Book Review of Small Giants: Companies That Choose to Be Great Instead of Big by Bo Burlingham

This Book Review of Small Giants: Companies That Choose to Be Great Instead of Big by Bo Burlingham is brought to you from Nicholas Cheng from the Titans of Investing.

Genre: Biographies of Business Leaders
Author: Bo Burlingham
Title: Small Giants: Companies That Choose to Be Great Instead of Big (Buy the Book)

Summary

In business, we often associate bigger with better. For example, Fortune publishes its Fortune 500 list every year and ranks the top 500 United States corporations based on their revenue. Another example is the S&P 500. In order to be eligible to be included in the benchmark index, a company must have a market capitalization of US$ 6.1 billion or more.

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Bo Burlingham wanted to prove that bigger isn’t always better. In Small Giants: Companies That Choose to Be Great Instead of Big, Burlingham examined companies that had de- prioritized expansion and achieving record-setting revenue numbers and instead strove to maintain authenticity and be the best at what they did.

Burlingham’s foray into small giants started when he wrote a cover story for Inc. magazine about an Ann Arbor, Michigan, institution called Zingerman’s Community of Businesses (ZCoB). ZCoB originally started as Zingerman’s Delicatessen in 1982. Their founders’ goals were to provide high-quality service and “serve the best sandwiches known to man.”

As Zingerman’s Deli became more and more successful and gained notoriety for their delicious food, copycat delis arose. The founders, Paul Saginaw and Ari Weinzweig, realized that in order to maintain their success, they would have to expand the business. However, the partners were weary of traditional expansion by opening more locations primarily because they realized that what made their deli unique would be lost once they replicated the formula.

Instead, ZCoB, a collection of new businesses all within the Ann Arbor area, was formed. Each business would have its own specialty. For example, one business was a creamery and another was a training company for ZCoB employees. Collectively, however, ZCoB served one purpose: to enhance the quality of food and service to customers.

Expanding Zingerman’s not only warded off copycats and maintained the deli’s success, but it also allowed the two partners to achieve another feat: maintain intimacy with their community and customers. This is a characteristic that ZCoB and the 13 other companies

highlighted by Burlingham possess. However, providing high quality and having a relationship with the community is simply not enough to be considered a small giant. Instead, Burlingham believes that small giants are deserving of the moniker because they possess “mojo.”

While mojo is never definitively defined in the book, it is easy to intuitively identify a company with mojo in its culture whenever we witness it. I’m certain that in every individual’s life there has been at least one instance where they have patronized an establishment and had a feeling about that business that made it unique and successful. However, wrapping their finger around what exactly made it such was difficult.

Instead, there are six traits that were common amongst all of the small giants identified by Burlingham. The first common factor was that the owners of these businesses all challenged the status quo and questioned what success for a business truly means.

Secondly, these owners built the businesses they wanted without external parties dictating what a business should look like. The third and fourth traits were previously discussed: intimacy with the community and customers. An addendum to the fourth was not just intimacy with the customers, but also with suppliers. The fifth commonality was intimate workplaces, and the final common thread was that all the leaders of these small giants were genuinely passionate about what they did.

Interestingly, the number of employees was not a criterion for being selected for the book. One small giant only had two employees, while another had 1,722. Additionally, there was not a cap on annual sales either. The company with 1,722 employees had annual sales of over $340 million at one point. Burlingham notes that as long as quality and intimacy are not compromised, a small giant can grow to almost any size.

Still, nothing sums up the concept of a small giant better than the following passage:

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 industry—a company known and respected for its fabulous service, its unstinting generosity, and its happy, dedicated workforce rather than its size?

Business is not about building the largest company and business leaders would be keen to recognize this. There are many paths towards building a successful company and leaders have the freedom to choose the path they want.

Introduction

Small Giants: Companies That Choose to Be Great Instead of Big by Bo Burlingham is an exploration of fourteen private businesses that Burlingham identified as special companies with mojo – a je ne sais quoi that can best be defined as a combination of authentic quality, charisma, culture, and success.

