In-Depth

They Might Not Be Giants

Staying small is an unconventional business strategy -- but for some Microsoft partners, it's exactly the right choice.

Grow or die.

That motto may not be carved into your company's cornerstone or embossed on your business cards, but if you're like most organizations, it's your real mission statement.

After all, it's a given that just about every company -- regardless of age, industry and current size -- wants to get bigger. You could reasonably argue that, in most cases, it's the executive team's duty to expand the company as much and as quickly as possible.

But as business journalist Bo Burlingham describes in his new book, Small Giants (see "To Grow or Not To Grow"), many companies are getting off the growth treadmill. In some cases, they simply postpone or slow down their expansion plans for a while; in others, they decide to stay at a certain level indefinitely. Whatever the timeline, such companies typically adopt the strategy so they can focus on other business goals such as developing new products, creating an ideal work environment or deepening their relationships with their existing customers.

While the slow-growth (or no-growth) strategy may initially seem seriously out of whack with Microsoft's own aggressively expansion-oriented culture, some Microsoft partners say the approach works just fine for them. Following are insights from several successful small partners who have consciously chosen goals other than growth for growth's sake.

Mark Mulvany, Swifttrain, Ireland
For Mark Mulvany of County Meath, Ireland, staying small is a matter of quality control.

Mulvany left a Dublin-area IT firm to start his own business in 2001. His one-man company, Swifttrain, offers IT training and network consulting for small and midsize businesses, primarily other Microsoft partners.

Although he's regularly offered more business than he can handle, Mulvany doesn't want to staff up or outsource any work. "Fifty percent of my business is training, and that's very hard to replicate with a junior employee because you're relying on your own reputation," says Mulvany, a Microsoft Registered Member. "The other 50 percent is consulting. On that side, if I sent a junior [technician] in to resolve a customer's problem, I'd get into a lot of trouble because their own techs probably would have already done anything that my junior employee would do."

"This is the Information Age and knowledge is power. You can be a small company and still have a lot of large companies coming to you."
-- Michael Klein, Computer Directions Inc.

He also enjoys his niche: working with other Microsoft partners, who, he says, are generally knowledgeable enough to qualify as a consultant's delight. "I get really good partners telling me exactly what the problem is, where it is and what they've done," Mulvany says. "It's not just, 'Oh, our system crashed.' I'm dealing with people who know what this business is like, and it's spoiled me."

The downside to keeping a governor on his company's growth? "The work-life balance is hard to get right," says Mulvany, who runs Swifttrain from a converted garage next to his home. "It's very hard to close the door on the business." When a customer has a middle-of-the-night IT crisis, he can't delegate the work. "I always answer their phone calls," he says. "I can't close the door on that, either."

Still, he doesn't see adding any employees in the foreseeable future, especially because his wife has taken over some of the accounting and administrative work. "I'm looking all the time to see if there's a part of my business that I can delegate off," he says. "I haven't been able to see any so far." As for partnering with somebody: "I've had discussions with people -- but I haven't found the right match," he says. So for now, Mulvany will continue to choose to accept the jobs he wants and pass on the rest.

Michael Klein, Computer Directions Inc., Searingtown, N.Y.
As a long-time student of martial arts, Michael Klein knows that a smaller competitor can use leverage and strategy to overcome a much larger opponent. "You try to do the same thing with business," says Klein, president of Computer Directions Inc. of Searingtown, N.Y., another Microsoft Registered Member. "You're not going to be taking on big companies on their own terms. It's unrealistic. You don't have the resources. So you use their size against them."

For that reason, he's kept his 19-year-old IT and management consulting firm small so that it can remain nimble enough to run circles around larger, slower competitors.

