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In business, bigger is not necessarily better

Mar 31, 2013 Strategy, Sunday Nation

I met a gentleman recently who runs a successful business. He is held in high regard by his customers, and indeed the reason I was visiting him was due to strong word-of-mouth recommendations.

Though thriving, his business is not large. It has been located in the same premises for decades. Given the demand for his services, I asked him why he did not consider expanding. He told me had turned down opportunities to double the size of his company. Why? Because he did not want the quality of the service he offers to degrade, or to lose touch with his customers and employees; and because what motivates him most deeply in running his business would be lost if he were to increase its scale.

Those of you who have been to business school or worked in large corporations may be shaking your head at this point. Surely, businesses must be able to “scale up” and “grow the footprint”; they must become “multi-territory” as soon as possible. Growth and scale are the goals of modern business, are they not?

Or are they? I found myself nodding vigorously as the businessman spoke, for I have been running my own business (and indeed my life) on similar precepts: bite off what you can chew comfortably; understand what really matters to you, and do not compromise it; and know that less is often more.

Simultaneously I have been reading Nassim Nicholas Taleb’s very entertaining tome, ‘Antifragile.’ In it he points out: “In spite what is studied in business schools concerning ‘”economies of scale,” size hurts you at times of stress; it is not a good idea to be large during difficult times.” It is a well-documented fact that mergers that create gigantic corporations rarely end well; most often, much clashing of cultures, overloading of debt and shedding of staff ensues.

Taleb makes an even more telling point: “Have you noticed that while corporations sell you junk drinks, artisans sell you cheese and wine?” That does indeed make you think. Can you think of a single huge corporation that makes better wine, whisky, or coffee than smaller, more artisanal firms do?

(Witness the travails of Europe’s food industry, where no one call tell whether meat products contain horsemeat, or indeed any meat at all…)

I have written here before: many firms really degrade with size. They add layers of management and bureaucracy; they automate systems blindly; “head office” becomes severely detached from front-line employees and customers; the steering wheel gradually detaches from the tyres.

Eventually, we often create monoliths with appallingly brusque and formulaic customer service; armies of mostly highly demotivated workers; bland and uninspiring products; marketing that is more spin than substance. Large firms may have highly efficient supply chains and fill needs cheaply, but they rarely have distinction in either their products or their personality.

Bigger firms may give you more outlets and cheaper products, but they can rarely sell you excellence and passion, in the same way a highly committed, smaller, more focused business can.

What then is behind the urge to grow? Personal greed and ego, much of the time. You won’t make as much money or be as famous by staying small, so you grow and grow rather than focus on excellence.

There are, of course exceptions. As Taleb calls them, “corporations with the soul of artisans, even…artists.” The late Steve Jobs was one such artist-artisan-CEO, who believed in product excellence beyond anything else. But will the now-huge Apple machine stay true to this legacy?

Think like a customer. Refined buyers spend their lives looking for speciality coffees, rare wines, superb bistros and advisors who offer a very personalized service. Why is that? Because the world’s best products come from those who deliver them with passion and purpose.

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