In today’s session, I had the pleasure to have Bo Burlingham, contributing writer at Forbes, co-founder of the Small Giants Community, former editor-at-large for Inc. Magazine and author of several books among which I really loved and enjoyed Small Giants, which is going to be the topic of this conversation.
What drove you to the research about what you call in the book Small Giants in the first place?
Bo Burlingham: Well, I had written an article about a very interesting company. When I was at Inc. Magazine, I’d written an article about this very interesting company in the United States called Zingerman’s Community of Businesses.
Zingerman’s had a very interesting story. It had started out as a delicatessen in Ann Arbor, Michigan in 1982 and their goal, the founders, there were two founders and their goal was to create a delicatessen that was going to be great and unique and that was going to be known the world over as being a great and unique delicatessen.
Believe it or not, 10 years later, they had really achieved that goal. I mean, they’d been written up. They were certainly very well-known in the United States and I think that even when people listed sort of the great delicatessens of the world, Zingerman’s was on it.
So they came to a crossroads where they sort of realize that if they’re going to keep growing, they had to decide what they were going to do next. They had a lot of options. I mean, there were already people lining up who wanted to create Zingerman’s delicatessen in other cities around the United States.
So they could have franchised easily or they could have raised private equity and started Zingerman’s in other towns, college towns in particular around the country, but they decided they didn’t want to do that. They said, “Look, when we started out we wanted to create something that was great and unique, and by definition when you start replicating something it’s no longer unique, and a lot of times it isn’t even very good, let alone great.”
So they decided they had to do something else. So they met and they had some help with this. They had brought somebody in to help them sort of think through where they wanted to go next. A couple of years later they came out with their plan. It was 1994, they came out with a plan called Zingerman’s 2019. It was their vision of what this company was going to look like 15 years in the future.
In it they said, “Well, we’re no longer going to be just a delicatessen. We’re going to have a whole community of businesses and all of them are going to be in the Ann Arbor area. All of them are going to be food-related and each of them is going to be great and unique in its own right.”
So for example, they could have a bakery. They actually… By the time I went to see them and today I think they’ve got actually… By the time I went to see them in 2002, they were already easily halfway toward their goal for 2009. They had a bakery, world-class bakery. They had a terrific restaurant, quote, “Zingerman’s Roadhouse.”
They had a mail order company. They had a catering company. They had a coffee company called Zingerman’s Coffee. They had a gelato company called Zingerman’s Creamery, made gelato and cheese. They had a chocolate company. They had all these different companies and each of them aspired to be the greatest in the world of what they did.
I was fascinated. I think the thing that really interested me most about this company was their ability to attract people from all over the United States to come and work there in Ann Arbor with them to create these businesses.
I mean, they had people, entrepreneurs who’d built successful companies, who sold their businesses in order to come to Ann Arbor to make cheese. They had people who had been partners and big national accounting firms who came to Zingerman’s to make bread and often they gave up big salaries.
They were making much more before, but they were so attracted to what Zingerman’s was doing that they found that this was where they really wanted to be.
So I wound up writing an article about them for Inc. Magazine and it was called The Coolest Small Company in America. It was all about Zingerman’s. It got a very big response from our readers.
One of the people who responded to it was a publisher in New York who called me up and said that he thought that he was really interested in this article. He thought there might be a book fair.
At first I didn’t really understand what he was talking about because I thought there might be a book for the founders of Zingerman’s, but I didn’t see how that would be a book for me.
I agreed to go meet him. When we got together in New York, he explained that really what he was talking about was he wondered if there were other companies out there that had this opportunity to get a lot bigger, a lot faster and that could have in fact grown to be conceivably very big companies but who had chosen not to because they had other goals that they considered more important than getting as big as possible, as fast as possible.
What is the definition of small giant if there is any?
Bo Burlingham: Well, the short definition is in fact the subtitle of the book, which is… It’s about companies that choose to be great instead of big. They have their own definition. Each company has its own definition of what it means by greatness and every company is certainly… Every founder or owner of a company is certainly entitled to determine his or her own definition of what a great business is.
All the companies that I wrote about, there were about, there were 14 of them in Small Giants. They all had something very special going for them. It was like a kind of… It was something you could feel if you spent time around them or if you talk to their employees or talk to their customers. It was a kind of electricity or power of attraction. It’s what I call in the book mojo, which is sort of the business equivalent of charisma.
When a leader has charisma, you want to follow him or her. When a business has mojo, you want to be associated with that business. You want to buy from it, you want to sell to it, you want to work for it, you want to read about it, you want to wear its T-shirts and its caps. It’s what you feel when you’re really in the presence of a great business and all of these-
What’s the mojo? And why it matters so much for small giants? Is it about money?
