Daily Reading Notes

June 25, 2019

Small Giants

A look into a different way to run a business. Instead of focusin on profits and pleasing shareholders, focus on a great work environment and serving customers.

A business hits its stride when it finds its soul. That's when everything seems to flow. The employees love their work, and strive to constantly improve themselves and the business. The customers tell all their friends about the great new product. Even the industry recognizes the work.

During this time, the business can choose on one of two, often conflicting, goals. They can use their momentum to grow as quickly as possible, or they can fight to keep the soul of the company at any cost.

These companies find their soul because the owner love and care for everything about the business. They go against the impartial, strategic manager paradigm. Profit becomes a secondary goal to taking care of the people that work at the company and use the product.

Every company owner comes to a difficult decision of brining outside help, giving up control by expending, or selling. These seem like the natural choice if a company is to grow or die.

However, many miss the alternative to put the soul of their business first. They grow at slower pace to focus on the things that matter. They rejecting lucrative offers to focus on the culture and the people. Most importantly, they never sacrifice the quality that made the business great.

Success presents opportunities for failure as often as opportunities for growth. It's the difficult job of the owner to scrutinize each possibilities and only go after the ones that won't grow the business too fast. Growing too fast could cause the entire company to implode overnight.

Raising capital may be the only way to grow quickly, but it come with tremendous pressure. You give up control for every bit of funding you take on.

Investors will have priorities for growth first. This often goes at odds with what will make your business last. Will you be able to keep up quality when you need to produce 10% more this quarter at all cost?

Customers can put as much pressure on the company as inverters. If a company does great work, they will get more business. Initially, it seems like a good thing. You don't have to struggle anymore, you can start charing higher rates. but eventually it becomes too much. That's when you need to choose which customers to keep, or the entire business could implode.

Running a race to become the biggest is futile. There will always be someone willing to sacrifice more that you to take the top spot. Stave off the urge to grow by reminding yourself of the impact you have right now on the people that depend on you.

The place a business is built a part of its DNA. It's the special flavor of the region that giant corporation can't recreate. The bigger the company the more it must strive for efficiency. They lose their terroir - the quality that made them special. If a business wants to support keep their soul, they can't forget their roots.A public company has an obligation to re-invest everything it can back into the business. Otherwise they incur a tax on their shareholders. On the other hand, a private company can use its money to invest in the community because that money belongs to the owner. This allows private companies to become far more involved with their community.

There are 3 pillars that make a company remarkable: professionalism, integrity, and a real human connection. Most companies struggle to achieve just professionalism and integrity.

Top level management can't reach the 3 pillars alone, nor can they setup a system to mandate it. They need to hire and support the right people at the ground level. If they want the employees to have an intimate connection with the customers, they need to develop that connection within the company first. Treating people with loyalty, care, and respect turns into a cascade that propels the business forward.

A great work environment for employees isn't just about pay, benefits, and a flexible schedule. It requires intimate connection. The employees need to feel like they are part of a community. They need to see how their effort helps the whole company.

An intimate connection requires everyone knowing the employee on a personal level, even the owner. This need limits the size to which a company can grow. If the owner gets to the point where they can't keep up with all the people in the company, it's time to stop growing. Otherwise, they could lose that touch that makes the company special.

In addition to treating people the right way and providing at least the norm benefits, the small giants have three more things that set them apart from other employers:

  1. A singular higher purpose that run throughout everything the company does.
  2. Bonuses and perks that go above and beyond what the employees expect. These companies provide sabbaticals, surprise bonuses, or company retriers -- some even provide all this at once. They do anything they can to make the employees feel cared for.
  3. A sense of collegiality. They don't expect their employees to develop this out of nowhere. Instead, they actively work on making sure stress is reduced and people enjoy their work. Then the employees can focus on working together instead of sabotaging each other for the next raise.

Small companies are able to attract, build, and keep some of the best talent in the industry not with luxurious pay or outrageous benefits, although sometimes those are included, but by creating their own unique culture. This isn't the type of culture that big companies try to push. You won't find run of the mill motivational posters or mentions of agile. These companies create something completely unique.

They create a culture that attracts the exact kind of people they want working for them. And they do this by not compromising on their principles for anything. They will work extra hours, turn down business, or even slow down growth. All in the name of sticking to the values they established for the company.

The changing of leadership is no the biggest problem a company faces as time goes by. No matter how good the initial idea is or how much momentum the company can build, competition will eventually catch up. When that happens, they must innovate and change.

This causes stress to everyone because it undermined the foundation the company was built on, and puts financial stress on the whole company. Bonuses may need to be cut and dividends eliminated. It will test the commitment of everyone involved. If the wrong values get tweaked, people trust in the company will be shattered and the entire business could implode.

For a change to succeed, the essential values that keep people around must be weighed against the habits that developed but no longer serve the company. The change should replace the bad habits with once that will improve the things that keep people around. With that proposition, everyone can buy into the change.

The only way small companies can survive the onslaught of giants is by staying a step ahead of the competition. They have to use their creativity to continuously think outside the box. Their innovative thinking is the only thing that allows them to survive the economies of scale.As a company grows, they face a choice. They can pursue growth or choose to stay small and focus on the community, the customers, and the employees. Both options come with their own tradeoffs, that aren't only financial. If they choose to grow, they could spread their message further and even change the culture like Whole Foods or Southwest. But choosing growth also comes with it's own dangers. They will inevitably lose a part of what made them great in the first place.

Copyright © Artem Chernyak 2020