Small Giants Companies That Choose to Be Great Instead of Big

Highlights

“I’ve made much more money by choosing the right things to say no to than by choosing things to say yes to,” said restaurateur Danny Meyer of Union Square Hospitality Group, and he could have been speaking for others. “I measure it by the money I haven’t lost and the quality I haven’t sacrificed.”

▶ 0:06

First, I could see that, unlike most entrepreneurs, their founders and leaders had recognized the full range of choices they had about the type of company they could create. They hadn’t accepted the standard menu of options as a given. They had allowed themselves to question the usual definitions of success in business and to imagine possibilities other than the ones all of us are familiar with.

▶ 0:24

Second, the leaders had overcome the enormous pressures on successful companies to take paths they had not chosen and did not necessarily want to follow. The people in charge had remained in control, or had regained control, by doing a lot of soul searching, rejecting a lot of well-intentioned advice, charting their own course, and building the kind of business they wanted to live in, rather than accommodating themselves to a business shaped by outside forces.

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Third, each company had an extraordinarily intimate relationship with the local city, town, or county in which it did business—a relationship that went well beyond the usual concept of “giving back.” That was part of it, to be sure, and all of these companies were model corporate citizens, but the relationship was very much a two-way street. The community helped mold the character of the business, just as the companies played an important role in the life of the community.

▶ 1:14

Finally, I noticed the passion that the leaders brought to what the company did. They loved the subject matter, whether it be music, safety lighting, food, special effects, constant torque hinges, beer, records storage, construction, dining, or fashion. Though they were consummate businesspeople, they were anything but professional managers. Indeed, they were the opposite of professional managers. They had deep emotional attachments to the business, to the people who worked in it, and to its customers and suppliers—the sort of feelings that are the bane of professional management.

▶ 1:41

Inevitably, people began approaching him about doing another restaurant. Some of the offers were tempting, but he was nervous about overreaching. So he came up with three tough standards that any new place would have to meet. First, it would have to be capable of becoming as extraordinary a restaurant as Union Square Café. Second, it would have to enhance the value of Union Square Café. Third, it would have to bring more balance to his life, not less.

▶ 2:14

“For example, we’re in the wine business, and we need more wine. We’re selling a thousand cases of wine per year, and it’s not enough. Next year, we’ll need a hundred more cases to meet the demand. For that, we’ll need an extra ton and a half of grapes. You get about three tons per acre of vineyard. So we need half an acre more. Well, it costs $200,000 easy to plant an acre in Napa Valley. Depending on where you are, it might be a little more. But let’s say $200,000, meaning we’ll need $100,000 to make a hundred more cases. But we’re only making $10 a case, which gives us $10,000 in profit per year. Unless we get an additional $90,000 somewhere else, we won’t be able to meet next year’s demand. “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. They probably teach this on the first day of business school, but I’d never seen it so clearly before. Every unit of growth needs new capital if you’re in a capital-intensive business. Just one more case needs capital. Not only that, but it’s almost impossible to grow in tiny little units. You can’t grow one case at a time, or even a hundred cases at a time. You probably need a minimum of ten acres of vineyard—otherwise you can’t justify buying a tractor. So there are these giant steps you have to take.

▶ 2:42

Those were the easy calls, however. In order to keep the company at the size he wanted, Butler also had to say no to good customers, the ones he wanted to continue doing business with. “To me, a good client is a good corporate citizen, honest and good to the community,” he said. “Some of these companies don’t care about the communities they do business in, and they don’t do win-win. I want to work with clients who see us as their partners. I’d rather lose money than lose a good client.”

▶ 4:08

For lack of a better term, we might refer to the process as building a sense of community—that is, a sense of common cause between the company, its employees, its customers, and suppliers. That sense of community rests on three pillars. The first is integrity—the knowledge that the company is what it appears, and claims, to be. It does not project a false image to the world. The second pillar is professionalism—the company does what it says it’s going to do. It can be counted on to make good on its commitments. The third pillar is the one we’ve been discussing—the direct, human connection, the effect of which is to create an emotional bond, based on mutual caring.

