Well, sure, but what's the ideal size for your business? Opinions from the trenches ...
How big does a company have to be to survive and prosper? At first blush, it's hard to tell. On the one hand, entrepreneurship and small business have become accepted, even celebrated, in a way that was unimaginable 20 years ago. The CEOs of Fortune 500 companies like to boast about how nimble and adaptable their businesses are -- just like small companies. On the other hand, there's no shortage of big companies, and thanks to the increasing number of mergers and acquisitions, many of those businesses are getting even bigger.
So we asked a variety of people, "How much does size really matter, anyway?" Their answers are all over the map, yet each one rings true. In the end, it seems, it all depends on your location, your business, your industry, and what you want for yourself.
Jerry Brown, 63
Mayor, Oakland, Calif.
Status: Governor of California from 1974 to 1982; now mayor of the state's eighth largest city, population 400,000
"I can tell you, the difference between state government and city government is profound. For a mayor, it's one city. There are a certain number of schools. There are problems with the streets, with the parks. There are fires. There's development or lack thereof. It's an actual, physical location where the mayor functions as a leader.
The difference between state and city governments is profound. ... There may be some analogy with companies.
"There is really no physical location for a governor, not in a state like California. What matters is not what's outside the window of the state capitol but rather the generic impact of rules. Money flows are determined by state government. So it really is a more abstract functioning and framing of rules and decision making.
"So there may be some analogy with companies with many divisions. The more distant from the customer the CEOs or the top management people are, the more they manage the data flow as opposed to experiencing the human encounter of serving a customer -- and the more abstractions, graphs, charts, protocols, accounting conventions, computer printouts, algorithms, and what have you provide the environment for decisions. And even then it's not clear they're decisions, because the decisions are made by the data.
"I enjoy being mayor very much because of the concrete quality of it and because of the engagement with other human beings whose faces I can actually see. As governor, of course, I saw the faces of legislators, I saw the faces of lobbyists, I saw the faces of TV journalists. But the decisions were at a level of abstraction that applied to 25 million people. It's very different thinking when you focus on what you can do with a particular corner with dope dealers on it or a block that ought to have an office building on it or a couple hundred yards of land along the open estuary or the path around Lake Merritt that needs fixing up."
Louise Epstein, 43
Founder and president, Charge-Off Clearinghouse, Austin
Revenues: $3 million to $5 million
Status: Midsize buyer and reseller of bad debt in an industry in which some of the largest corporations have stumbled
"Size affords us the flexibility to move with the market. The large companies that have failed in this industry have locked themselves into forward contracts to purchase debt at high prices that their subsequent revenues could not support. People just got greedy with OPM -- other people's money.
Size affords us the flexibility to move with the market.
"We buy in smaller quantities, ranging from $1 million to $150 million. That makes us relatively small players in our market. We search for portfolios from small banks that are routinely overlooked by the big players. Our objective is to pay cash for the right portfolio and then offer it for sale on a retail, regional basis.
"To my knowledge we are the only company in the country whose primary business is to act as a principal in buying the charged-off accounts outright and to sell and service the sale afterward. Our margins are lean, but the volume is there. Our technology lets us do that. I don't think that a bigger company with more overhead could make any money doing this."
Gene Gage, 56
Founder and president, Papa Geno's Herb Farm, outside Lincoln, Nebr.
Status: Small mail-order nursery that grew fast on the strength of a strategic alliance with now-failed Internet retailer Garden.com
"We had our own little business near Lincoln, Nebr., a mail-order business. We were cooking along just fine. We were selling live plants over a Web site and by direct E-mail five years ago, which was pretty unusual. Garden.com, which was getting started then, became aware of our business and approached us. We thought that they had the capabilities that we didn't of marketing nationally. And we were certainly right. They increased our business 1,000% in three years.
"But that also exposed us to some risks we didn't have before. We have more debt than we're comfortable with right now. When Garden.com went out of business, we were actively planting, setting aside space, and hiring people to ship $1.1 million worth of plants this year. Now we'll probably be lucky to ship half of that.
"Would I do it differently? I don't think so. It was our main chance. The only way that we would ever achieve a national presence was partnering up with someone like that. As soon as we became aware that Garden.com was no longer going to be around, we started approaching other potential distributors and people that would not have even answered the phone for us four years ago -- I'm talking Amazon, Martha Stewart, all the biggies -- yeah, they're interested. I actually have six new contracts already. We have a reputation now, a track record; we have shipped thousands of orders a day -- all those things that I could not have said three or four years ago.
"The optimal size for my business? I personally don't want to be in a situation where I'm in a suit and a tie without any contact with the nitty-gritty of running a business. Couple of million bucks a year, so we're building equity in the business to pass along to our kids and have a comfortable middle-class existence."
