Chapter 3

WHICH IS BETTER, BIG OR SMALL?

FOR A MORE DELIBERATE consideration of what growth can and should mean for an individual business and its owner, you might begin with an understanding of the advantages and disadvantages of small versus large organizations. This seems an obvious point, but it’s amazing how frequently business owners overlook this consideration in the face of external pressure to add people, revenues, production capacities, or locations. In truth, opting to have fewer employees or one location is the perfect choice for some small-business owners, while growing in size is a necessity for others. Big-vision small-business owners make sure they’re not just aware of but building upon the strengths associated with small-size enterprise, just as they know about and work around the disadvantages. Indeed, they view this very exercise as an opportunity for qualitative growth. So what makes them decide to revel in small size? And at what cost and benefit?

THE PROS AND CONS OF SMALL SIZE

The advantages of small-scale organizations or groups are matters of quality and depth—of vision, relationships, communication, adaptability, evolution, creativity, and contribution. And quality of life. Qualitative excellence—that master-craftsman level of refinement—goes to the very heart of what’s more possible in a small group.

According to group dynamics experts, the optimal size for a highly functioning group is five people.¹² Why just five? In a group this size, there are enough participants to allow for multiple perspectives but few enough to avoid the separation into divisive factions that begin to hinder efficiency and the quality of relationships in larger groups. Also, the smaller the group, the greater the opportunity for personalized connection (and the personal accountability that such visibility demands) and the less need there is for bureaucratic processes, systems, and layers. These are some of the reasons that Navy SEAL teams and other highly specialized units tend to have eight or fewer people.

What are some of the specific qualitative factors that distinguish an effective small group, the kind that big-vision small-business owners consciously cultivate and put to work?

• SMALL GROUPS CAN BE MORE EFFICIENT.

Without layers of corporate hierarchy (which are required to run a larger organization effectively), the small enterprise is less bureaucratic and more nimble. Its response time is quicker because the distance between “decide” and “do” is much shorter. Just by virtue of their size, small enterprises require less overhead—office space, supplies, payroll, equipment, furniture, insurance—which can translate into lower expenses and, in some cases, lower fees.

• SMALL GROUPS CAN BE MORE CREATIVE.

Innovation is a hallmark of smaller enterprises, again in part due to the lack of hierarchy and bureaucracy that hampers the chaos required for creativity. Innovation applies not only to product development, though about 50 percent of new inventions are associated with small firms, but also to creative approaches to providing services. A large organization finds its efficiency and reliability in order, quality control, process, and the hierarchy necessary to keep the many units of a large enterprise functioning compatibly.

• SMALL GROUPS CAN BE MORE PERSONAL.

For the same reasons, a small enterprise can offer a more personalized connection to the customer or delivery of a product or service. Because it has fewer people and locations, and presumably lower overhead expenses, a small enterprise is able to offer deeper connections and be more selective in its work. The vision can be more connected to personal interests, spiritual beliefs, and lifestyle preferences. Communication can be more personal, less formal or systematized. The greater the overhead and distribution and the more complex the organization, the more the focus turns to quantifiable processes, activities, and measures that generate the revenue needed to sustain the enterprise and provide profit to a broader array of shareholders. As it grows in size and overhead and becomes more dependent on external investors, the organization moves by necessity from a subjective, personal focus on building relationships to a more objective, process focus on generating revenues.

• SMALL GROUPS CAN BE MORE SPECIALIZED.

As is the case with right relationships, which is a form of specialization, a small enterprise can distinguish itself by offering depth rather than breadth, a greater level of distinctiveness and craftsmanship instead of the quantity a large-scale operation can provide. Whereas a larger organization or multilocation franchise relies upon standard processes and tolerates fewer deviations in order to meet operating goals, a small enterprise can personalize, customize, experiment, and even be downright quirky in its product offerings and service delivery.

• SMALL GROUPS CAN BE MORE FLEXIBLE.

Just as small boats can turn more quickly than large ocean liners, small enterprises can shift and adapt more quickly than can large corporations. Why? Several factors lend themselves to flexibility: fewer layers, lower overhead, and greater compactness or localization. Greater flexibility can translate into benefits such as an ability to accommodate customer preferences or requests and responsiveness to abrupt market shifts. Small size and independent ownership more easily translate into a greater willingness to take risks or deviate from the business plan, which is less likely in a publicly owned corporation that is expected to deliver ever increasing profits to investors. This may be one reason that market niches can be more readily exploited by smaller, innovative firms, with some of the resulting products and services adopted and expanded by large corporations with greater resources and reach.

• SMALL GROUPS CAN BE MORE ACCOUNTABLE.

As is the case in any tight-knit community, breaches of trust and responsibility are more immediately visible and have a more immediate effect. In a small group, for better or worse, there is literally no place to escape accountability. Individuals in a small enterprise can’t hide behind a huge brand or public-relations machine nor lurk unnoticed in one of hundreds of cubicles in corporate campus buildings. If someone doesn’t do his job, it doesn’t get done, and everyone knows it. The visibility and small margin for error in a small business create a more stringent requirement for personal efficiency and accountability. In a large enterprise, timelines stretch, and committees, departments, or operating divisions, not individuals, become the focus for organizational performance-related expectations. If one branch of a well-established company—a large advertising agency, for example—botches a project or loses a client, it doesn’t affect the other units unless the backlash is enormous. A large enterprise absorbs such occurrences more easily. A small group is more immediately and significantly affected.

• SMALL GROUPS CAN BE MORE RESILIENT.

