies in our sample were active in their communities on some level, they differed from the 1990s brand of socially responsible business—like Ben & Jerry’s or The Body Shop—in that they tended to be relatively quiet about what they did.

And he couldn’t teach them to care as much as he does about making sure each customer had a good time. So he hired for those qualities and skills, the human skills; he trained for the others.

Instead, it devoted 75 percent of its marketing budget, as well as the lion’s share of its employees’ time, to sponsoring and producing between one thousand and two thousand local, regional, and national events around the country every year, many of which were organized, run, and staffed by Clif Bar’s own people. It also supported more than one thousand amateur and professional athletes—its ambassadors to the world of cyclists, climbers, and other sportspeople who made up its original customer base. Through the competitions its athletes took part in, the events its employees put on, and the other projects it sponsored—such as the LunaFest women’s film festival—Clif Bar had direct, face-to-face contact every week with thousands of people who used its products. From those consumers, it got honest feedback and new ideas. The consumers, in turn, developed a personal relationship with the people and the company they were buying from.

The concept of value disciplines was popularized by consultants Michael Treacy and Fred Wiersema in their 1995 bestseller, The Discipline of Market Leaders, which was the expanded version of an earlier article they’d written in Harvard Business Review. They argued that, to be really successful, a company had to focus on providing one of three types of value to its customers: the best price, the best product, or the best overall solution. Each type of value called for a completely different kind of organization, culture, and mind-set, so you would inevitably get in trouble if you tried to excel at more than one.

Then again, if you wanted to provide the best overall solution, you took yet another course, becoming “customer intimate,” that is, developing products flexible enough to serve a wide variety of customer needs and working closely and collaboratively with customers to give them what they wanted. To do that and still earn a profit, you had to structure the whole company around the customer-intimate discipline. Not that you wouldn’t strive to be as efficient and innovative as possible, but you would always do so with an eye toward enhancing your ability to deliver products and services that would help you meet the unique needs of individual customers in a cost-effective manner.

In 1994, the company had had $70,000 in sales per employee. By 2004, the figure had more than doubled to $156,000 in sales per employee.

The first is integrity—the knowledge that the company is what it appears, and claims, to be. It does not project a false image to the world. The second pillar is professionalism—the company does what it says it’s going to do. It can be counted on to make good on its commitments. The third pillar is the one we’ve been discussing—the direct, human connection, the effect of which is to create an emotional bond, based on mutual caring.

For all the extraordinary service and enlightened hospitality that the small giants offer, what really sets them apart is their belief that the customer comes second.

“That was one of my ideas—to have a small group of people, where everyone knows they’re all interrelated and where, as far as possible, everybody is in charge and nobody is looking over anyone’s shoulder and there are no time clocks.”

“You can never come in and look at your tools and say, ‘Ugh, look what the night shift has done. Where’s the hammer? Look, those jerks spilled something.’ Here, it’s all us. Everybody who works here can go home and say, ‘I made the beer.’ And when they go to a restaurant somewhere and see a bottle, they know they produced it. And I think that kind of pride tends to improve quality. Real quality control takes place every minute. It has to be done right now, not later. A smaller group tends to be more quality oriented. There’s an enthusiasm here, a spirit of being on the leading edge of beers and brewing styles. There’s a feeling of creativity. Partly that comes from being small, a little team where we all know what’s going on.”

I have never encountered angrier and more cynical employees than those I’ve met in socially responsible companies that have been so focused on saving the world they neglected to do what was necessary to save themselves.

The change in management style “has shown us that the biggest misconception of American manufacturers is the belief that production workers are not dependable and must be motivated and/or constrained to do quality work,” he wrote in the official company history.

Robert K. Greenleaf, the former director of management research at AT&T and an iconoclastic thinker about how organizations should work. After retiring from AT&T in 1964, Greenleaf had started the Center for Applied Ethics (later renamed the Robert K. Greenleaf Center) and embarked on a second career as a university lecturer, consultant, and author. Along the way, he had written a series of seminal essays on the theme of “servant leadership,” and they continued to resonate long after his death in 1990.

“You can spill some milk if you don’t kill the cow.”

“Values don’t break. They crumble.”

“Small businesses don’t have enough meetings,” said Goltz. “I believe everyone in the company should meet at least once a week. You need that direct contact.”

I finally figured out that managing isn’t just about learning how to motivate people. It’s also about learning how not to demotivate them.”

Hammerhead and Selima were the exceptions: Both were launched and developed with the explicit goal of giving their founders freedom to pursue their individual passions. That meant minimizing the number of permanent, full-time employees they had.