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Though Burlingham admits that there are thousands of small giants throughout the world, the 14 companies covered in his study include the following:

  • Anchor Brewing – A San Francisco, CA, brewery regarded as an originator of the craft brew culture in the United States
  • CitiStorage Inc. – A provider of records-management services headquartered in Brooklyn, NY
  • Clif Bar & Co. – A Berkeley, CA, producer of natural and organic snacks most known for their namesake energy bars
  • ECCO – A supplier of commercial and emergency vehicle backup alarms and other vehicular safety products operating out of Boise, ID
  • Hammerhead Productions – A Studio City, CA, animation company responsible for computer-generated special effects in motion pictures
  • O.C. Tanner Co. – A Salt Lake City, UT, based provider of employee recognition programs and manufacturer of service awards
  • Reell Precision Manufacturing – A manufacturing firm focused on motion-controlled designs operating out of St. Paul, MN
  • Rhythm and Hues Studios – A Los Angeles, CA, animation company specializing in character animation and visual effects in movies
  • Righteous Babe Records – A Buffalo, NY, indie record label co-founded by singer- songwriter Ani DiFranco
  • Selima Inc. – A renowned Miami, FL, fashion design and garment-making business founded by Selima Cohen specializing in creating one-of-a-kind dresses
  • The Goltz Group – A quartet of retail stores in Chicago, IL, providing framing services and home décor products
  • Union Square Hospitality Group – A group of award winning restaurants, cafes, and bars headquartered in New York, New York
  • W.L. Butler Construction, Inc. – A Redwood City, CA, general contracting firm responsible for constructing major commercial spaces
  • Zingerman’s Community of Businesses – A collection of Ann Arbor, MI, food-related companies

From researching these companies, Burlingham identified the six genetic factors that compose the DNA of these small giants. Each one possessed the following factors:

  1. The founders of the companies all made the decision to stay private and did not grow their businesses merely for the sake of expansion
  2. All of the companies’ leaders understood their role in determining the direction of the company which allowed them to succeed
  3. The small giants embraced their community and forged close relationships with them
  4. The businesses had intimate relationships with their customers and suppliers
  5. There was a collegial culture amongst employees – one that hinged on mutual respect, trust, and love for one another
  6. The leaders of the small giants were passionate about the business and united in decision making The 10th Anniversary Edition of Small Giants allows Burlingham to revisit some of the businesses and provide updates on what additional challenges they faced.

It’s Your Company

“I realized we were doing the IPO out of desperation—because we thought we had to grow… It occurred to me that you could have a small, prestigious, profitable business, and it would be all right.” – Fritz Maytag, p. 5

Those were the words of Fritz Maytag, owner and CEO of Anchor Brewing, after deciding that an IPO was not in the best interest of the company. The initial desire to conduct a public offering was due to the growing popularity of the California brewery’s product line.

In fact, the brand had become so popular with customers that Maytag had to ration out supply to their distributors because they could not keep up with demand. Anchor Brewing had no choice but to move into a larger facility in 1979.

Anchor Brewing’s popularity continued to reach new heights throughout the 1980s, and the owner was again realizing that in order to keep up with demand he would sooner or later have to expand. Eventually, Maytag decided to pursue a direct public offering. However, he had second thoughts and asked himself how the investors would affect his company and what his goals in life were to begin with.

In the end, he backed out of the offering and kept the company private. Doing so allowed Maytag to keep Anchor Brewing focused on quality and not the bottom line. The brewery has been able to continue producing beer the pure and traditional way – a more tedious and expensive method compared to modern breweries.

When reflecting upon his business, Maytag admits that there are no right or wrong ways to brew; he even lauds the advantages of the modern methods.

However, the special treatment he gives to his beers is what gives the company its mojo. When asked by Burlingham why he does it this way, Maytag responded, “Because it feels good.” To most investors, this would most definitely be an insufficient answer as to why a company is using inefficient and more costly methods. Thus, being able to provide this answer is exactly why Maytag could have never sold his company to the public in the first place.

Finding the Right Size

“With the companies I was looking at, creating opportunities for employees and opening up new possibilities for the business were the goals. Growth was a natural by-product of the company’s success in pursuing its central purpose and reason for being.” – Bo Burlingham, p. 36

Unlike Fritz Maytag, Norm Brodsky, founder and CEO of CitiStorage, had to learn from his mistakes before realizing that bigger isn’t always better. When Brodsky started his first business, Perfect Courier, all he became fixated on was how he could turn it into a $100 million company.

In order to reach his goal, Brodsky acquired other companies and formed CitiPostal.