▶ 4:38

At one end of the spectrum is Anchor Brewing, whose owner and CEO, Fritz Maytag, has consciously strived to keep the number of employees as low as possible. For most of the past twenty years, the head count has hovered around fifty full-time people, plus five or ten part-timers, depending on their availability and the company’s needs. He has never felt tempted to hire more. “I’ve always thought it was more fun and satisfying to have all chiefs and no Indians,” he once said in an interview with Harvard Business Review (HBR). “That was one of my ideas—to have a small group of people, where everyone knows they’re all interrelated and where, as far as possible, everybody is in charge and nobody is looking over anyone’s shoulder and there are no time clocks.”

▶ 5:21

It was a management philosophy he’d learned growing up in Newton, Iowa. “That’s the way my father raised our family, from the earliest moment. Lots of responsibility. We’re counting on you. We trust you. And if you screw up, just tell us about it; don’t worry about it. We’re not encouraging you to screw up, but for heaven’s sake, if you do, don’t worry. We’re all in this together, and we don’t know what we’re doing either, so come on and join in. And I always liked the idea of a small number of people. I just don’t like what happens in large groups.”

▶ 6:04

He believed that the smaller the staff, the better chance he had of creating such an environment. In the early years, he had only four full-time employees. It took all of them—and sometimes a couple of other people—to do the bottling. On bottling days, Maytag would put up a “closed” sign and lock the door, and they would all go to work on the bottling line. Later, as the demand for Anchor’s beers grew, he invested in equipment that would allow the company to produce more beer while minimizing the need for additional people. Among other things, Maytag believed that the quality would suffer if the staff got too big. For the same reason, he wanted to have only one shift, five days a week, and designed the brewery accordingly. “I’m sure this directly relates to quality,” he told HBR. “You can never come in and look at your tools and say, ‘Ugh, look what the night shift has done. Where’s the hammer? Look, those jerks spilled something.’ Here, it’s all us. Everybody who works here can go home and say, ‘I made the beer.’ And when they go to a restaurant somewhere and see a bottle, they know they produced it. And I think that kind of pride tends to improve quality. Real quality control takes place every minute. It has to be done right now, not later. A smaller group tends to be more quality oriented. There’s an enthusiasm here, a spirit of being on the leading edge of beers and brewing styles. There’s a feeling of creativity. Partly that comes from being small, a little team where we all know what’s going on.”

▶ 6:38

To give good service, after all, you really do have to “1. Figure out what the customer wants. 2. Get it for them—accurately, politely, enthusiastically. 3. Go the extra mile.” What’s more, it’s important for employees to know that. “Of course, if you’re already great at service, you’ll say, ‘It’s not that simple,’ which is true,” said Weinzweig, who readily acknowledges that Danny Meyer’s enlightened hospitality is on a different plane. “But we can’t wait until people get all the subtleties of great service. We need a recipe people can use right away.”

▶ 8:09

ZingTrain began by distilling various practices into easily understandable and teachable concepts and principles. “We already had the 3 Steps to Great Service,” said Weinzweig. “We just kept building from there.” One by one, additional rules and tools were developed: the 5 Steps to Handling Customer Complaints, the 4 Steps to Order Accuracy, the 3 Steps to Great Finance, the 4 Steps to Productive Resolution of Differences, the 5 Steps to Bottom-Line Change, and on and on.

▶ 8:45

When pressed to summarize how that fit into his overall management philosophy, Maytag refused. “Actually, I’m quite uncomfortable talking about all this, pinning it down, because it’s all very mysterious,” he said. “I think there’s a certain amount of magic to all this, and the more you understand it, or think you do, the more you may lose it. Good management in a small company involves a certain freshness and responsiveness and natural feeling that is by definition partly unspoken, unarticulated, undefined.”

▶ 9:15

Chouinard told him the company had gone though several CEOs before finding a mix that worked. But as Erickson looked more closely at Patagonia—and at Clif Bar—he became convinced that there was more to it than finding the right CEO, or even the right management team. Just as important was having a clear, well-articulated vision that was ingrained in the day-to-day life of the business. He and Kit eventually came up with five “aspirations” that encompassed their vision for Clif Bar: sustaining the brands, sustaining the business, sustaining the people, sustaining the community, and sustaining the planet.

▶ 9:46