Just one example: When clients call a large company's help desk, "they talk to the least qualified person" -- typically, whoever answers the phone, Klein says. That person may well be someone across the country or overseas who knows nothing about a particular customer and who's evaluated on the number of calls processed per day. When customers call back, they're unlikely to reach the same rep twice. When customers call Computer Directions, they'll talk to Klein or one of his three employees. "Our people not only know the technology, they know the client's business and they know the people at the business," says Klein, interviewed while driving to a customer's headquarters.

Another differentiator he fears losing to growth is his own ability to provide up-to-date expertise. "As businesses grow, the people at the top tend to lose touch," he says. "The technology marches on and suddenly they're managing technologies they no longer understand. That is a very dangerous place to be."

To Grow or Not To Grow

Bo Burlingham's new book profiles successful SMBs that no longer believe in growth for growth's sake.

Inc. magazine has always been targeted to entrepreneurs who want to see their small businesses become big ones as quickly as possible. For years, Inc.'s tag line identified it as "the magazine for growing companies," and its prestigious Inc. 500 competition has always honored America's fastest-growing private enterprises (with Microsoft among the early winners).

So it's quite a departure for a veteran Inc. editor at large to profile companies that have consciously decided not to grow. But that's just what Bo Burlingham has done in Small Giants: Companies That Chose to be Great Instead of Big (Portfolio, 2006).

During his 23-year tenure with Inc., Burlingham has written about hundreds of SMBs. For much of that time, small-business superstars adopted what Inc. Editor Jane Berentson recently described as "the Microsoft model, based on fast revenue growth and geographic expansion." Then, a few years ago, Burlingham began running across companies whose leaders had deliberately chosen the opposite path. These entrepreneurs remained highly ambitious; they'd just changed their priorities and definitions for success. Stepping off the fast track allowed them to excel in other areas, such as innovation, customer service,
even work-life balance.

While most of Burlingham's 14 Small Giants come from outside the technology world -- the list includes a brewery, a recording company and an alarm manufacturer -- their insights transcend industry boundaries, offering valuable lessons to any SMB interested in alternatives to relentless expansion. In this interview, Burlingham describes the traits these companies share, including a quality he calls "mojo."

RCP: What were the criteria for the Small Giants you profiled?
I wanted companies that had reached the crossroads that every successful business gets to sooner or later: They have the opportunity to grow faster and get much bigger -- but these companies decided not to do so because they had other goals. I wanted companies that were admired and respected in their industries and whose achievements had been recognized by other independent observers. I looked for companies that operate on a human scale -- meaning that they were small enough so that people at the top could know everyone who worked there. Finally, I decided I needed to focus on companies that were privately owned and closely held.

After a couple of months, I realized that there were many more companies that fit my definition than I ever imagined. They were in every part of the country and in almost every industry.

What did they have in common?
They all had a certain quality. A company when it's hot, when it hits its stride, has a certain aura. It's like a leader with charisma. When a business has charisma, you want to be associated with it, you want to buy from it, you want to work for it. I thought about companies I knew that had had this quality but lost it -- Apple Computer, The Body Shop, Ben & Jerry's. What was striking about [the Small Giants] was that they had it and kept it. [Burlingham calls this aura "mojo."]

What did they do to get their mojo working?
They were all deeply rooted in the communities where they did business. It's not just that they 'gave back' to those communities, although they did -- it's that it's almost impossible to imagine any of these companies being in another place. They also had unusually close relationships with their customers and suppliers, almost as if they were all working together to achieve the same thing. Their workplaces were extraordinarily intimate. Employees were treated with respect and cared for not just as people who were putting in their time, but as human beings. That created an environment with an incredible degree of loyalty and trust and mutual respect, and that's the key to a highly productive workplace. And [being private closely held companies], they were able to do unconventional things, to experiment in ways that you can't do if you're responsible [to shareholders or investors]. It involves taking risks.

What traits did the companies' leaders share?
First, they all knew who they were and what they wanted out of their businesses. The second quality was that they were really passionate about what they did. They loved it. People always get this advice: Don't fall in love with your business. It clouds your decisions; you lose your objectivity. But all of these people fell in love with their businesses,
so they're bucking that [conventional wisdom].