Bo Burlingham: No, it’s really about the relationships that these businesses have with all the people who surrounds them, in other words the relationships they have with their customers obviously and with their employees, also with their suppliers and frankly with their neighbors and with the community at large.
I realized that the question was for me. I mean, actually, I’d been at Inc. Magazine long enough and I’d sort of seen companies from the early 1980s that really had this quality. I mean, I was there when Apple was just getting founded, Microsoft was just getting founded. I got to know a lot of these companies when they were still pretty young and they had that special quality. Most of them eventually lost it.
What fascinated me about these small giants is that they not only have it, but they were able to hold on to it. So the question I had was, well, how are they able to do that? What are they doing?
What are some examples of companies that as they’ve grown, they lost their mojo?
Bo Burlingham: Well, I had been actually on the US board of The Body Shop. I will say that when I first became involved with The Body Shop, it had that sort of special quality that mojo. It did eventually lose it and the size was frankly a factor. I was friends with them.
I knew the founder, Anita Roddick, who was a wonderful person. When Small Giants came out, she wrote to me and said that she’d wished that I’d written it when she was starting The Body Shop because that was in fact the sort of company that she wanted to have. I mean, there are lots of… There are companies around that have that special quality but then they lose it and they lose it usually because they grow and they can’t handle.
There are things you have to give up when you grow, just as there are things that you can’t have when you stay small. There’s a company in the United States called Whole Foods. Whole Foods when it was just starting up, it was a store in Austin, Texas and it was a small giant.
The founder decided that he wanted a much bigger company and that would have more influence. So he went public and raised a lot of capital and then went around and bought similar stores all over the United States and brought them, made them one company.
There are certain things that you just can’t do when you’re a larger co… or you have to do. For example, when you have a large company like that, you want the customer experience to be the same whether or not they, whether they walk into one of your stores in Austin, Texas or in San Francisco or in Boston or wherever.
So you don’t really have the same relationship to your customers that you have when you’re small where you’re unique and where you’re the only one who has that quality. That’s just a fact of life, the things you have to do differently. There are different ways in which you have to run companies once you get bigger.
When you’re small, you can make your exceptions for people. When you get larger, it’s dangerous to make exceptions because it becomes something that other people are going to want as well and you can’t really make personal exceptions anymore.
How can small giatns defent their profitability or their position in the market?
Bo Burlingham: Well, I will say this is that all of these companies that I wrote about were very profitable. That was one of the criteria that I used to choose them, because I wanted companies that had been profitable for an extended period of time.
So they’d been through the ups and downs of business. They’d been through recessions and so forth and yet had managed to maintain their profitability. How you do that whether you’re a big company or a little company is, well, that’s a whole of the discussion we could have about, but-
Is the relationship aspect a key element for Small Giants’ success?
Bo Burlingham: That’s true. It’s basically the relationships, they are able to maintain their profitability. The small giants are able to maintain their profitability because of these extraordinary relationships that they have with their customers and their employees. In other words, that obviously has an important effect in the market because people talk about the company.
People are as passionate about… If your customers are as passionate about your company as you are, what are they going to do? They’re going to talk to other people and say, “You’ve really got to know this company, really gotta buy from this company,” and that allows… When you have that kind of demand for your product or your service, that allows you to maintain and in fact increase your profit margins.
Because in effect, profit is sort of the applause that customers give to you. They’re basically saying that they want your product or your service so much that they’re willing to pay you more than it actually took you to create it. When you have that sort of thing, that’s how you achieve profitability and when you have small companies, small giants. Now understand some of these small giants are actually, they’re not so small anymore.
There’s one that I wrote about called Clif Bar, which was… It’s sort of an energy bar company. They were very small or relatively small when I wrote about them. They’re probably 10 or 15 times bigger today than they were back then. When you have that sort of special relationship with your customers, you’re able to increase your profit margins or maintain your profit margins and you’re growing by word of mouth. I mean, I will say this that all the small giants I wrote about were still growing. They just weren’t growing as fast as possible.
Gennaro Cuofano: The Clif Bar case that you just mentioned, I think it’s one of the most interesting. In the book, you also mentioned that the founder, one of the founders had actually the chance to walk away with a lot of cash, with a lot of money because he was about to exit the company, but then the ease mind. I mean,
What were some of the motivations for actually not doing an exit on a company that you fear is going to be taken over by the competition?
Bo Burlingham: Well, I mean, each instance is a little different. If you look at Clif Bar, it was a case where their two biggest competitors had already been acquired by Kraft and Nestle, and they received an offer from Quaker to buy Clif Bar for $150 million, which is a lot of money. At the last minute, the founder Gary Erickson really began to feel very bad because he had found out that in fact Quaker was going to move the company to the Midwest, which meant all of his employees were going to lose their jobs and that he wasn’t going to have any involvement with it after the sale, which means that he couldn’t actually protect the brand.