He achieved his dream of operating a $100 million company, but in the process of doing so, he ignored the inevitability of unpredictable events. The stock market crash in October 1987 resulted in CitiPostal’s financial printer subsidiary to lose 50% of its sales overnight. The mainstream use of fax machines also forced a messenger subsidiary to lose 40% of sales within a span of months.

Upon filing for Chapter 11 bankruptcy, Brodsky realized that he had been completely blinded by his aggressive ambition. Instead of striving for controlled growth, he acted impulsively, failed to think of the effect his actions would have on his employees, and ignored others’ advice. It wasn’t until Brodsky reexamined his true desires – much like what Fritz Maytag had done – before he became a successful entrepreneur.

Terroir

“I don’t know what’s special about the way the Mona Lisa is framed, hung, and lit, but I do know that the effect would not be the same if it were framed, hung, and lit in a different museum, in a different city, in a different country.” – Danny Meyer p. 51

Intimacy is a word that is frequently used when describing small giants. One type of intimate relationship that can be found in the mojo of small giants is the one formed between the business and its community. Now a corporation is by no means obligated to develop such a relationship with its community, but the examples Burlingham uncovered all did, and were better off because of this intimate connection.

Danny Meyer, founder and CEO of Union Square Hospitality Group used the French term “terroir” as an analogy to show the importance of community and environment to a small giant. Food’s distinct flavor, he explained, is sourced from the soil and climate in the regions from which the ingredients originate from. Two cows from different locations of the world will produce different flavored cheese due to the different vegetation they graze on. Small giants, similarly, are successful because of the terroir they have with their communities.

While many large, public corporations are also connected to their local communities, what separates small giants is that these “human-scale” companies are able to be a part of their communities without dominating them. Additionally, these intimate connections are authentic and also serve as marketing tools.

Giant Relationships

“Making these connections contributes to a company’s mojo, perhaps because it touches on emotional, not simply material, needs… Companies that succeed in developing such a sense of community with their customers and suppliers find themselves in possession of one of the most powerful business tools in the world.” – Bo Burlingham, p. 87

Building a relationship with customers is easily attainable. Every business, on some level, has a relationship with their customers. However, what differentiates small giants is the close, emotional connection they have with their customers.

The best way to create this intimate connection with customers is by being conscious of what they want from the company.

When the relationship between customers and a business transcend to the next level, the customers now identify themselves with the business and consider themselves associated with the business. Thus, it is important for the business to consider how these customers want to be identified by reflecting on their own values and checking themselves for authenticity.

Part of Clif Bar’s mojo, for example, was due to their intimate alliance with their end consumers. Instead of simply selling a good product through traditional retail distributors, Clif Bar formulated its marketing strategy to show that they wanted to be there for their customers and to genuinely be a part of their lives.

In fact, 75% of Clif Bar’s marketing budget was dedicated towards sponsoring athletes and local, regional, and national sporting events. Additionally, many of these events were also organized and run by Clif Bar employees.

Doing so allowed them to actually meet their consumers and receive honest feedback about their products and ideas. The consumers also benefitted by having a real relationship with the company who sponsored their events and whom they purchased products from.

Culture: The Unwritten Constitution

“It’s the managers and employees who do the work of the business day in and day out. They are the ones who convey the spirit of the company to the outside world. Accordingly, they are the company’s first priority—which, from one perspective, is ironic.” – Bo Burlingham, p. 93

At first glance, it is indeed ironic to think that a company’s first priority is not the customers.

However, consider that a business without teamwork is simply a collection of employees in a building performing assigned duties with no sense of pride.

Thus, leaders of small giants need to be aware of the culture within their workplace. They must also adopt the philosophy that a culture of intimacy will create a workplace where employees will take pride in their work and feel like a part of the business. Once an environment like this is created, employees and leaders will genuinely care for one another and stand by each other when the going gets rough.

In fact, Small Giants surprisingly details a number of instances amongst the fourteen businesses when employees willingly endured pay cuts in order for the business to survive or to avoid layoffs.

In order to attain the mojo of a small giant, a business must start with the right foundation. This means hiring the right group of employees who want to be with the company for the right reasons. After all, the employees are representatives of the company and the company is a representation of the employees.

