"Tolerate nothing less than 'Departmental excellence and coolness.'" Tom Peters
Bo Burlingham is editor at large at Inc. magazine. He has also written for Esquire, Harper's, Mother Jones, and the Boston Globe, among other publications, and he's the coauthor, with Jack Stack, of The Great Game of Business and A Stake in the Outcome. His new book is Small Giants: Companies That Choose to be Great Instead of Big. He lives in Cambridge, Massachusetts.
tompeters.com asks ...
What brought you to this project, writing Small Giants?
BB: It started with an article that I wrote for Inc. about a company called Zingerman's in Ann Arbor, Michigan. I'd heard about them for awhile, and I was intrigued by them. So I spent some time there and came away with a story.
Zingerman's was started in 1982 by two guys. One had been a Russian history major at the University of Michigan. The other was a guy who was in the restaurant business. They decided that what Ann Arbor needed and didn't have was a world-class delicatessen. They wanted to start a delicatessen that was going to be absolutely the best thing that anybody had ever seen. The sandwiches were going to be so great that the juice would roll down your arms. If you ever had another sandwich someplace else, even if it was very good, they wanted you to say, "Well, it's a great sandwich, but it's not a Zingerman's."
Remarkably enough, over the next ten years, they succeeded. Zingerman's Deli became one of the top two or three delis in the United States, if not in the world.
How did they become the top in the United States? How were they ranked?
BB: Based on reputation. They'd been written up in Gourmet, Bon Appétit, the New York Times, and Esquire. In all those places, people raved about this delicatessen. Meanwhile, word was getting around. They had fans all over the country. They realized at that point that they had to have a plan about where they were going to go next, because after the first ten years, they'd accomplished everything that they'd set out to do.
They could have franchised. There were lots of people who wanted to set up Zingerman's Delis in other college towns around the country. But they decided that they didn't want to do that. Basically, Ari Weinzweig, who was one of the two partners, said that he was not interested. He had started this because he wanted to do something that was great and unique. As soon as you start replicating something, it's certainly not unique. In many cases, it's not even very good, let alone great.
So even though they had the opportunity to go national, they decided they weren't going to do that. Instead, they came up with a plan to start other food-related businesses in the Ann Arbor area that would be great and unique in their own right, and that would compliment each other.
Their goal in 1994 was to start ten to twelve of these over the next 15 years. In fact, right now, there are eight of them. They have a bakery, a creamery that makes cheese and gelato, a coffee roastery, a mail order business, a catering business, a restaurant, and a training company, in addition to the deli.
These are all located in Ann Arbor?
BB: Yes, and they're all exceptionally fine businesses. They have a very, very close connection to the Ann Arbor community. They support numerous organizations in Ann Arbor and in Washtenaw County where they're located. They're the only case that I'm aware of where a for-profit business has started a major non-profit. It's called Food Gatherers, and it collects food from restaurants in the area and distributes it to homeless shelters and the like.
They went with the plan of setting up other businesses in the area because they wanted to deepen their ties to the community. They also wanted to be able to offer opportunities to their employees to become partners in these businesses. They wanted a plan that would allow them to do what they had set out to do in the beginning but on a larger scale.
I was intrigued by the decision that they had made. They had had the option to grow, franchise, go national, and get much bigger faster. Instead, they'd come up with this other plan. I wondered whether or not there were other companies out there that had faced a similar choice and made a similar decision.
When I started out, I had no idea how many I would find, where they would be, in which industries, or what they might have in common with one another. All I knew was that I wanted to find companies that had had the opportunity to get much bigger, much faster, but had chosen not to do that because they had other goals that they considered more important.
That was the genesis of the book. As it turned out, I found that there were a great many more of these companies than I had ever imagined. I quickly realized that I had to establish some criteria. First, I looked for companies that had actually faced a choice and made a decision. There are a lot of great small companies out there that haven't had the opportunity to get much bigger much faster. I wanted companies that had had the opportunity, but had made a choice.
I also wanted companies that were known for being the best at what they did in their industries. In other words, the people who knew them best, their competitors and other people in the industry, regarded them as being absolutely the cream of the crop.
Third, I wanted companies that had been singled out by third parties for excellence in some area. I wanted to find companies that had already been recognized in some way. The recognition didn't have to be nationalâ€"it might be in their industries or in their regions or it might have come from an independent agency of some sort. But I wanted companies whose contributions had been recognized.
Finally, I realized that they all had to be private and closely-held companies. You have to be private and closely held if you want to be able to decide not to make maximizing the return on investment your primary goal. If you have outside investors, you don't have that luxury. You have both a legal and a moral responsibility to give people who have invested in you what you've promised them, which is a good return on their investment. That inevitably becomes the focus of what you're doing.
