Can a company serve their community, be a great place to work… and still be profitable?
Bo Burlingham says that yes, it can. That’s what small giants do.
A 30-year veteran of Inc magazine, Bo Burlingham is the author of one of the most interesting business books that I’ve ever read.
And graciously, he agreed to share his insights in an interview!
Here it is, 33 minutes for you to enjoy:
Here’s the full transcript:
Danny: Hi Bo, it’s a pleasure to speak with you and I want to thank you for taking the time for this interview.
Bo: Sure, pleasure to be here Danny.
Danny: For the benefit of our listeners, Bo Burlingham is the author of Small Giants – Companies that Choose to be Great Instead of Big, and is an editor at large for Inc. Magazine. Now, I only recently read the book, I’ve already recommended it to about half a dozen people, it’s a fantastic read with very valuable insight into building a great business. Bo, one of my frustrations with business schools and the business press in general is that even though the vast majority of the economy is made up of small businesses, almost everything they talk about seems to be giant public companies.
Bo: That’s a frustration of mine as well Danny.
Danny: Well there you go, so I, I guess my first question is: where did the idea for this book come from, because it’s so not the norm when it comes to business literature.
Bo: Well it’s an interesting story. I had, I had been interested in a company, one of the companies in the book, called Zingerman’s, for a while because I was, they had a delicatessen in Ann Arbor Michigan, and I’d been hearing about them for a long time because, you know, they were doing interesting, innovative things and I’m interested in interesting and innovative things. So finally in 2002, I went up to Ann Arbor to do an article on them. And it was a really interesting time to be there, because they started in 1982 with the goal of creating a really unique delicatessen that was going to be a strong force in the Ann Arbor community and was going to have really great food and great service and was going to be a great place to work and it was going to be known for, as one of the great delicatessens of the world and they worked very hard at it for the first ten years and by 1992 they’d really achieved, the two founders Paul Saginaw and Ari Weinzweig had really achieved what they set out to do, and so they’d come to a crossroads that a lot of companies get to where they had to decide: “Okay, now what do we do?” And they had lots of opportunities because there were lots of people who wanted to found Zingerman’s Delicatessens in other college towns around the country.
Danny: Like a franchise model.
Bo: Yeah, they could have franchised easily, or they could have raised private equity and done it themselves, they had lots of different options, but they decided they didn’t want to do that because they had other goals they considered important. I mean, among other things they said: “You know, we set out to create something that was going to be great, and unique and once you start replicating it it’s no longer unique by definition and a lot of times it isn’t even very good let alone great.” So they sat down and for literally two years, they met weekly to try and think about: “Okay, what else are we going to do, what other ways can we go about this?” And they wound up coming up with this idea that they were going to create what they called the Zingerman’s Community of Businesses. And this was going to be, they looked out and they said: “15 years from now…” They came up with a vision statement called Zingerman’s 2009, and it was their vision of what Zingerman’s was going to look like fifteen years in the future. And they said, “Okay, we’re going to have a whole bunch of different, food related companies, each of which is going to be located in the Ann Arbor area and each is going to be great and unique in its own right.” By the time I went to visit them in 2002 they were well on their way to achieving that vision. They had and they have now a terrific bakery called Zingerman’s Bakery, they’ve got a great restaurant called Zingerman’s Roadhouse, they’ve got a coffee roastery called Zingerman’s Coffee Roastery, they have a catering business, a mail order business, a candy company. They’ve got all these different businesses, and what really struck me was the quality of the people that they were able to attract to this project. You know, often people would take big salary cuts to come from other businesses in order to be a part of Zingerman’s. So I wrote an article about this and it was called The Coolest Small Company in America, and it was a cover story in Inc. And it got a very big response from our readers and one of the people who read it was a publisher in New York and he called me up and he said that he liked the article and he wondered if there were other companies out there like this. And I said: “What do you mean?”And he said: “Well, you know, other companies that had the opportunity to get a lot bigger a lot faster, but they chose not to because they had other goals they considered more important.” And even though I’d been at Inc. for about twenty years then, I didn’t know the answer to that question, but I thought it was a really great question, you know, and I was curious to find out the answer so we did a deal and I went out and started looking for companies like Zingerman’s that could have grown a lot bigger a lot faster, but chose not to because they didn’t think that getting big and growing fast was the main importance to them. They had other things that they thought were more important.
