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

by Bo Burlingham

Size and growth rate aside, the companies in this book do have certain characteristics in common. To begin with, they are all utterly determined to be the best at what they do. Most of them have been recognized for excellence by independent bodies inside and outside their industries. Not coincidentally, they have all had the opportunity to raise a lot of capital, grow very fast, do mergers and acquisitions, expand geographically, and generally follow the well-worn route of other successful companies. Yet they have chosen not to focus on revenue growth or geographical expansion, pursuing instead other goals that they consider more important than getting as big as possible, as fast as possible. To make those trade-offs, the companies have had to remain privately owned, with the majority of the stock in the hands of one person, or a small group of like-minded individuals, or—in a couple of cases—the employees.

Not that they don’t want to earn a good return on their investment, but it’s not their only goal, or even necessarily their paramount goal. They’re also interested in being great at what they do, creating a great place to work, providing great service to customers, having great relationships with their suppliers, making great contributions to the communities they live and work in, and finding great ways to lead their lives.

They’ve learned, moreover, that to excel in all those things, they have to keep ownership and control inside the company and, in many cases, place significant limits on how much and how fast they grow. The wealth they’ve created, though substantial, has been a byproduct of success in these other areas. I call them small giants.

If you pay taxes at the corporate level, as C corporations do, you’ll probably make spending decisions different from those you’d make if you had an S corporation or a partnership, whose owners pay taxes at the individual rate.

I knew 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 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.

still possible for the CEO to meet with new hires,

still possible for employees to feel closely connected to the rest of the company.

That was not accidental, either. On the contrary, scale played an important role in t...

I also searched for companies led by people who had taken greatest advantage of the freedom they’d been given as a result of their decision to remain private and closely held and to limit growth. 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.

People who choose to stay private and closely held and to place other goals ahead of growth get two things back in return: control and time.

All of them have been around long enough to have experienced the ups and downs of business. Nevertheless, with one exception, all have been consistently profitable—in some cases, extremely profitable.

Jay Goltz of The Goltz Group was a natural-born entrepreneur who had been named a business whiz kid, or “biz kid,” by Forbes magazine when he was still in his twenties, and he’d spent most of his adult years trying to live up to the billing—eagerly pursuing growth until he decided he didn’t want that kind of life anymore.

started Rhythm & Hues with the goal of creating “an environment where people enjoy working and where people are treated fairly, honestly, and with respect.”

Norm Brodsky of CitiStorage watched his first company’s annual sales go from nothing to $120 million in eight years—and then from $120 million to almost nothing in eight months, as it slid into Chapter 11 and forced him to question how and why he’d become so addicted to fast growth in the first place.

Dale Merrick, Bob Wahlstedt, and Lee Johnson, all 3M refugees, launched Reell Precision Manufacturing with the goal of building a business that would promote harmony between their work lives and their family lives—and wound up creating one of the most democratically run companies in the world.

Yet for all the differences in background, the founders and owners of these companies also have similarities, including clarity about and confidence in their decision to put other goals ahead of revenue or geographical growth. “I’ve made much more money by choosing the right things to say no to than by choosing things to say yes to,” said restaurateur Danny Meyer of Union Square Hospitality Group, and he could hav...

She is vice president of human resources and plays a major role in the business. Brodsky asked Reese if he’d like to watch the beginning of the class. The employees were acting out various customer-service situations, and Reese sat watching them, enthralled, until Brodsky indicated they should move on.

understand,” Brodsky said. “Why can’t you do it?” “It’s just hard to do when you get big,” said Reese. “Maybe you could go around my company and duplicate the feeling, but I’m not sure it’s possible.” Brodsky took that as a high compliment, which he passed along to his staff.

was reminded of the feeling I’d had in the past when I’d come into contact with hot companies just as they were hitting their stride—Apple Computer, Fidelity Investments, People Express Airlines, Ben & Jerry’s, Patagonia, The Body Shop, even Inc. magazine. They had a buzz. There was excitement, anticipation, a feeling of movement, a sense of purpose and direction, of going somewhere. That happens, I think, when people find themselves totally in sync with their market, with the world around them, and with each other. Everything just seems to click. Most of the companies I knew had eventually lost that quality. Somehow the companies I was looking at now had managed to retain it.

you have to use a new business, too. You have to break it in. If you move on to the next thing too quickly, it will never develop its soul. Look what happens when a new restaurant opens. Everyone rushes in to see it, and it’s invariably awkward because it hasn’t yet developed soul. That takes time to emerge, and you have to work at it constantly.”

It was a quality that you could apparently lose by negligence. In his wonderfully engaging book, Raising the Bar, Erickson said he thought Clif Bar’s mojo was “something about the brand, product, and way of being in the world that was different. I realized that mojo was an elusive quality and needed to be tended carefully.”