It's not that these companies didn't want to be successful or didn't want to make money. They did. In fact, all of them have been consistently profitable. Some of them have been insanely profitable. But that was a by-product of doing things. It was not the primary goal that any of these companies had. They didn't want it to be the primary goal. So how do you avoid being driven by that need to maximize the return on investment? You simply don't take other people's money. That was the other criterion that I used in looking for these companies.
Why didn't these people go the "take the money" route and go for an IPO or whatever?
BB: That was the question I wanted to ask. I wanted to know why they had made that decision, and I wanted to see what they had in common. I had no idea what I would find. When I began, I spread my net as widely as possible. I talked to everybody I knew and asked for recommendations, searched the Web, looked through magazines and newspapers, networked.
As I said earlier, there were more of these companies than I had ever imagined. I got a huge number of suggestions from people. I did not wind up using all of them. I realized early on that there were too many companies that actually fit my criteria than I could possibly write about in one book. That gave me the luxury to choose the ones that I felt were the most interesting.
When you make the choice not to have outside investors and not to grow your company as fast as you possibly can, you get two things back in return. You get control and you get time.
Control plus time equals the opportunity for freedom, the opportunity to do certain things with your company that you wouldn't be able to do otherwise. I wanted to focus on those companies that had made the most creative use of that opportunity.
I wound up selecting 14 companies. Some of them were fairly well known. One of them, for example, is the Union Square Hospitality Group in New York, founded by the renowned restaurateur Danny Meyer. It has a number of restaurants, including the number one and the number two most popular restaurants in the entire city of New York, Union Square Café and Gramercy Tavern.
I haven't been to either one of those places! What's wrong with me?
BB: According to Zagat, these two restaurants have been number one and two most popular for the last six years running. The only thing that changes is that they sometimes switch places in the rankings. Danny's other restaurants are high in the rankings as well.
That's a pretty amazing track record given the competition in New York.
BB: Absolutely. The other thing that's interesting is that neither one of them is number one in terms of dÃ©cor, in terms of ambience, even in terms of food. This raises the question as to why exactly they are the number one and two most popular restaurants in the city.
The reason was hospitality. Danny Meyer is someone who gets joy from making people happy. He has set up restaurants with the sole purpose of making people happy. He says he doesn't call what he does customer service. He says, "Customer service is a bunch of technical skills that you can teach people. That's the most basic thing that you have to do. But what I'm striving for here is something much more, which I call enlightened hospitality. That means that the people who come to my restaurants will feel like they are guests, that they're guests of mine. We treat them as guests."
He feels that enlightened hospitality comes from a whole different approach, a variety of different things that you do in the company. It has to do with the kind of atmosphere that you create for the people who work there. It has to do with the way you relate to the customers. It has to do with your relationship with the community where you do business. It has to do with your relationship with your suppliers. And lastly, it has to do with profitability.
He says that for him to be interested in running a business, it has to have soul, and the soul he feels comes from those five elements. That's what he builds each of his restaurants around, what he's built the entire company around. This is what accounts for its truly extraordinary success.
Once these restaurants became successful, he was besieged by real estate developers from around the country who wanted him to start restaurants in places like Las Vegas or Los Angeles or Chicago. He said that he didn't want to do it. He turned them down because he felt that if he were to pursue those opportunities, he would lose what it is that he loves about his company and his restaurants.
I get the sense that if I go to one of these places, I'll feel as if I've been there before, that I've been their guest before, and that they're happy to see me back.
BB: That's exactly right. Another example of a well-known Small Giant is Anchor Brewing. It really started the whole microbrewing revolution. There weren't microbrews when Fritz Maytag took over Anchor Brewing.
I remember being in bars where that was the exotic beer. We could get this Anchor Steam and we were always wondering, "What is this?"
BB: That's right. I'd be willing to bet that by the time you were drinking Anchor Steam, it was after Fritz had come in and totally changed the business. He basically knew nothing about beer when he got into it. But he quickly became a leading expert in beer.
Before he came, Anchor Steam had never been available in bottles. It was in kegs that would go to a limited number of restaurants. The reason they couldn't sell more of it was that the beer went bad. The reason the beer went bad was that they were not making it properly.
I always knew that about that beer!
BB: So Fritz brought in new equipment. It turns out that if you're really going to make a good beer, you have to have incredibly clean equipment and surroundings, because otherwise you'll get wild yeast in the beer that will screw everything up. So he completely redid all that. Then he got the finest ingredients for the beer.
He reinvented Anchor Steam Beer. It was a huge success. He followed that up with some others. They were also huge successes. They were such big successes that he had a real problem. He could not meet the demand for them.