Danny: They didn’t object to growth per se, they just didn’t see it as their, as the most important thing to go after.
Bo: Yeah, exactly, and they also tended to regard growth as a by-product of the other things that they did. In other words, most of the companies that are in my book, not all of them, but most of them were in fact, it turned out, were growing, but it was not something that they focused on, it was not their goal. Their goal was to do other things, for example to be a great part of their community and play an important role in their community, or to have a terrific customer service, or to have a great place to work where people were enthusiastic and loved coming to work every day. There were all these other things that they considered more important. And so I, you know, at the time, I didn’t know how many of these companies I was going to find, when I went out, I found that there were an awful lot more of them than I expected, so I was able to pick and choose and I wound up choosing fourteen companies that I felt would really allow me to explore this phenomenon and see what it was all about. And those were the companies that I wrote about in Small Giants. And I basically looked at what they had in common. Now one of the things that came out of this was, you know, really, when you really look at Small Giants, the real question that is sort of posed by these companies is a very good one. Namely: “What exactly is it that makes a company great?” And you know, you alluded, in the beginning, to all the coverage of the sort of, giant, publically traded companies, and there’s a tendency in our culture, but also around the world to equate size with greatness and getting bigger with getting better. Now, if we stop to think about it for a moment, that’s ridiculous. The two have absolutely nothing in common. You know, you can be a big company and a great company, or a big company and a lousy company. And you can be a small company and you know, just do fantastic things or you can be a small company and not do fantastic things. It’s, they, they’re just they’re totally different concepts.
Danny: I think you’ve said something very important here and I want to just emphasize it for our readers, what the message in your book, and correct me if I’m wrong, is not that growth, like size rather and greatness are negatively correlated, as in you can’t be a good company if you’re big, some of your small giants are pretty big.
Danny: You’ve got three hundred million dollar companies in there. It’s just that they’re unrelated.
Bo: Yes. They’re unrelated, exactly. And so, once you sort of have that, and these people who ran these companies knew they were unrelated, right? And so once you make that, you know you have that realization that size and greatness are not equivalent or not even necessarily very closely related, it forces you to ask a question which in fact everybody who’s in business regardless of their size of their company should be asking themselves. Namely: “What do I think it is that makes a company great?” And the different will have different answers to that question, which is fine. Some people may feel that in order to be great you do have to be big. Well, if that’s what you believe, okay. Go for it. But the point is, that, you know, you have a choice here. And the problem, I think, that happens a lot is that people go into business and there are all of these pressures on them to grow and to get as big as possible, get as big as they can. And the pressures come from all different sources. They come from employees, from customers, from family, from society in general, and so forth. And you know, I think that, you know once you have this revelation that: “No wait a second, I don’t have to grow.” Or: “I don’t have to get big.” Then you start focusing on the important question which is: “Well what exactly is it that I want to do with this business. Why am I here? Why am I doing this?” And that’s really the key question I think that everybody who goes into business needs to ask themselves.
Danny: So Bo, how did you go about finding these companies that you discuss in the book and what were your criteria for inclusion?
Bo: I came up, based on, really, Zingerman’s, looking at Zingerman’s, I came up with about five or six criteria that I was going to use. Number 1: I wanted companies that had the opportunity to get a lot bigger a lot faster but had chosen not to. In other words they made a choice. Number 2: I wanted companies that were great in their industries. In other words that they were recognized by their peers, including their competitors as being among the best at what they did. If you asked somebody in the industry: “What are the best companies that does whatever?” They would include the company on its list. Number 3: I wanted companies that had an impact outside their industries that have been recognized by independent third parties for their contributions to their society or to their community or, you know to the world. Number 4: I wanted companies that had been around long enough to sort of experience all the ups and downs of business. In the time I’ve been at Inc. I’ve seen a lot of companies that have done well for three or four years and then they hit their first crisis and they couldn’t survive it.
Danny: You wanted to filter out the companies that just got lucky.