Hoping to sharpen his thinking, he’d given people at Clif Bar a homework assignment. After relating what had happened at the trade show, he had asked each of them to choose a company that had once had mojo and lost it, and then explain why they felt the company had had it and how they believed it had been lost. The assignment had evidently struck a chord with the employees, who turned in dozens of thoughtful responses. They wrote about companies losing their creativity as they grew. About losing the emotional connection with the consumer. About losing authenticity and compromising quality. About becoming “too commercial” and focusing excessively on reducing costs. About ignoring the relationship with the community and failing to retain the culture. About getting too big too fast.

Erickson followed up with other homework assignments, to which employees responded with equal enthusiasm. In particular, he asked them to write down whether they thought Clif Bar had mojo, and ...

First, I could see that, unlike most entrepreneurs, their founders and leaders had recognized the full range of choices they had about the type of company they could create. They hadn’t accepted the standard menu of options as a given. They had allowed themselves to question the usual definitions of success in business and to imagine possibilities other than the ones all of us are familiar with.

Second, the leaders had overcome the enormous pressures on successful companies to take paths they had not chosen and did not necessarily want to follow. The people in charge had remained in control, or had regained control, by doing a lot of soul searching, rejecting a lot of well-intentioned advice, charting their own course, and building the kind of business they wanted to live in, rather than accommodating themselves to a business shaped by outside forces.

Southwest Airlines’ Herb Kelleher once observed that his company’s famously vibrant culture was built around the principle of “caring for people in the totality of their lives.” That’s what the companies I was looking at were doing. They were places where employees felt cared for in the totality of their lives, where they were treated in the way that the founders and leaders thought people ought to be treated—with respect, dignity, integrity, fairness, kindness, and generosity. In that sense, the companies seemed to represent the ultimate expression of a business as a social institution.

For Fritz Maytag, that moment came as he was getting ready to take Anchor Brewing public. For Gary Erickson, the moment arrived as he was preparing to sell his $39-million-a-year company, Clif Bar, for $120 million. It was an April morning in the year 2000, and the deal was all but done. The papers were ready to be signed. The buyer’s representatives were waiting. Although Erickson will say only that the acquirer was a midwestern food conglomerate, other sources have identified it as Quaker Oats. In any case, he knew he should have been thrilled. He was getting a fantastic price, and his 50-percent share would set him up for life. Just eight years before, he had been a more or less destitute long-distance cyclist, rock climber, and musician. He’d developed the recipe for his energy bar in his mother’s kitchen and named both the product and the company after his father. Now here he was, about to walk away with $60 million. What more could a man ask for! And yet as he stood with his partner, Lisa Thomas, in the company’s offices in Berkeley, California, he felt miserable. His hands began to shake, and he had trouble breathing. Realizing he was having a panic attack, he excused himself and went outside for a walk.

At the time, it looked like either a wonderfully gutsy or an extremely foolhardy move, depending on your viewpoint. Not only was Erickson turning his back on a fortune, but he was proposing that Clif Bar remain independent and continue to operate as a relatively small private company in a marketplace filled with huge conglomerates out to get it. The investment bankers assured him that the company would be crushed in short order. So did the venture capitalists he spoke to. His partner agreed, and the risk of losing everything she’d worked for frightened her. Shortly thereafter, she resigned from the company and insisted that Erickson cash her out. (She could insist because, as a 50-percent owner, she could have shut the company down if her demands weren’t met. A less-than-50-percent owner does not have as much leverage.) They eventually settled on a deal whereby he would pay her $65 million over five years. He had $10,000 in his bank account at the time.

I decided that our reason for being here was to prove you can have a healthy, sustainable company that grows by natural demand and that is profitable.”

They’d launched the store in 1982 with the intention of having it carry the finest artisanal food products and serve the best sandwiches known to man. “We wanted sandwiches so big you needed two hands to hold them and the dressing would roll down your forearms,” said Saginaw. “We wanted people to say about other sandwiches, ‘This is a great sandwich, but it’s not a Zingerman’s.’” Within a decade, they’d accomplished all that and more.

In 2002, midway through the implementation process, with seven of the businesses up and running, Weinzweig could say, “We’ve been in business for twenty years, and I look forward to coming to work even more now than I did in the beginning. I’m having more fun, and I’m more at peace with the realities of life. Success means you’re going to have better problems. I’m very happy with the problems I have now.”

His ambition became focused on a single number. “If you’d asked me what I wanted back then, I’d have told you right away, a $100-million company,” he recalled. “I couldn’t have told you why I wanted it. I never thought about the why. It was just my goal. I was determined to have a $100-million company, and I was willing to do almost anything to get it.”

I was in denial about that right up to the day we filed for bankruptcy.

“That’s when reality sets in. Suddenly you see what the next step is, and you think, Oh, my God, look at all these people I have to lay off. I mean, even though I’d put a ton of money back into the company, even though I’d stopped taking salary and was paying all the expenses out of my pocket, I still had assets that weren’t going to be affected. I’d have to cut back on my lifestyle, but I’d be okay. Here were all these other people, thousands of people, who depended on me, and now they’re going to be out of work. If you’re a decent person, if you have any conscience at all, you have to say, ‘How did I screw this up so badly?’”

