I sat down to read Small Giants by Bo Burlingham, thinking that it would be a sprightly frolic through a variety of interesting companies. I love stories, you know, they’re so great in illustrating business lessons that I’m constantly on the lookout, but businesses like 3M and Apple have just been done to death. If I never hear another word about Google’s perks, and what they mean for finding and retaining top talent, it will be too soon.
Anyway, I meant to use the book as a kind of palate-cleanser. At the end of the day, my brain can’t handle anything that’s actionable. I need to be entertained.
But damn if the whole introduction wasn’t full of the sorts of reasons why our types of businesses are pretty awesome. Superior, you might even say, to publicly traded multi-national behemoths.
Lest you should think me sycophantic, let’s review what’s so great about our sorts of businesses.
- Small. We can fit into nearly any niche.
- Furthermore, our needs are modest. We only need a comparatively small number of customers to handily support the business.
- We’re flexible. Both in terms of adapting to market needs, and to our personal needs; the best types of businesses can take a little neglect if necessary.
- We can express our values with our businesses. Maximizing profit is not a primary motivator; fulfillment is. Service is. Creativity and innovation are.
So let’s look at what Burlingham has to say.
Consider this book a field report from the front lines of an emerging force in American business. These companies don’t fit comfortably into any of the three categories we normally put businesses in: big, getting big and small. Some are tiny; others are relatively large. Most are growing, often in unconventional ways, but several have chosen not to grow at all, and a few have made conscious decisions to scale back their operations. … 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 these 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 people, or — in a couple of cases — the employees.
To an extraordinary degree, our view of business– indeed, our whole concept of what business is– has been shaped by publicly owned companies, which actually make up a very small percentage of the entire business population.
Along the way, we’ve come to accept as business axioms various ideas that, in fact, only apply to public companies. Consider, for example, the conventional wisdom that businesses must grow or die. That’s no doubt true for most public companies. Steady increases in sales, profits, market share, and EBITDA (earnings before interest, taxes, depreciation, and amortization) are demanded and expected by a public company’s investors, and decreases — or stagnation– send them running to the exits. But there are thousands of companies that don’t grow much, it at all; and they don’t die either. On the contrary, they’re often quite healthy.
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 a major increase 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 publicly traded companies, but it’s demonstrably untrue for a large number of private ones.
The companies in this book have a message for every person who sets out to build a business, and that’s an important one: If the business survives, you will sooner or later have a choice about how far and how fast to grow. No one is going to warn you about it, or prepare you for it, or tell you when the moment arrives. Chances are, your banker, your lawyer, your accountant, or whomever else you turn to for business advice will be encouraging you to grow as fast and as far as you can.
Goddamn, it’s great to see this in print, in so many words.
Okay, lets start from the top.
Consider this book a field report from the front lines of an emerging force in American business.
Actually, I quibble with this. I know it’s fashionable for every business book to be “revolutionizing” but I’d argue that these businesses always existed, it was just that they were hard to find out about unless you were “in the know” in their region or industry.
I’ve said for years there’s a kind of “hidden economy” full of these kinds of businesses. In fact, one of my recurring fantasies is to create an ongoing series of interviews with people who have built successful businesses (preferably online) and are running them without having to splash around in social media marketing or those other “game-changer” tactics. They just hang around, being successful, and raise their families. I know they exist, it’s just that you don’t hear about them because they’re not out their banging the drum. I never have time to give this project the attention it deserves, but I want to do it! So if you, or anyone you know, meets this criteria, please send them my way.
Anyway, the idea that these “Small Giants” are in any way new is laughable. They’ve always existed. We just don’t have any way to track them. And that’s probably how they like it, since too much media attention would throw a spanner in the works. American Giant, for instance, a boutique label that creates American-sourced, American-made hoodies and sweatshirts was profiled in Inc. Magazine and has been on backorder for the entire two years I’ve known about them.
I will grant that Mr. Burlingham is probably the first to make a study of them, at least in a non-academic manner.
These companies don’t fit comfortably into any of the three categories we normally put businesses in: big, getting big and small. Some are tiny; others are relatively large. Most are growing, often in unconventional ways, but several have chosen not to grow at all, and a few have made conscious decisions to scale back their operations.