Do It Your Way… And Do It with Passion

“These companies were searching for something indefinable and immeasurable, something that went beyond the standard definition of success in business… [something] protected against the homogenizing influences brought to bear on every company.” – Bo Burlingham, p. 34

Each small giant covered in the book was created with its founder’s vision to “reorder” the world. However, there are many management styles that will allow a company to achieve this. This is the beauty of being a private company, Burlingham argues.

For example, Reell Precision Manufacturing, a mass producer of motion-controlled products was governed by its three partners, Dale Merrick, Bob Wahlstedt, and Lee Johnson. Together, they were known as the triad. This triad ran Reell for decades with Judeo-Christian values and decided that every decision made by them had to be unanimously agreed upon.

Selima Inc., on the other hand, was completely opposite. In fact, Selima Stavola’s business was only a two-person operation created so that she could pursue her creative passions. Also unlike Reell, Selima Inc. was only in the business of making exclusive, high- end products for a select group of clients.

Both small giants created their mojo by running their operations the way they wanted. Their founders were able to avoid the constraints of being a part of a larger company while still being able to become leaders in their respective crafts.

While corporations can be organized in a multitude of ways, one common factor amongst Burlingham’s small giants was the authentic passion their founders had. Without such passion from their founders, Burlingham argued that a company would not have any mojo:

“If they don’t love the business, if they don’t feel that what the business does is important, if they don’t care deeply about being both great and unique in providing whatever product or service they offer, nobody else will either.”

When Mojo Falls Apart

Change at the top is the biggest threat to a small giant’s mojo. If transition of leadership in an organization is not properly executed, the whole mojo of the company can falter. For Reell, this happened when the triad of leaders was replaced by the Reell Leadership Team – a band of senior managers, a president, and a new CEO.

Because Reell did not have a succession plan carefully prepared, everything began to crumble. The trust between the employees and the leaders had disintegrated and the unity that was in the triad had disappeared as the management, board, and founders were at odds as to the direction that the company should head towards.

Under the new CEO, Reell suffered as the company’s sales became heavily dependent on laptop hinges, a low margin product.

Additionally, as luck would have it, this all coincided with the Great Recession. Eventually, Reell had to let go of over 74 employees over two rounds of layoffs.

Reell’s board decided to bring on a new CEO and allowed him to execute his plan to revive the company. From this near-collapse, Burlingham was able to conclude three traits necessary for a small giant to maintain relevance:

  1. Steady gross margins – Volatility in sales are inevitable and competing with large corporations on high-volume, low-margin items is tough. Instead, small giants should aim for higher margin products providing added value that customers are willing to pay for.
  2. A healthy balance sheet – A risk of expanding a business too fast is that it is vulnerable to running out of capital. This leads to desperation; which leads to a higher risk of making detrimental decisions when raising additional capital. Sound decision making is especially important when it pertains to taking on additional debt.
  3. A sustainable business model – Constant changes to policies and technology affect businesses for better or worse. However, a sustainable business model creates margin for error and allows for steady gross margins and a healthy balance sheet. Considerations for a business model include how a company bids for work and whether the benefits allotted to employees are sustainable in the event of a downturn.

Conclusion

Near the end of his book Small Giants: Companies That Choose to Be Great Instead of Big, Bo Burlingham states once more that people start their own business because they have a passion or an idea and don’t want to live life without ever pursuing that passion; this is the moment when mojo is born.

However, in order to form a small giant, the founder must remember that the business is a way to pursue his/her passion, not vice versa. Once passion becomes a method of building the business, it is easy to lose mojo.

Additionally, Burlingham reiterates that while financials matter, business owners who want to create a small giant must be able to see past the dollars. The essence of a small giant originates from the relationships that are built with its employees, customers, suppliers, and community.

Building the relationships may not directly equate to dollars, however, they provide value in their own way. Finally, he reminds owners to never forget that a business should contribute something great and unique to the world if it is truly to be a small giant and stand out amongst its peers.

HookedtoBooks.com would like to thank the Titans of Investing for allowing us to publish this content.  Titans is a student organization founded by Britt Harris. Learn more about the organization and the man behind it by clicking either of these links.

Britt always taught us Titans that Wisdom is Cheap, and principal can find treasure troves of the good stuff in books.  We hope only will also express their thanks to the Titans if the book review brought wisdom into their lives.

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