I mean, we had to have armed guards in our offices. We had guys coming up who were extremely angry, and I couldn’t blame them. They hadn’t had any warning because I couldn’t announce our Chapter 11 in advance. So one day they had a job, and the next day they didn’t—through absolutely no fault of their own. I can’t tell you how hard that was. Today I never ever make a decision that will jeopardize anybody’s job, but that’s something I had to learn the hard way.”

A lot of people had warned him that he was taking an unreasonable risk in acquiring Sky Courier, but he had brushed them all off. He never even heard what they were saying. So he cultivated a new habit: taking care to understand what other people were trying to tell him before he made up his own mind.

Above all, Brodsky spent time reevaluating what he wanted out of business, and what he wanted out of life. In his mad pursuit of his $100-million mirage, he’d missed the childhood of his eldest daughter. Was he going to miss his younger daughter’s childhood as well? Although he and his wife, Elaine, loved to travel, the only traveling he’d done in the 1980s was on business. He’d taken no real vacations for more than twelve years. He’d had precious little family time. He’d let his ambition override all that was most important to him. What he’d lost, he would never get back. But he could make sure he didn’t repeat the mistakes in the future.

He’d obviously blundered by focusing so intensely on sales, rather than profit. 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? He didn’t know exactly wha...

It’s as though they knew instinctively that they had a choice, that they could resist the pressures and the temptations to expand too rapidly or in the wrong direction, and that—unless they did—they would lose what they treasured most about their businesses. Among other things, they feared putting themselves in a position that would force them to compromise the excellence they strove for. These are people, after all, who are passionate about what they do and dedicated to pushing the boundaries of how well it can be done. Yet the more successful they are in achieving what they want, the more difficult it is for them to stay on course. Because of their success, they find themselves faced with so many opportunities that it takes a conscious effort on their part to keep from heading off in the wrong direction.

Inevitably, people began approaching him about doing another restaurant. Some of the offers were tempting, but he was nervous about overreaching. 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 Café. Second, it would have to enhance the value of Union Square Café. Third, it would have to bring more balance to his life, not less.

But eventually he did start a second restaurant, Gramercy Tavern, also located in the Union Square area. He decided to do it in part because he had the opportunity to bring in a great chef who would otherwise have found something else to do. He was also concerned about increasing turnover in the midlevel staff at Union Square Café. He knew good people would keep leaving if he didn’t create opportunities for them to expand their horizons within the company. Besides, Meyer himself was ready for a change. “Union Square Café was a great canvas, but I needed a new place to express my creativity,” he said. “I didn’t think I should alter a successful restaurant just because I was restless. I didn’t have to get all of my ideas into one place.”

Meyer called it “enlightened hospitality,” and it was the foundation of his company.

the only way to keep a nineteen-year-old restaurant like Union Square Café on its toes is to staff it with people who want to figure out a better way to do everything every day.

How centralized should it be, and what exactly should be centralized? And what relationship would employees have to the company? Would the wait staff, say, at Union Square Café identify first with the restaurant or with Union Square Hospitality Group? “That’s something we debate internally a lot,” he said. “I’m quite comfortable with people having an allegiance first to their restaurant and secondarily to Union Square Hospitality Group. I’ve never veered from the notion that, to the degree these are great restaurants, we’ll be fine. To the degree they feel like cookie-cutter offshoots of a larger entity, who needs it?”

It was an interesting balance to maintain. The restaurants would be recognizably part of Union Square Hospitality Group, and yet completely different from one another. They would have a common culture, but the feeling of each would be distinctive. They were like kids, Meyer said: Each would have its own personality, but you’d never doubt that they were members of the same family. Some of their DNA would be the same, and some different. There were, he conceded, some issues that had yet to be worked out. “It’s critical for everyone to know what few things should be nonnegotiably similar,” he said, “but for me it doesn’t go too much further than the sense of how people feel treated. Beyond that, I think things should look different, taste different, smell different—which you need to sustain a high level of interest.”

there’s no question that the single greatest challenge we have is to never ever lose soul in the restaurants. If that happens, I’m not going to be very interested in growing. That’s not of any interest to me.”

Overall, Meyer is optimistic. He thinks he can pull it off—he can keep adding to the company without losing the soul. Yet he finds himself in that position only because he resisted the pressures to expand in the early years before he was prepared to handle the challenge without sacrificing the soul. By saying no, he kept his options open and preserved his ability to choose how far and how fast to grow. And therein lies another lesson: If you want to have the choice, you have to fight for it. All successful businesses face enormous pressures to grow, and they come from everywhere—customers, employees, investors, suppliers, competitors—you name it. As we shall see, those forces will make the choice for you if you let them, in which case you will lose the opportunity to chart your own course.