In the place where he'd started, the capacity was so maxed out that he had to ration the amount of beer he would sell to people. He remembers it as a nightmare. Eventually he was able to move to a larger place and start making enough beer so that he could meet the demand. He swore that he would never allow himself to be in that situation again.
But the demand continued to rise throughout the 1980s. By the late '80s, early '90s, it became clear to him that he could very well face another capacity crisis. Thinking he had to avoid this, he started to investigate where and how to raise the money to finance another expansion. The best way he found was to do what is called a direct public offering. Basically, he'd go public, but it wouldn't be done in the typical way.
He had gone quite far toward doing the offering, but then he had second thought. He talked with his key people. The more they talked, the more they realized that they didn't want to grow like that. They did not want to become a big company. They felt that the quality of the beer would inevitably suffer because they would be forced to make compromises that they didn't want to make. They felt that the whole atmosphere of the place would change, that their relationship to their customers and suppliers would change, and that this wasn't what they wanted to do.
So he didn't do it. Fortunately he didn't have a capacity crisis. The reason he didn't have a capacity crisis was actually that he'd started this microbrewing revolution.
So all the other microbreweries took up the slack.
BB: Exactly. In fact, he wound up helping a lot of them get started. They would come to him and say, "We're doing this. How do we do this?" and he'd advise them, because he wanted somebody else to take up the slack.
I was going to ask you about the commonalities among these different companies. It's interesting you mention Fritz Maytag's teaching. It seems a number of these heads of these companies are interested in teaching. It's as if they don't really want to become CEOs, but they're so involved in what they're doing that they wind up there. Like with Zingerman's, they're just so involved in food, and now they've been able to manifest their interest in all these different aspects of food. I imagine they're baking their own bread at their bakery. They've succeeded due to their love and earnestness and wanting to share their love of whatever they're doing with other people.
BB: It's interesting the point that you make about teaching people who are competitors or possible competitors of theirs. That's something many of them have in common. Zingerman's runs a whole training program that mainly attracts people in the specialty foods business. They basically try to give away all their secrets to success.
If you think about it, all that does is raise the bar for the quality of food in their area.
So everyone benefits. This brings me to another point, the connection to the community. They all talk about community when you interview them. That's critical to their idea of success, being a very positive, giving member of their community.
BB: That's absolutely right. You asked what the common characteristics were. There was something about them all that you could sense as soon as you spent time around them. It was in the way that people acted, the way they interacted with strangers, the way they interacted with each other, the way they interacted with their customers.
My friend Jack Stack says, "You can always tell a company that has trouble when you look at the bulletin boards and all they contain are government notices and regulations."
Exactly. If you go to someone's home and there's nothing on the refrigerator, you wonder what's wrong.
BB: Yes. There's just a lot of life to these places. It is very hard to define exactly what it is, the kind of magnetism that these companies seem to have. I began to think of it as the corporate equivalent of charisma. When a leader has charisma, people want to follow him or her. They're just drawn to him or her.
When a company has charisma, people want to be associated with it. They want to buy from it. They want to sell to it. They want to work for it. That's what these companies had, that kind of corporate charisma. It was actually Gary Erickson at Clif Bar, which is another company in the book, who named the quality for me. It came out of a story, where somebody had talked to him about other companies and how they'd lost their mojo. It made him think, "Wait a minute—what is this mojo? It's obviously something really important." I thought, "Okay, that's it. These companies have mojo." My book is about where it comes from.
That's your keystone phrase throughout the book, right?
BB: Right. I wanted to know what all these companies do that produces this mojo. I came up with four or five things that I thought were key. Number one was their relationship to their communities; these are companies that are deeply rooted in the communities where they do business.
It's not just that they give a lot back to the communities, which they do. It's also that the communities mold them. They become reflections of the communities. It's almost impossible to imagine any of these companies being anywhere else. CitiStorage in Brooklyn is a quintessential Brooklyn company, sort of "fuhgeddaboudit," but at the same time, very warm, friendly. Anchor Brewing is a San Francisco institution. People come to visit San Francisco. They go to Fisherman's Wharf and they go to Anchor Brewing. Righteous Babe Records is Ani DiFranco's company. Ani DiFranco is a singer/songwriter who was in the same generation as Alanis Morissette or Sarah McLachlan, and was being heavily courted by all the major record labels. She decided that she didn't want to be part of a big corporation. She wanted to be in control. So she started her own record company called Righteous Babe Records. It has grown and prospered, and it has had a huge impact on the city of Buffalo where she's located.
I grew up on the other end of Lake Ontario in the middle of nowhere. I thought that the story about her business and the impact on Buffalo was inspiring.