Bo: Right. Exactly. And, finally, I wanted companies that were what I called “human scale”. In other words, I knew that size was going to be a factor here and they question was, okay, what did I mean by “human scale”. And I defined it as companies where everybody in the organization could still know everybody else. I wasn’t sure how big a company that would be, or how small a company would be, for that matter, all this would apply to. So I included a full range from one company that consisted of two people to a very big company with fifteen hundred employees. And tried to see, you know, what they had in common, if anything. There’s another factor here that I probably should mention, which is, you know, I’d been at Inc. for a long time and I had noticed over the years that there were certain companies that have some very special quality going for them. You know, it’s not just that they’re successful as businesses, they also have a kind of magnetism that you can feel as soon as you spend time around them or around their customers or you know you walk into their offices or what have you. It’s a, like a power of attraction.
Danny: It’s what you described as mojo, in the book, right?
Bo: Exactly. And I defined mojo as 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, sell to it, work for it, where it’s t-shirts and caps and so on. And that was another quality that all, that I was sort of looking for, in these companies. And so once I had sort of done that, I had these sort of criteria, and I went out and I just searched everywhere. I talked to everybody I knew, I told them what I was doing, I looked on the internet, I looked at companies that had received awards for this that or the other thing, I just, you know, I searched high and low and one of the first things I found, as I mentioned was there were a lot more of these companies than I had realized. They were in every industry and very part of the country. So I really had a large number to choose from. It’s interesting, and I’m sure you’ve found this, Danny, once you start telling people about the concept of Small Giants, they get it. It’s like: “Oh yeah, I know companies like that.” And it was one of the things that I kept asking myself as I was writing this book was: “Gee, why hasn’t anybody written this book before?” And I suspect it was because of what you talked about in the beginning which is that we tend to get so focused on size and growth rate and that sort of thing that we overlook some of the really great companies that are neither very big, nor growing very fast.
Danny: I agree with you. Bo, something that I really connected with in the book is the concept that you described of servant leadership that a lot of these companies seem to have in common. Now, can you explain for our listeners how is that different from just you know, focusing on quality or customer service or so forth?
Bo: Servant leadership was actually a concept that was developed by a fellow named Robert Greenleaf and there are some of the companies in the book that follow that consciously, they’re actual followers of Greenleaf, and there are some that just sort of practice it without ever having heard of Greenleaf and the basic idea is that the role of a leader is to serve. You know, traditionally you know we look at leaders and we think that leaders are people who other people follow, and Greenleaf’s idea was that a really good leader serves his followers, serves the people, you know. And that sense of service needs to imbue everything that the leader does, you know the leader’s job, oversimplified a little bit, is to make the lives of the people who he or she is responsible for leading, better. And you know it’s a philosophy of leadership which has, you know, many adherents, and has been written about extensively, there are a lot of people who know more about it than I do, but it was something that I did find a lot of these companies practiced, and consciously practiced.
Danny: So is there, when someone reads a business book like this, and you know, you’ve got all these frankly, spectacularly inspiring case studies. By the end of it, you know, you’re three quarters of the way through the book, you’re kind of thinking: “Okay, where’s the recipe? How do I do this?” Is there a step by step process, or, or a set of ingredients? What goes into creating a company like this?
Bo: That’s a very good question, and there were some people who, you know, who were explicit in terms of asking me that question and I think disappointed that the book didn’t contain a recipe. The reason it doesn’t contain a recipe is that if you look closely at the companies in the book, how they arrived at where they are, the paths that they took are very, very different. I don’t think any two of them, you know, pursued the same path to wind up at more or less the same spot, or a very similar spot. I don’t believe in step by step approaches, I don’t think that there is a step by step approach to being successful in business or to building the kind of company you want. What there is, is a mentality that you develop, and successful entrepreneurs develop, and most of them develop it the hard way, by making mistakes, learning from their mistakes, picking themselves up and moving on. You know, I often say that the most important quality of an entrepreneur is resilience, followed closely by perseverance, and I actually, partly in response to that, I wound up – one of the companies in the book is a company that was owned by a guy I know very well because I’ve been writing a column with him at Inc. Magazine for the last fifteen or sixteen years, his name is Norm Brodsky, he’s somebody who has a records storage business, or had, I should say, records storage business in Brooklyn, New York. He was very different from a lot of the people in the book, particularly because he was somebody who had to go through a real failure. I mean a major failure of his first business which he started in 1979, and he was very focused on size and growth and he grew the company.
Danny: And he was very successful with that initially, right?