J'Amy Owens, 40
President: The Retail Group Inc., Seattle
Status: Retail consultant
"Montgomery Ward is gone. J.C. Penney Co. announced the closing of at least 47 stores in January. The department stores are really under siege. Maybe it's that Americans are sick of slogging through those big neutral places that just have redundancy and soft goods that all look alike and ready-to-wear that's dull. Maybe it's that size is boring in many instances, and too much of nothing is bad.
Passion counts. Passion counts more than size.
"Conversely, you have Target, which is very big and very good, because it represents time savings, it represents the sure thing -- 'I know I'm going to get my needs met when I go there, I understand what they sell, and I can anticipate its being in stock.' That model, that construct, is big and efficient and simple to understand and also hip. Nothing is more hip than Target, and if Target can be hip, there's hope for all of us.
"Big can be both bad and good. It's not ever only about size. How a smaller retailer can compete is really the $64,000 question. The answer is by picking a niche, because niche rhymes with rich. There are contenders that can ride the edges or the fringe of generational desires, and they offer a fashion direction and a position that Target never could. There is still plenty of room for specialty stores to provide fashion direction and leadership and to take risks and to be innovators, and there is a huge market for that. Because they're more nimble and they don't source themselves, meaning they don't try to be the manufacturer as well. They can move faster. Passion counts. Passion counts more than size."
Rick Andron, 55
President, U.S. Pool Corp., Boca Raton, Fla.
Revenues: $6.5 million
Status: Start-up that is pursuing a roll-up strategy in the pool-service industry in south Florida, a fragmented market that has traditionally been dominated by small companies
"About two years ago we identified a niche that consisted of hundreds of mom-and-pop operators. The largest had roughly 1,000 pools in a geographic area that contained 175,000 pools. So there was really nobody that was over a fraction of 1%.
"We began the acquisition of small companies in our service area, and selectively chose a number of operators who had strengths in different fields. That gave us collective expertise in each of the main areas that constitute a comprehensive pool-service-and-repair company.
"Right now we have 4,000 pools, so we're about four times larger than our nearest competitor in south Florida. The advantages are that we have the expertise, we have full-time customer service, we have human beings instead of answering machines answering the phone.
"We can work out marketing and other arrangements with manufacturers, and because of our size, we can get larger discounts. We are also one of the only companies capable of handling 500 or 1,000 homes and hardly blinking in doing so."
Jim Collins, 43
Management educator, coauthor of Built to Last: Successful Habits of Visionary Companies and author of the forthcoming Good to Great: Why Some Companies Make the Leap ... and Others Don't
"To be a great company, you absolutely must be the best in the world at something. That doesn't mean that you need to be the largest, however. To cite one example: Patagonia Inc., absolutely without question the best company in the world at outdoor clothing, with an environmental conscience. Yet Patagonia explicitly shuns size and in fact got itself in trouble in the mid 1990s when it grew to be too big.
"There is a natural size needed for any company to be the best in the world at what it does. Sometimes that requires significant size (for example, Wal-Mart must be large to be the best at what it does), but other times it requires being smaller. (Patagonia must remain small to truly be the best at what it does.) The real question is not, How do we become bigger to compete? but, How do we become the absolute best in the world at something, and what size do we need to be to be the best?"
Amir Malin, 46
CEO, Artisan Entertainment, New York City and Los Angeles
Revenues: $400 million
Status: Midsize film company in an industry with both very large and very small players
"We're obviously not one of the large major studios. On the other hand, we're not one of the very small independent companies out there that are involved in a handful of projects, probably doing $30 million, $40 million, $50 million in revenues. We're kind of in the middle, and the great thing that we have is the ability to duplicate all the functions of a major studio at a fraction of the overhead costs that exist at the major studios. So I think that's a big positive.
"On the other hand, the large studios are involved in a wide variety of businesses above and beyond film and entertainment. That gives them another income source to offset the rough days we all experience.
"However, the larger the entity, the more difficult it is to make decisions. There's no reason today that we need the overhead structure that exists in Hollywood in order to effectively market and distribute films. But it's a legacy that exists because the people that move into those positions are happy with the status quo. It's a business that's very much driven by revenues, so the cost structure in generating that revenue is never looked at carefully, and I think that's a big problem inherent in our sector.
"We tend to be a little more strategic -- a little more innovative -- and use a little bit more guile and ingenuity, or we try to, in coming up with our campaigns. And that, I think, was evidenced by what we did on The Blair Witch Project.
"Given the businesses that we're in, I think we're at a perfect size. That being said, we may expand into other areas, and that will require us to increase in size. So we'll see."
Michael Powell, 60
Founder and owner, Powell's Books Inc., Portland, Oreg.
Revenues: $44 million, including $9 million in online sales
Status: Seven-store chain and Internet bookstore in an industry in which small independent bookstores have lost significant market share to a few much larger national chains
"I come from an industry that traditionally has a lot of small players and two or three large players. We are in between. Size certainly matters, and not always in a positive way. One can look at Borders, which did not have an Internet strategy; at Barnes & Noble, which is having a difficult time executing theirs; and at Amazon -- everyone knows its dilemmas. Then the independents are so small that it's very difficult for them to pull the resources together to take on new initiatives, especially technological ones. I think there is a middle area where you have sufficient resources but not so many resources that you become wasteful and lethargic.