Those were two reasons why he was going to actually consider the sale in the first place, and he decided at the last minute, literally the last minute. I mean, the papers were drawn. He was sort of standing with his partner in an office waiting for the lawyers to pick them up to take them to sign all the papers for the sale. Literally, he got so nervous and anxious about what he was about to do that he decided he wanted to walk around the block. He needed fresh air. So he told his partner, “I’ve got to go out for a walk. I’ll just walk around, I’ll be back.”
When he went out to walk around the block, he got out there and realizing what he was about to do. He felt so horrible that he was actually in tears, and then he realized, “Gee, I haven’t signed anything yet,” then suddenly he felt a lot better. So he walked back to the office and basically told his partner, “Send them home. I’m not going to do this deal.” Now I wouldn’t say that that’s typical. It does happen, but usually it’s something that happens late in the process.
I write about Anchor Brewing, which was a beer company that actually sort of started. Craft Brewing is very, very big in the United States. Anchor Brewing was really one of the first Craft brewers. It was probably the first Craft brewer. It was so popular what they were doing that they couldn’t keep up with the demand. They were actually having to ration customers and say, “Well, we can’t. We can’t meet all of the… We can’t give you all of the Craft brew that you want.” This was very upsetting obviously to the owner and he began to consider building another brewery. In order to do that, he needed to raise capital, so he was going to go public, do what’s called a direct offering here.
Again, late in the process, he began to think about how his life was going to change if he became a public company. He got his team together at Anchor Brewing and they all talked about how things would change if they went through with this plan. They all agreed that they wouldn’t like the company as much. It wouldn’t be as special to them as it was and so they decided that they would not go ahead with that. He called up the people who he was going to do the deal with and said, “I’m out. I’m not going to do this. We’re not going to build a new brewery.”
It was again that realization. The question is, when do you get the realization that the life you’re going to have after you make a certain choice to grow fast is not going to be the life you want and the company that you create is not going to be the type of company that you want?
Gennaro Cuofano: Actually, it’s about your company losing the essence that you were trying to instill. Also, I think it’s very important because on a smaller scale, it’s not that you lose control on your vision when you go to an IPO, which is for larger companies. Also in the start-up world, there is this dilemma on whether, for instance, to take outside the capital, which is called the venture capital one, of course, you’re growing your company.
One of the drawbacks for sure is the fact that you lose control or you might lose control over your vision or either in any case, either you make sure that whoever is putting the outside funding is in line with your vision and it’s going to be so in the long run. Otherwise, of course, the risk is that you’re going to be building up a company that you should not be able to identify with anymore. So I think that’s a critical point, and I guess it’s one business.
Bo Burlingham: That’s a critical point that you’re making that it does have to do with the fact that, for example, when you do take in venture capital, private equity that you’re basically teaming up with people who really have to have growth.
I mean, their customers are their investors and they have to deliver a return to those investors, so. You have to, as the owner of a company that is considering… I mean, obviously, having the extra capital does allow you to do things that you can’t do if you don’t have it. You do give up some control because you’re basically saying, “Yes, okay. We’re going to make this a good investment for you.” Making a good investment often means being forced to grow much faster and get much bigger.
Is there a specifici small giant business model or any small giant has its own specifics and there is no way for us to put any kind of generalization?
Bo Burlingham: Well, there are certain management practices that are very common to a lot of the small giants. For example, one of the books that I wrote before Small Giants was called The Great Game of Business. I did it in a… I had a coauthor who was a CEO of a very interesting company in Springfield, Missouri. Basically, that book was about the whole idea of building a company in a way that everybody in the company.
I’m talking about people down on the shop floor, the welders, and everybody who worked in the company knew all, understood all the finances of the company and shared all the finances. What we know in the United States now is open-book management, but The Great Game of Business has become very, very popular.
I mean, there’s a conference every year, in September in Dallas, where seven or 800 people from around the country get together to talk about their experiences and to learn things. There are certainly hundreds if not thousands of companies that are practicing this open-book management and that is particularly something that is very widely practiced by small giants. There are other practices that I think are important.
I mean, Zingerman’s developed a whole methodology for creating a vision of the kind of company you want to have in the future. I mean, that’s what they did. I mean, they did it in 1994 and then they had to do it again in 2009 because they got this so they had a new vision to take them to 2020. Now they’re working on the vision that’s going to take them to 2030. They have a methodology for doing. Again, I highly recommend them that I think a lot of other small giants have adopted.
There’s not one particular model that you have to follow in order to be a small giant, but there there are certain techniques that had been developed by these companies that they share with other companies and that have become very, very popular among small giants.
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