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

by Bo Burlingham

Within two months, he had quit his job and launched his own PEO, TriNet, Inc., on $5,000 in savings.

That’s an important point. It’s far more difficult than most people realize to keep ownership and control inside a privately owned business as it grows, but unless you do you will wind up with a company driven not by your own aspirations but rather by the need to meet growth targets set by outsiders. Even if you succeed in retaining control, moreover, you still have to deal with a variety of forces pushing you to grow whether you want to or not.

the $50,000 was also the first step toward the loss of his independence. The money came with obvious strings attached.

Babinec’s notion of having a nice, little lifestyle business was a distant memory. More to the point, he had a lot less control of his company and his life than he’d been looking for when he began. Yes, he was the CEO, with all the perks of the office, but he was by no means a free agent.

You can’t build a small giant if you’re in an industry where your success depends on how big your company becomes. In that case, the pressure to grow fast will be irresistible, as it was for TriNet, and sooner or later you’ll have to look for outside financing, no matter how much capital you start with.

“The point is, your growth is absolutely limited by your capital, or your ability to borrow capital. That was an eye-opening realization for me.

Every unit of growth needs new capital if you’re in a capital-intensive business.

you almost always lose a significant portion of your independence when you sell stock to outsiders, even if the business remains privately owned.

only four of the fourteen small giants in our sample have stockholders who don’t work in the business.

Union Square Hospitality Group began with family investors—Danny Meyer’s mother, his aunt, and his uncle. He has a more diverse group of outside investors now, but they, too, give him a free hand. “They understand that they’re investing in us as we do business,” he says.

Gary Erickson, for one, struggled for two years to take full ownership and control of Clif Bar after he split with his partner, Lisa Thomas, over his decision to reject the $120-million offer for the company.

Once you bring in outside capital and give equity to outside investors, there’s no turning back. I don’t regret my decision [to keep the equity inside] for a moment. I would be very unhappy today if I hadn’t done it.

Most of the CEOs in our sample share Erickson’s conviction that you can’t have outside shareholders if you want to build a small giant, and even Danny Meyer agrees that his investors don’t belong unless they buy completely into his particular vision and way of doing business. The reason is simple enough. These companies are searching for something indefinable and immeasurable, something that goes beyond the standard definitions of success in business, something that can easily be lost unless it’s protected against the homogenizing influences brought to bear on every company.

Most of the companies in our sample have no interest in buying other businesses, given the difficulty of merging corporate cultures.

Even if you manage to keep ownership inside the company, you still have to contend with other forces pushing you in directions you didn’t necessarily want to go.

The CEOs of our small giants have all faced, and continue to face, the same issue. One way or another, they have had to keep their best people engaged and challenged or run the risk of losing them. In most cases, the answer has been a kind of controlled growth that has preserved the company’s culture while creating new opportunities for employees. Not that other companies don’t control their growth. If they didn’t, they wouldn’t survive. For a conventional business, however, the growth is the goal, and the control is what you need to keep it in hand. With the companies we’re looking at, creating opportunities for employees and opening up new possibilities for the business are the goals. Growth is a natural by-product of the company’s success in pursuing its central purpose and reason for being, whatever that may be.

Interestingly, while a few of the sample companies have grown in fairly traditional ways—by launching additional product lines, for example—most have done it by spinning off new ventures, often becoming entirely different entities in the process.

By the time you realize that the company is too big, that you’re out of your depth, that your work is simply not up to the standards you’ve set for yourself, you’ve made a lot of commitments—to employees, to customers, to suppliers—that are hard to break. If you decide to change course, people will have to be let go. Contracts will have to be renegotiated. Customers—good customers, the kind you want to keep—will have to be told that you just can’t help them. At that point, you find out just how deeply you care about being the best at what you do.

Meanwhile, the company wasn’t making money. The quality of its work wasn’t as good as Butler thought it should be. There was no corporate infrastructure. Things were out of control.

“It was my fault,” Butler said. “That was tough to admit, but I knew I’d screwed up. I’d overpromised, and we’d bitten off more than we could chew. So we sat down and did a lot of soul-searching. We asked what we did well, what kind of work did we get a better return on, what did we need to improve. And then we changed everything.”