BB: It really is. Another aspect of this mojo is the fact that all these companies have the drive to be the best at what they do. They hold themselves up to such exacting quality standards. It's a source of pride for everybody who works at these companies, that they know what they're doing and why it's good.
That's something that has to come directly from the founder or the CEO, right? The person who started this thing has to have those exacting standards and everyone picks up on it.
BB: Exactly. They also had in common these very intimate workplaces. I tried to figure out, how big is too big? At what point do you lose the intimacy? The conclusion I came to was that you lose it at the point at which whoever is in charge, the owner, the CEO, the founder, is no longer able to know the names of all the people who work there. Once you get beyond that point, something changes in the company. I'm not saying there's anything wrong with bigger companies. There are a lot of great big companies out there as well. But they're different.
I remember reading other studies where companies that were much bigger thought they had to create pods. The maximum number of people that we as individuals can remember is about 150. Is it true that there is a limiting number?
BB: I've heard that too, although I've heard different numbers. For example, with some companies, if a factory gets up to 300 people, they will immediately spin off another factory. So I think it varies. What I found was that it also varies, in the case of the small giants, according to the individual.
Fritz Maytag says for him, the size is 40 or 50 people. One of the others, Bill Butler said that for him, it's 120-125 people. The largest company in the book, O.C. Tanner, is an employee recognition company. They were started by a remarkable guy named Obert Tanner. People told me stories about when the company had up to 1,000-1,200 people, he would walk around the shop floor and talk to people. He knew everybody's name. He knew their families. He would sit down and talk to people. That was, to me, the outside limit. It was possible because of an extraordinary individual who had a tremendous desire to have this relationship with the employees.
That clearly took some extra work to remember everyone. That doesn't just happen.
BB: I got the impression that he regarded that as his main job.
Another thing they all have in common is a very unique, personal relationship with their customers. It's based on direct, one-on-one interactions with the customers. It's going out of their way to make the customers feel that they're not just customers; they're members of a community. The result is a feeling of community between the customers, the suppliers, and the company itself.
A lot of these companies had been able to experiment with some pretty extraordinary ways of managing. Reell Precision Manufacturing is the company that pioneered the constant torque hinge. If you have a laptop computer and you open it, the screen doesn't fall right down again because of a special type of hinge called a constant torque hinge.
Now I know who I can thank every time I open my laptop.
BB: They were probably the most democratically run company that I had ever seen. At one point they had three CEOs. They would only make a major decision about the company if they were in consensus. Now, this sounds like a recipe for catastrophe. But amazingly enough, it worked. They actually wound up making good decisions.
Hammerhead Productions, which is a special effects company, invented an accordion structure with a core group of 14 people. When they take on a project, they expand it to 60 people and when the project is over, they contract back to 14. They're able to do this because of particular circumstances in their industry. But what's interesting is the fact that they take advantage of those circumstances in order to produce a particular type of company. They produced the kind of company that they wanted to work in.
In the end, I decided that the mojo comes, first and foremost, from the founder, the owner. It comes from what you were saying earlier about the love and the passion that they have for whatever it is that their company does. These are the opposite of professional managers.
Professional managers are not supposed to fall in love with the business. They're supposed to be objective. And that's fine. Some businesses really need that. But the owners of the companies I wrote about are the opposite of that. They've totally fallen in love with everything. They're in love with the business. They're passionate about the business. They're in love with their customers and with the community. It's the passion that these people bring to everything that is ultimately the source of the mojo.
A lot of these companies seem to be very open with their employees. I had the sense that at the early stages when big decisions were being made, all of the employees had a voice, which helped to create this sense of community within the companies.
BB: If you're talking about open-book management, that's true with some of the companies. Some of the companies were not, in fact, open-book, although they all had very warm cultures. Some were not as inclusive in their management style as others, but they all achieved an extraordinary level of intimacy in the workplace.
I wanted to comment on the structure of the book. Usually, with a book like yours, it's about 14 companies, there are 14 chapters, and each chapter is about a company. Yet you cut it up according to, more or less, those five areas you've spoken about. You discuss two or three or maybe even four companies in a chapter. It helped connect the common themes between the companies and drew out their similarities. I thought it made for a much better read.
BB: I'm very glad to hear that. That is a key point for people to understand. When I say that there are 14 companies, people assume that they're going to read profiles of 14 companies. But my book is trying to look at the phenomenon as a whole. So it is structured around the different aspects of the phenomenon with examples of how each of these play out in the companies that I've chosen. That's the expectation I would like people to have when reading the book rather than thinking they're going to get profiles of 14 companies.
I think you did a great job of that.
BB: Thank you very much. I'm glad you liked it.
Email: BoBurlingham (at) - aol.com