Size certainly matters, and not always in a positive way.
"We sell used books, which gives us a product breadth that Amazon doesn't have. You have to have a skill set for used books. Each book has to be selected on its merits and priced based on experience, and that takes a lot of training and a fairly large staff. So it's not easy to replicate, and it does give us a semiprotected niche.
"I enjoy the growth, as long as it's managed and sensible and under control, and I enjoy the neat things we can do with books. But I don't have a number in my head that's somehow a benchmark. I do want to grow, because I think we have to, but I don't feel that we need to grow at some exponential curve. All I see is that getting other people in trouble."
James W. Brock, 50
Professor of economics, Miami University, Oxford, Ohio
Coauthor, The Bigness Complex: Industry, Labor and Government in the American Economy
Status: Professor focusing on issues of corporate size and market and economic power (including mergers and acquisitions and antitrust) for two decades
"It's not like one size fits all. Running the local pizzeria is one thing. To assemble automobiles is obviously going to require considerable size. Some things do necessitate what we would think of as a large organization. But even in those fields, the size can be carried too far to where it becomes a dysfunctional thing. I think the perfect example of that is General Motors Corp. They are so huge that it seems very difficult for them to do anything. And so they spend all their time, it seems, coming up with new reorganizations of the organizational chart, of which one cynic said there are two kinds, ineffective and disastrous.
"The inequity of it is, giant organizations in my opinion are clumsy, inefficient, dysfunctional. But they can survive in part just by sheer inertia. On the other side, small businesses have an immense potential advantage. They know what they do without having a committee or a consultant write a mission statement. They've got their focus, their flexibility, their desire and drive."
Stanley Rhodes, 57
Consultant, Linden Travel Bureau Inc., New York City
Status: Independent contractor who works for an umbrella travel agency in an industry marked by both consolidation and Internet-based start-up activity
"To compete in the marketplace, we have to have the numbers and the dollar volume and the revenues to be important to our suppliers.
"Linden is probably one of the larger of the privately owned agencies in New York City. My four-person office is one of many, many independent contractors who work by commission under the umbrella of Linden. On my own, perhaps my volume might only be $3 million to $4 million a year, which is not small potatoes, but it really doesn't make me important to any particular airline. But as part of a company that does many millions of dollars of business, I benefit from it. And so there are many other little teams of twos and threes and fours that work here under Linden, not as salaried travel agents but as independent contractors. We can do the old-time-boutique luxury business, but we can stay alive by being part of a bigger team."
Thomas Lynch, 52
President: Lynch & Sons Funeral Directors, Milford, Mich.
Author, The Undertaking: Life Studies from the Dismal Trade and Bodies in Motion and at Rest: On Metaphor and Mortality
Revenues: Just under $1 million
Status: Independent funeral home in an industry that has undergone rapid consolidation in recent years but whose biggest players are now faltering
"What Service Corp. International (SCI) and the Loewen Group and Stewart Enterprises, who have rolled up hundreds of independent funeral homes, have proved is that they have the ability to acquire rooftops. What does not follow is the ability to operate them. All funerals are local, like politics. What was basically lost in their model of funerals is accountability. In our line of work, because you only die once, accountability is the single most important asset we can offer to the community. Bob Waltrip, CEO of SCI , can buy the name on the sign, but he can't buy trust.
"The mergers-and-acquisitions frenzy of the '80s and '90s did not take into account the fact that we are an unexpanding market. That this model has failed ought not to be a surprise, because Wall Street's great affection for the so-called death-care industry was based on demographics. 'Everyone's going to die!' Like that's news. What they failed to add was 'once.'
All funerals are local, like politics.
"Eighty-five percent of the market is in funeral homes like ours, doing 160 to 200 funerals a year, which rely on the townspeople calling. That size seems to work. The sign in front of the house says Lynch. If we're not doing our job properly, they can complain by name. That means I have a vested interest in doing the job properly. That's not because of good morals; that's good business. I rely on my customers' trust. If I'm part of McFuneral Inc., it's not the family across the table that I'm taking care of, it's the stockholders.
"Yes, we want our business to grow. I wouldn't mind acquiring other funeral homes. I have children who may go into funeral service. There are three Lynch & Sons in Oakland County. [The others are owned independently by Lynch's two brothers.] We won't acquire more funeral homes until we have family members who have something at stake by having their name on the sign.
"Size does matter, and it seems that you can get too big. I think that's what happened to Stewart Enterprises and the Loewen Group and SCI, but don't trust me. Look at the newspapers. Look at your portfolio."
Emily Barker is a senior staff writer at Inc.
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