“We wanted to raise the bar,” he said. “Instead of trying to do it all, we wanted to be the best at a few things. We physically gave up our licenses in other states so we couldn’t work there, and we went from taking every job to questioning every job.” That meant getting rid of customers, including some who’d been with the company for a long time. The team spent hours analyzing the customer base, noting which jobs were more profitable, discussing which niches Butler should be in and which clients played best to its skill set, projecting how economic trends would affect different industries, and so on. Then came the cuts. “We went from twenty-five clients to ten clients,” Butler said. “Mainly we fired the bad ones, including our biggest client”—a giant financial services company—“that accounted for 50 percent of the value of our jobs. The people they had on our projects were demeaning to us. They’d lie and make us look like fools. We told them we didn’t want to work with them anymore.”

“It’s tough. It’s very, very tough,” Butler said. “You can only say no so often. We’ve turned down as many projects as we do, and it’s always hard. Sometimes we’ve had to deal with it by recommending competitors, which is extremely tough for an entrepreneur to do, as you can imagine.

the company became legendary in its community for its charitable works and its extraordinary workplace.

In 2001, sales hit $125 million. The following year, they rose 40 percent to $175 million. “That was too much,” Butler said. “It was a strain on the infrastructure. People were working too hard. Everybody was too stressed out.” So, in 2003, he cut back, dropping sales to $155 million; only to have them jump the next year to $205 million, which was too much again. In 2005, he cut back once more, to $195 million. “We really do strive to stay small,” he said.

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 Microsoft or Citicorp. That widespread assumption, in turn, can become another pressure to grow, especially when considerations of status and prestige come into play. “It’s really tough—because it can be an ego thing,” said Catlin. “I spend a lot of time soul searching. What is most important to me? What’s this all about? What do I want to do with my life? The world says, ‘Go. Get bigger. Go. Go.’ But I don’t see why I should.”

“That led to a second realization: People who build giant companies from scratch are different from you. It’s not just brains; it’s composition. They have a stomach you don’t have. Then finally, it hits you, the third realization: Things are okay. You think, I can be happy. I can lead a good life, have a great business, make enough money, without going crazy. And you begin to notice all the unhappy rich people around, with unhappy families. When Donald Trump was asked whether he was a good father, he said, ‘I’m a good provider.’ That horrified me.

There was another important component to the change Goltz went through. Like many entrepreneurs who feel driven to grow their companies, he suffered from a major disability, namely, his own blindness to what he had accomplished. He was haunted by a sense of inadequacy, of not measuring up. 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.

It is hard to imagine a small giant whose leader does not recognize his, or her, starfish. 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. That appreciation is a common characteristic of all the companies in our sample, and it makes possible the intimacy they are able to achieve with employees, customers, suppliers, and the community—an intimacy that is both one of the great rewards and one of the crucial generators of the mojo they exude. It’s also an intimacy you can witness firsthand if you want to. You need only visit the cities, towns, and neighborhoods where these companies are located.

When you look closely at our small giants, one characteristic immediately jumps out at you. Like Righteous Babe, they are all so intimately connected to the place where they’re located that it’s hard to imagine them being anywhere else.

O. C. Tanner and Salt Lake City,

“You’re talking about something like what the French call terroir,” he said. “It has to do with the way that the soil and climate in a given region contribute to the flavor of the food. That’s because the soil’s mineral content, the amount of sun and rain it gets, the local vegetation, and so on—all that is different in each region.

When you mass-produce food, you strive to take the terroir out. The whole idea is remove any variations due to climate, or soil, or season, much as companies that are spread out geographically strive to reduce variation and develop a common culture. They work hard to make sure people throughout the organization are following the same rules, living up to the same standards, working toward the same goals, reflecting the same values. And there’s nothing inherently wrong with that. Weinzweig points to Whole Foods Markets—the national chain of natural-foods grocery stores—as a large company with a strong, vibrant culture and a commitment to being a good corporate citizen, “but they’re not really rooted in a community anymore.”

The companies in this book are all deeply rooted in their communities, and it shows. Each has a distinctive personality that reflects the local environment, often in ways that may seem superficial or quirky on the surface but that actually play an important role in the business’s success.