If Small Giants are so personally invested in their businesses, do the develop exit strategies?
By and large, yes, they've thought about exit strategies and liquidity events. All of them had, somewhere along the way, reached a point where they could have sold the company for a lot of money or they could have franchised or they could have gone public -- and they chose not to. That doesn't mean that they'll never consider that. Sooner or later we all leave our companies -- maybe feet first -- so somehow, some way, they're going to have to come up with an exit strategy.

What's the biggest myth about Small Giants?
People sometimes think that I'm saying that to be a great company, you have to do what these companies did [by staying small and privately held]. That's not the case. There are obviously great public companies out there -- Southwest Airlines, Jet Blue, Whole Foods Market. There are companies that are bigger than those in my book that are great within in their industries.

What I'm saying is: In business, it's very easy to get so focused on growing and getting bigger that you forget to stop and say 'Wait a minute: What's going to make this company great?' I hope the book will make a contribution, helping people realize that bigger isn't necessarily better and getting bigger isn't going to make you great. -- A.S.

At the same time, Klein understands that he can't specialize in everything. So when his customers need help with issues outside his own areas of expertise, he turns to his "black book," crammed with information on knowledgeable contractors. "Computers these days are more specialized than medicine," he says. "You have to know what you know and know what you don't know. So I bring on talent for this job here or a job there. Then you don't worry about what you're going to do with that talent until the next job comes along."

Why not just staff up by hiring more specialists, especially because he's already working double-time himself? "My family was in the food business in New York for a couple of generations," he recalls. During that time, the family's company supplied many fine restaurants--and Klein saw first-hand what happened when some of those businesses expanded too quickly: "It wasn't same anymore," he says. "The quality was gone."

That's a mistake Klein doesn't intend to repeat. "This is the Information Age and knowledge is power," he says. "You can be a small company and still have a lot of power and influence. You can still have large companies coming to you. You don't need to open the door and see bodies sitting outside in cubicles to do that."

Patricia and Dennis Schumaker,
Schumaker & Co., Ann Arbor, Mich.
When Patricia Schumaker founded her eponymous IT and operations consulting firm in 1986, the company had just two employees (the second was her husband Dennis). They're keenly aware that they're selling their reputations. "When you have your last name tied to the business, people expect something different in the way of service. We're not XYZ Corp.," says Patricia Schumaker, the company's president. "It's much easier to control your reputation when you're a 10-person firm than when you're a 50-person firm."

For that reason, they've kept the company relatively small. Over the past two decades, the company, a Microsoft Certified Partner, has employed up to 15 people; currently, eight full-time equivalents handle the firm's work.
Dennis Schumaker, the firm's executive vice president, calls the current payroll the perfect size for the collaborative culture that's been a company hallmark. "When you're all working in one big room, there's no need to have staff meetings. You all know what's going on," he says. "As you grow, you start to get involved in office politics."

To keep headcount low, the Schumakers require all employees to share in administrative tasks. "Our philosophy has been that you can work people down, but you can't work them up," Dennis Schumaker says. "You can take consultants and have them do their own copying and word processing, but you can't take somebody who just does word processing and make them a consultant." They also require all employees to contribute billable hours, he adds: "We're a consulting firm, you don't make money when people are in the office. They have to be out at client sites."

The fastest-growing consulting firms tend to concentrate on serving just one or two big accounts, and "if those clients go away, they crash and burn real quickly," Dennis Schumaker says. So Schumaker & Co. maintains a stable of customers in different industries, including state government, utilities and telecom companies. That diversity allows them to weather periodic downturns without cutting staff. When business is booming, they bring in contractors.
The Schumakers haven't ruled out the possibility of increasing headcount to 20 or even 25 employees, "but so far, we've opted not to do that," Patricia Schumaker says. "If we do go that route, it will be controlled growth."

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