Big not necessarily better when it comes to business:
Author discovers secrets of success from small firm
Tuesday, February 21, 2006
by Ilana DeBare

It's a high-tech world - - we just plug you into it...

Anchor Brewing, the century-old manufacturer of Anchor Steam beer. Clif Bar, the Berkeley energy bar company. W.L. Butler Construction, a publicity-shy Woodside builder with a sterling reputation for community involvement.

These Bay Area businesses from very different industries share the spotlight in a new book that is topping the Amazon.com list of business best-sellers, "Small Giants: Companies That Choose to Be Great Instead of Big" by Inc. magazine editor-at-large Bo Burlingham.

Burlingham, a Cambridge, Mass., resident who is spending the year in Berkeley, wrote the book as a tribute to companies that buck the conventional wisdom of "bigger is better" in an effort to maintain their excellence.

He sat down with Chronicle staff writer Ilana DeBare recently to talk about his book, the pressures on businesses to grow more than is good for them, and why the Bay Area seems to have more than its fair share of "small giants."

Q: You write about the pressures on successful privately held companies to become large or go public. What are these pressures?

A: It's taken for granted by most people in business that the whole idea is to get as big as possible, as fast as possible.

It comes from our focus in the media and publishing and academia on large, publicly traded companies. Every business best-seller, from "Iacocca" to "Good to Great," is all about large, publicly traded companies. Even though large, publicly traded companies make up a very small minority of the total number of businesses out there, it's taken for granted that's what you're supposed to do. It's also the message that you'll get from your advisers -- your lawyer, your accountant. The result is that people don't even think about alternatives.

Q: But isn't bigger usually better? Bigger means economies of scale -- more profits, more jobs and more satisfied customers.

A: I don't mean to suggest there are no great larger companies. The ones I always mention are Whole Foods Market, Southwest Airlines and JetBlue. The problem arises when you start to say bigger is (automatically) better, because those companies are few and far between. They have to resist tremendous pressures on them to compromise what they want to do.

What makes a company great? If it's just size, then Exxon is probably the greatest company out there. Well, we know that's probably not true.

Q: If not by size, how do you define a great company?

A: All these companies had a certain special quality -- the business equivalent of charisma. When a business has charisma, you want to be associated with it. You want to work for it, you want to do business with it, you want to be part of it in some way.

Q: Of 14 companies that you profile in the book, three are from the Bay Area. Is there something about the Bay Area that is fertile ground for "small giants," or did you just happen on a bunch of companies out here?

A: Both. The Bay Area is one of those areas that is very fertile ground for starting businesses. There's a lot of cultural reinforcement -- it's cool to go out and start a business. That's not true everywhere.

The Bay Area is also a place where people question stereotypes. They're independent thinkers. And that also feeds into it.

The third factor is that if you look at the backgrounds of the three people who founded these companies, they were all very idealistic young people, although they are different ages.

Bill Butler (owner of W.L. Butler) lived in a hippie commune in Woodside. Gary Erickson (owner of Clif Bar) was living in Berkeley in a garage with his dog, and he liked to go mountain climbing and biking and was imbued with the Berkeley spirit. Fritz Maytag (owner of Anchor Brewing) graduated from Stanford and went to Latin America, and was really ahead of his time in exploring how he could make a difference in Latin America.

The Bay Area happens to be a place where there are a lot of people like that around.

In fact, at a certain point, I deliberately said, "Let's not look at any more companies in the Bay Area, or people will think this is a Bay Area book."

Q: Each of these companies faced a turning point where they made a conscious choice to stay small. What were those choices?

A: At Clif Bar, Gary Erickson faced a decision in 2000 of whether to sell the company to a large Midwestern firm for $120 million, of which he would get $60 million. He decided to walk away from that rather than give up what was most important to him, which was the quality of the product, the culture inside the company, and its relationship to the community and the world.

Q: What about Anchor Brewing?

A: Fritz Maytag was at a point in 1992 where he feared he would run out of capacity unless he significantly expanded his production facilities. He'd arranged to do a direct public offering. But then he thought through the implications. As worried as he was about not being able to satisfy his customers' demand, he didn't want a giant company and what that would do to the quality of the product and culture of the company.

Q: And Butler Construction?

A: Bill Butler was someone who couldn't say no. His construction business was extremely successful and getting lots of lots of new business, and it overwhelmed the company. So in 1989, he decided to completely rethink the business. He went from being a construction company that did everything to being a general contractor, which is what he felt they did best. That meant getting rid of some customers and outsourcing some things, but it allowed him to keep the number of people at 120, which is the number he felt he could personally know.

Q: Is there a common recipe for success among these small giants?

A: First, they have very, very intimate relationships with the communities in which they do business. That is something you can only do if you remain essentially a local business. Once you become national or international, you can still be a good corporate citizen but you're not rooted in a community. The second thing I found was their close, close relationships with their customers and their suppliers. They are personal and one-on-one. It's as if the companies, their suppliers and customers are all part of the same community and are all trying to do the same thing. The third thing is the nature of their workplaces. All of these companies have very intimate relationships between the employees and the company. You don't just care for people as employees, it's really knowing and caring about the whole person.

The last factor was that the owners were absolutely, totally in love with what their businesses did. They were the opposite of professional managers.

Professional managers are always told, "Don't fall in love with the business. You've got to be objective."

But these people had totally fallen in love with the business and with the central thing it did. Whether it was food, fashion, construction, beer or storing boxes: The founder of CitiStorage in New York says he likes nothing better than to walk into one of their warehouses and smell the cardboard.

Q: What about profitability?

A: I chose to include companies that had been consistently profitable; some in fact had been insanely profitable. It was important to all of them to be profitable, although it was a bigger concern to some than to others.

The problem is if you take money from outsiders, you're obligated to give them what you promised them, which in most cases is the best possible return on their investment. So that becomes your No. 1 priority. The reason these companies remained privately held was they didn't want to focus on that. They wanted to focus on other things. They viewed the profits they made as a byproduct of these other things rather than as the goal.

Q: What advice do you have for businesses that are just starting out?

A: No. 1, be aware that you have a choice and can decide what you want to do. I'm not telling people not to go for venture capital, but be aware you have a choice.

Know yourself and know what you want. One of the common characteristics of these people is they know themselves very well, which allows a Gary Erickson to walk away from a $120 million deal.

Then, reach high. However you decide to define greatness, go for it. If greatness is being the next Microsoft, fine. But think about it early on. What do you want this company to be in 10 years? Meaning, what is your life going to be like? What will people in the community say about you? What kind of relationship do you want with your customers and suppliers? How much money do you want to have? Do you want to be able to take time off? You are choosing a life.

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