The owners and principal members of a small enterprise are so personally invested in the business that failure is not an option. The small organization is more about the idea, the vision, which continues to exist regardless of market cycles, infrastructure shifts, or even individual failures. Small enterprises can also be more resilient because of the familylike dynamic and thus the personal connection with or investment in the organization’s vision and survival.¹³ Closing one’s business or leaving one’s enterprise is like divorcing one’s own identity or family; it happens, but is less likely to occur without a deeper level of thoughtfulness, particularly in a big-vision small business that has cultivated the vision, fostered the level of relationship, and enhanced the meaningfulness of the work by connecting personal interests—or even a vocational calling—to organizational mission.

REFLECTION POINT

• How would you evaluate your group against the above strengths?

• How does your group leverage these strengths?

• Are there strengths that you associate with your enterprise that
aren’t on this list?

DISADVANTAGES OF SMALL-SCALE ENTERPRISE

And what of the limitations or disadvantages of being purposefully small-scale? As with everything, choosing to keep an enterprise small in size has a shadow side. Whether the shadow factors are a problem or a catalyst to creativity is a matter of choice and circumstance. The very strengths of small enterprise can turn on their heads to become limitations. For example, the primary disadvantages associated with small enterprises or groups include:

• Limits in distribution capacity

• Limits in access to funding

• Limits in breadth of services or products

• Limits in objectivity

These areas are often identified as large-company advantages, and with good reason. Manufacturing and distributing a product requires more people, equipment, and supplies. If you need a reliable network for coast-to-coast or worldwide transportation, it may be somewhat chaotic to count on a large number of two-person enterprises. While not immune to its own challenges, a large corporate structure can provide the consistency and stability required for endeavors that are geographically far-reaching. Having more people, equipment, and supplies requires greater access to capital, and a tangible inventory also increases the likelihood of obtaining the necessary financing, even if the corporation is troubled. This was evidenced with Kmart’s bankruptcy in 2002, when the company received access to $2 billion in loans even though its performance record had been poor and its future viability was sharply questioned. In addition, the checks and balances of multiple levels of hierarchy, and the need to report to outside investors, can increase the need for objectivity in researching, planning, and moving ahead with new initiatives.

As an enterprise moves from qualitative to quantitative business, or from services to material products, it becomes more focused on objective, quantifiable, external factors and less reliant on deeply personal vision, preferences, intuition, inspiration, or relationships. That the former can be more readily quantified puts bankers at ease, and makes it easier to associate the enterprise’s function with the standard activities of the industrial age. Enterprises that rely more on personality, relationship, and service are harder to quantify, more difficult for data-focused people to understand. And thus they seem riskier than do the quantifiable, tangible enterprises. Though the massive dot-com failures and other corporate ethics scandals demonstrate the shortcomings of this thinking, it is nonetheless the norm in policy and finance circles, which might otherwise, with greater awareness, be more supportive of small-scale enterprise.

What’s more, being a member of a small, SOHO-size business, with its deeply personal connections and high levels of personal visibility, can be too painful for some people. This is particularly true when the leader and employees of the enterprise wallow in familial dysfunction and don’t practice the tenets of a big-vision small business.

And how do these themes play out with real-world organizations? According to Keith Rollins of The Resource Hub, the one-stop entrepreneurial resource center in Portland, Maine, specialized consulting companies with a regional or local niche might choose to remain smaller in size, focusing attention and resources on honing skills in their area of experience and the service they deliver. A retailer who wishes to cultivate a unique inventory featuring local artisans might also do well to remain small in size and big in vision. If a company owner wishes to concentrate on a specific, exquisite-quality product, such as the uniquely illustrated leatherbound Bibles created by one successful San Francisco company, he might do well to cap quantitative growth to ensure that profitability doesn’t require a product-line expansion or less exacting quality standards. Similarly, if a big-vision business owner wishes to maintain an unstructured or familial work environment in which right relationship is practiced with internal and external stakeholders, she might be better off limiting quantitative growth that would require a more formal, structured workplace.

Rollins agrees, however, that manufacturing businesses, for example, usually require a minimum number of people to produce their product and a larger number of people to expand the product line or the market reach. Oakland-based certified public accountant Sandy Collins, who advises many small-business owners, holds a similar perspective.

If you’re in a retail environment or product-based business that is subject to standardized processes, then you can choose to grow in number more easily. Growth becomes more a function of finding the right people than of maintaining a highly specialized service or quality level. If you have processes, routines, and procedures documented, then anyone walking in with a minimum degree of skill or experience can do the job. But if what you focus on in your business is highly refined quality and personalized service, the smaller you stay the better you are, because you can hire for fit versus quantity, and continue to give your clients the high level of customized expertise and service they expect.

Collins also advises her clients to consider personal preferences, skills, and lifestyle goals in deciding whether to expand the business quantitatively:

If a business owner sees the business with the idea that they’re going to sell it eventually, or they don’t see themselves doing the same thing in 10 years, they might choose to grow a salable business. But other business owners have no interest in doing something different from their craft or the small niche market they’ve created. They don’t want to do what happens to many unsuspecting business owners who choose to add people and expand facilities: they end up marketing, administrating operations, or managing people rather than doing what they started the business to do.

One thing is certain: a small-enterprise leader will be wise to consider and build upon the strengths associated with and more possible in a smaller group. A big-vision small-business owner, having reflected on (and for good reasons rejected) the lure of quantitative growth, turns to qualitative growth as a way of pursuing her vision, enhancing the business’s competitive edge, deepening relationships, maintaining a particular lifestyle quality and balance, building wisdom or honing skills, and keeping the business fresh.

The next chapter takes a closer look at some of the assumptions concerning quantitative growth, helps to clarify the definition of qualitative growth, and is followed by a series of profiles of four big-vision small-business owners that help bring to life these growth-related issues and decisions.