Small Giants

To grow or not to grow? Some companies decide to stay put
October 25, 2006
Edward Iwata

At some point between youth and adulthood, many small profitable companies face a dilemma: Should they keep growing or stay the same size?

Past the start-up stage, successful small businesses boast cash flow, loyal customers and rising demand for products and services. Competitors, investors and bankers tempt them with merger inquiries or public stock offerings.

Should the companies go for it, dreaming of becoming the next Starbucks or Or should they remain happy with their fates as small businesses?

"Once a company goes through a growth period and reaches critical mass, it has all kinds of choices to make," says Bo Burlingham, an Inc. magazine editor and author of Small Giants: Companies That Choose to be Great Instead of Big ( "There's a moment of truth."

In researching his book, published this year by the Penguin Group's Portfolio imprint, Burlingham found hundreds of thriving U.S. businesses that decided smaller is better.

Unlike thousands of publicly traded firms, these business owners refuse to chase double-digit growth, or kowtow to Wall Street. Instead, they've kept their companies at a manageable size, privately held by a few shareholders.

Burlingham writes about 14 companies, including Anchor Brewing in San Francisco; the Union Square Hospitality Group of restaurants in New York; Ecco, a maker of vehicle backup alarms in Boise; and Selima, a fashion design firm in Hollywood, Fla.

They've chosen to focus on what they believe to be more gratifying goals, including:

  • Preserving their entrepreneurial spirit and the highest quality of their products and services.

  • Maintaining ties to customers and suppliers who like the personal touch of small businesses.

  • Treating and paying their employees well and keeping their work teams together.

  • Staying close to their local neighborhoods and non-profits as a true member of the community.

The downside of staying small? There's less capital to increase production or to grow geographically, which can lead to losing customers. Burlingham adds that small businesses face the same risks as all companies, including fierce competition, cash-flow problems, poor management and recessions.

Many fast-growing companies lose the original spirit and character that made them unique, Burlingham says. Some may please shareholders and rake in huge profits, but inevitably they become large, impersonal businesses. Burlingham says it happened to Ben & Jerry's, Apple Computer, the Body Shop and others.

"The bigger you get, the harder it is to preserve that passion," he says. "In business, it's easy to confuse size with greatness. Companies of all sizes can be great."

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