Bo: Yeah, he grew the company from zero to 105 million dollars sales in seven years and then he took from 105 million almost all the way back to zero in seven months, and it wound up costing literally thousands of people their jobs and it was a very sobering experience for him and he went through a lot of soul searching and when he decided to start his next company he went about it in an entirely different fashion, in a “Small Giant” like fashion. He is a very brilliant entrepreneur and I wound up writing a book with him called The Knack – How Street Smart Entrepreneurs Learn to Handle Whatever Comes Up, and it’s actually available now as a paperback with a different title. The title of the paperback is: Street Smarts, an All Purpose Guide for Entrepreneurs, but in contrast to Small Giants it’s very much a practical guide for people. But the premise of the books is that as much as you may want a step by step guide to being successful in business, to building the kind of company that you want – there isn’t one, there never will be one, because business doesn’t work like that. But what there is, is a way, is a mentality that you can develop over time that allows you to handle with a wide variety of different situations and make decisions that enhance your chances of success, and you know, so that you can in fact build a company like a small giant or whatever company, you know, you want to develop. So, you know really, that’s the book, for people who are looking for practical advice about how to build a company that is a Small Giant, I would refer them to The Knack. You know, which contains a ton of practical advice.
Danny: Well, I’m gonna, as soon as we’re done with this call, I’m jumping on Amazon and getting it.
Danny: Bo, let me ask you a contrasting question. This is, I think, probably you get this a little less, but I think it’s also important. I think that, like I said before, you know people read all of these case studies and they get excited, you know, “I want to do this, and how do I do this?” But, what are the risks in trying to turn your business into one of these Small Giants? What can go wrong in the process, what should people look out for?
Bo: Well they’re the same risks, in many cases they’re the same risks that you face no matter what type of business you try and start. And starting a business is all about risk, everything that you do involves risk. You’re taking a risk when you hire somebody, you’re taking a risk when you go out to a customer and make a promise to a customer to deliver something, you take a risk when you go to your father-in-law and ask him to loan you the money that you’re going to need to start the business or when you go to the bank and the bank says: “well we’ll give you the money but you’re going to have to pledge your house.” So risk is all over the place and the idea is to minimize the risk. You never eliminate it all together, but you can minimize it. Now, in terms of the specific risks, that affect Small Giants, I would say the, the major one has to do with one of the most important elements of a Small Giant, and that is the internal culture, the culture that you build in the company. It’s very easy to, I mean, it’s not very easy, but if you develop a great internal culture, it’s easy to start regarding that as an end in itself and to forget the fact that that culture is only possible if you have a business that is financially sound. One of the companies in my book, a company that actually sort of pioneered – you know when you have a laptop computer, the top – and you raise the top and it doesn’t fall right down, it sort of goes back and forth constantly?
Danny: The constant pressure hinge.
Bo: Yeah, the constant torque hinge. And the company that really pioneered that was a leader in that was called Reell Precision Manufacturing, employee-owned company in St. Paul Minnesota. And one of the things, after the book came out, they got into a lot of trouble. Now I subsequently wrote an article about it, I felt I owed it to… well I was very curious to find out what had happened. Cause when I was writing about them for Small Giants, they were, you know, a fantastic company that had done some really incredible things and had a really great culture, and it all fell apart. And it fell apart very quickly, and the question I had was: why? And when I went in and investigated it I realized that what had happened was, the roots of the problem had been, or the seeds of the problem had been sown probably ten years earlier when they had faced a decision about whether or not, you know, the whole manufacturing of laptops moved offshore, and suddenly they found themselves in a situation where their customers were no longer Apple and Dell and Hewlett-Packard and so forth, but were in fact Asian manufacturers and they faced a decision about whether or not to go into that market, understanding that it was going to be highly competitive and they were going to be competing with local manufacturers in China and Korea and Taiwan and so forth who would have ties to the OEM, to the main manufacturer. And the competition was going to be brutal and the price, the pressure on prices and margins was going to be great. But they decided they had to do that, because they were afraid they might have to lay people off if they didn’t. So they wound up getting into a situation where they, you know, all of their worst fears, came to fruition. They were constantly beaten down on price they experienced wild fluctuations in sales from year to year and ultimately , you know, actually when I went to visit them for the article that I wrote about them you know they had the highest sales of laptop hinges in their history and they were losing money on them. And it made me realize that this was a chapter that didn’t make it into the book, it should have been there and will be there if I do another version of this, which is really about the financial model of Small Giants, which is that you need to have a sound business model, you need to have a healthy balance sheet and you need to have, a, you know, stable gross margins that you protect, and if you don’t have that you can have the greatest culture in the world and you’re not going to be able to maintain it, because it will fall apart. So that’s, that is to me the greatest risk of being a Small Giant is that you make the mistake of thinking that the things you’re able to do that are really great, like being a great member of your community, or having a great people culture or having fantastic customer service, that that will take care of everything. It doesn’t take care of everything. You have got to know what the numbers in your business are, you know protecting the business model, and making sure that that business model is stable. That’s what’s going to allow you to do all those other things. It’s a very good question, though, Danny.
