Bo Burlingham is the author of the acclaimed bestselling book Small Giants: Companies That Choose to Be Great Instead of Big. The book provides a detailed account of 14 companies that have questioned the typical definitions of business success. As part of our conversation, Bo walks us through the characteristics that can set a business apart from the rest and the importance of staying true to yourself when difficult decisions arise.
RJ: In the book “Small Giants” you talk about the idea of company mojo. Can you describe what this is?
Mojo is sort of like charisma. It’s a business version 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, wear its t-shirts and caps and so forth. Those were the criteria that I was using to select the companies I studied. I will say that the thing that fascinated me most was this question of mojo, where did it come from? How have they been able to hold onto it? I mean I know lots of companies—well known companies in the early 1980s when I first went to Inc.—that had that mojo quality. A lot of them are household names now. Bill Gates at Microsoft and Steve Jobs at Apple and others like Yvon Chouinard at Patagonia, Tom Stemberg at Staples, Ben Cohen and Jerry Greenfield at Ben & Jerry’s.
All of these companies had a sort of magical quality at the time. It wasn’t just that they were successful, it was something else. I watched what happened to these companies over the years and the fact is that most of them lost their mojo at some point. For the book, I was looking at companies where this mojo didn’t fade and I wanted to know why or how they had done that. I looked at the qualities that they had in common and I ultimately came up with ultimately I came up with six unique characteristics.
RJ: What qualifies a company as a small giant? Maybe if you could just talk through some of the common characteristics of these companies?
Well, I had certain criteria that I used to choose them, one of which was that I wanted companies who had had the opportunity, like Zingerman’s, to get a lot bigger a lot faster, but had decided that they weren’t going to focus on growth because they had other goals they considered more important. Number two, I wanted companies that were considered the best at what they did. In other words, people who really knew the industry, including their competitors, viewed the company as one of the top performers in the space. Number three, I wanted companies that had a positive impact outside their industry and had been recognized by independent third parties for the contributions they had made to their communities or to the world as a whole. Number four, I wanted companies that had been profitable for at least 15 or 20 years. Number five, I had to deal with the size question. So I came up with the idea of human size. And by that, I mean a company that has not grown beyond the point where employees didn’t know each other anymore. In other words, I wanted companies where the executives still had contact with the entry level employees and vice versa. There was a sense of access to executive-level employees still. And then finally, I wanted companies that had that quality that I call mojo.
RJ: I notice there’s two software companies on the most recent version of the list. There is FreshBooks and Basecamp. And as mentioned, there’s a good number of CEOs in our audience that are software and SaaS CEOs. We’d be curious to understand what you saw in those companies that made them unique.
Well, if you look closely at those companies, they’re both very, very successful software companies. But they’re sort of unusual software companies. Basecamp, I don’t think has ever taken outside equity. And FreshBooks resisted taking on outside capital until a couple of years ago when they raised capital for a specific growth goal. They are both different from the seemingly standard Silicon Valley model where basically every company is focused on raising more and more money from venture capitalists or private equity firms. And one thing that goes along with raising capital, perhaps not discretely, but you’re making a decision that some day in the not too distant future you’re going to sell the business.
RJ: I would like to focus more on how these companies are able to create a unique environment of success. Is there one key common characteristic? I guess you define it as mojo, but how are these companies able to get the best out of their people?
Well, there are a number of different things. Most of them, once they get above a certain size, they have the attitude that they put their employees first. Their customers are a close second. When you think about it, it’s not that shocking. Once a company gets above a certain size who has the interaction with the customers? It’s generally not the people at the top of the organization; it’s the people who work for the organization. And if you want them to take care of your customers the way that you would, you’d better create a culture where people feel ownership and identity. There are different factors that go into that. I think one of them is maintain a higher purpose for the company. Since most of these companies are private, the idea of working hard to make somebody else rich is not a motivator. You need to have something that makes people look at what they’re doing and they say, “this is actually important” and “here’s why this matters.”
It gets harder and harder to do this as the company grows. First off, companies are run by people. They tend to be run by people who have a very clear idea, in their own minds at least, about who they are, what they want and why. And often these companies are faced with choices that challenge these assumptions and that makes it very hard to maintain direction over the long run. The second thing is that these are all companies that had a real close connection to their communities, to the communities where they do business.
For many of these companies it’s hard to imagine them being in another community. One example of that, and I write about it in the book is Anchor Brewing, which has been a San Francisco institution for over 100 years. It’s no longer a small giant because it was bought by Sapporo, but it has always had that feeling of being part of San Francisco. It was started during the Gold Rush and has been part of the city through all of the fires and earthquakes and has managed to survive. It was a part of San Francisco history.
RJ: Is there one leader that stood out to you? One that had to persist through difficult times or simply did things that showed a lot of character?
There were, as you can imagine, quite a number of them. Danny Meyer, the founder of the Union Square Hospitality Group in New York, is one that comes to mind. His first two restaurants were Union Square Café and Gramercy Tavern in New York. And they’ve been consistently ranked the number one and two most popular restaurants in New York for the last 15 or 20 years. He also founded Shake Shack which he spun off as a public company because he wanted Union Square Hospitality Group to remain a small giant.
There was also somebody I wrote a book with, Norm Brodsky, who had a record storage company. He ultimately sold the company for about $110 million. He went through very trying times. In the 1970s and 80s he was very focused on getting his company as big as possible, as fast as possible. This eventually led to the company making serious mistakes. He wound up in Chapter 11; he went through a very, very difficult time. But he emerged from it and learned his lesson.
I could talk about all of the key people in these companies because I have such admiration for them. They were doing this at a time when there was no support for the concept of staying small and maintain culture. Basically everybody was telling them, “You’ve got such a great opportunity here to grow, why aren’t you doing it?” They would resist that and maintained a clear idea of what they wanted to do, not what other people wanted them to do. To have that clarity about yourself and about what you want.
Another great example is Gary Erickson who founded Clif Bar. In the late 1990s, his two biggest competitors, PowerBar and BalanceBar were bought by Kraft and Nestlé. He received an offer from Quaker for $120 million. He only had one partner at the time—that’s a lot of money, which would have mostly gone to him. He came very close to doing the deal but at the last minute he decided that it didn’t feel right. He decided to call it off and walked away from at least a $60 million payday. After that, there was some internal strife and he ended up having to buy his partner out for more than $60 million. Everybody was telling him he was absolutely out of his mind. He was up against these billion dollar competitors that could control shelf space and crush him. At the same time he saddled himself with a huge amount of debt. Yet over the course of the next three years, the company tripled in size and he paid off the debt. Since I first wrote about them in 2005/2006, they’ve grown 10 or 15 times. Whne he was turning down the initial offer he said, “Well, that’s probably the last chance I’ll ever have to make that much money but it’s not worth it.” His stock is probably worth a lot more than that today.
I look at all these leaders and I have the greatest admiration for them. They have been through hard times and they have made very painful and difficult choices. The result has been that they have created these great companies. They’re great in terms of how they treat their employees. They’re great in terms of their relationships with their customers and suppliers. They’re great in terms of what they’ve done for their communities and for society in general.
Hear the full conversation with Bo on iTunes at the GrowthCap Insights page.