I strongly believe that for any niche, (and for many people) there is a “right size” for a company. And sometimes you can’t know what that size is until you exceed it and it doesn’t work, but hey, that’s life.
On a related note, that’s a problem I often see people make when they go to build a business. They have a number in their head of the amount of money they need to make. While I generally applaud that foresight, it’s damn hard to decide from the outset what the “sea level” profits for a given business is going to be. The bigger the number, the more concerned I am that you’re going put nine months into a business and then drop it because you had “a better idea.” That’s no way to make anything profitable.
The way to do things is to get a business going, then slowly systematize whatever predictable actions give you predictable results (within a comfortable margin of error.) If this sounds boring to you, know that you don’t have to run a business like that. You can hire a manager, or on a smaller scale, a VA, who will be able to do most of the boring stuff you find tedious. You can even start another business, if that’s your thing. (Spoiler: It’s definitely mine.)
Your business will have a natural size at which it becomes largely self sustaining. Think of it like putting in a garden. Selling produce from a backyard garden isn’t going to get you anywhere because you won’t be able to produce enough in profit to offset your costs. You aren’t big enough to enjoy the economies of scale. If your community has a strong locavore movement, you can put in a few acres, call yourself a market garden, and make money that way. That way you can enjoy the economies of scale (but only if produce prices are high enough for you to make a profit). However, though you might think, “If I make X with 10 acres, I’ll make 10x with a hundred acres. Except… not. Because nothing scales like you think it will. It’s obvious in this case that at some point you would need much larger equipment than you’re currently using. And that’s the point where you’re going to have to think really long and hard about whether bigger really is better.
Moving on:
To an extraordinary degree, our view of business– indeed, our whole concept of what business is– has been shaped by publicly owned companies, which actually make up a very small percentage of the entire business population.
No argument there. Those are the businesses big enough to shape policy, so those are the ones that get attention paid to them.
Along the way, we’ve come to accept as business axioms various ideas that, in fact, only apply to public companies. Consider, for example, the conventional wisdom that businesses must grow or die. That’s no doubt true for most public companies. Steady increases in sales, profits, market share, and EBITDA (earnings before interest, taxes, depreciation, and amortization) are demanded and expected by a public company’s investors, and decreases — or stagnation– send them running to the exits. But there are thousands of companies that don’t grow much, it at all; and they don’t die either. On the contrary, they’re often quite healthy.
Well… Okay, I don’t actually have a quibble here, but it gives me an opportunity to get on my hobby horse about something. I really dislike the 4-Hour Workweek business model. Basically, if you can systematize things to the point where you don’t need to be present for the business, you’re at risk of being overtaken by competitors when you’re not paying attention.
I love systematization, don’t get me wrong. But when you’re small, your primary business advantage is your flexibility and responsiveness. Don’t throw that away for an 18 month sabbatical in Belize. Stay on top of the market, the trends, and pay attention to things that maybe aren’t working as well as they once did. You don’t have to be growing but you do have to be paying attention.
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 a major increase 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 publicly traded companies, but it’s demonstrably untrue for a large number of private ones.
The companies in this book have a message for every person who sets out to build a business, and that’s an important one: If the business survives, you will sooner or later have a choice about how far and how fast to grow. No one is going to warn you about it, or prepare you for it, or tell you when the moment arrives. Chances are, your banker, your lawyer, your accountant, or whomever else you turn to for business advice will be encouraging you to grow as fast and as far as you can.
“You will sooner or later have a choice about how far and how fast to grow.” Exactly this. Why don’t people talk about this? Partly I think because it’s so much a forgone conclusion to “let it ride” and see how big we can make it. Partly because at any given time the pool of people who are being faced with this decision is very small, compared to the ones who are still in the building out stage.
And thirdly, it’s because offering advice in a situation like this requires intimate knowledge of the business, the vision of the person running it, and a fairly in-depth knowledge of the economics of the market it’s in. You can’t just call into a radio show and get a good answer. As the excerpt mentions, even the people closest to you, as well as the people who have an intimate understanding of your business, are going to have the “give ‘er” bias.
What about you? Have you ever thought about how big you want your business to be, if you had no constraints at all? It’s very helpful to plan for success as well as failure.
[ssbp]