Danny: Thank you.
Bo: I don’t get it that often, but it is a very good question.
Danny: Well thank you, I think it’s important.
Bo: Yeah, it’s extremely important.
Danny: Bo, we’re already past the half hour, and I want to be respectful of your time so let me finish with one last question.
Danny: For our listeners who, many of them are running small businesses, they’re early in the growth of those businesses and many of them are probably very idealistic, like, they care about making money obviously and they want to grow, but it’s not just for the money.
Danny: I’m sure many of the people who have heard this interview, who’ve listened to this interview; they’re going to be thinking: “Wow, I really like what I’m hearing. I have to, you know, it’s not a step by step process, I can’t you know, magically transform my business, but I want to start getting my business on the right track, and this is important enough for me that I’m clearing my afternoon to work on this.” If they clear their afternoon, they’ve got a block of three hours, what should they do with those three hours to start them on the right path?
Bo: The first step is to create a vision of where you want to be, what kind of a company you want to have five, ten, fifteen years in the future. Now there’s a very wise man, he wasn’t a very nice man, but he was a very smart business man named Harold Geneen and he wrote a great book. The book was called Managing. It’s out of print now, but if you can get a copy of it you should read it. And one of the things he says in that book is that, you know, you read a book from the beginning to the end, you run a business the opposite way. You start at the end and you work backwards. So the first step in building a great company is to picture it in your mind. And I mean picture what your life is going to be like, like, are you going to be married, are you going to have children, where are you going to live, how much time are you going to spend in the business, what is your business going to be like, what are the people who work in the business going to say about it what are the people who live around the business going to feel about it, you know, what are your customers going to say, what are the, you know, different qualities and so forth. There’s another book out, which I would highly recommend by Ari Weinzweig of Zimmerman’s; it has recently come out, it’s called: A Lapsed Anarchist’s Approach to building A Great Business. And he writes about the visioning process in there that they use, which I highly recommend. In fact, I have been doing a seminar with them, with Zingerman’s twice a year called: Creating a Vision of Greatness, and you know, that’s really, really where you have to begin. Because that vision, it’s not only going to tell you what you want to do, it’s going to tell you aren’t going to want to do. And it can be whatever you want it to be. I mean, Zingerman’s likes to say that there are four characteristics to a great vision. Number 1: It has to be inspiring. Above all, it has to be inspiring to you. Number 2: It has to be strategically sound, meaning that it has to be doable. You know, you may want to be as rich as Warren Buffet next year, but it’s not going to happen. It can be a stretch, you know it can be something that you really don’t know how exactly you’re going to get there, but it’s within the realm of possibility, so that’s point number 2. Number 3: it needs to be written down. You know, there’s a discipline that goes with writing down a vision that forces you to spell out certain things. And Number 4: it needs to be communicated, and in particular, it needs to be communicated to the people who are going to be doing this with you. There’s a whole process that Zingerman’s has developed about how to do this and, you know, Ari writes about it in his book, actually it was excerpted in Inc. a couple months ago, so if you want to go online and look up Ari’s article in Inc., you’ll find something there, but that’s really, if you’ve got three hours in the afternoon, that’s, I think, what you should do.
Danny: That’s fantastic, thank you Bo. And for the benefit of our listeners all of the resources that Bo mentioned will be linked to in the transcript, so just scroll down and you’ll find them right there.
Danny: Bo, I want to thank you so much for taking the time to do this interview, it’s been a privilege for me personally, I know it’s going to be very valuable to our listeners. I wish you tons of success and a wonderful weekend.
Bo: Thank you very much Danny, same to you.
And don’t forget that you can also download the transcript of this podcast.