September 22, 2011| 2

Essay: Is Growth a Given?

Recently, while traveling in Montreal, my wife and I became engaged in conversation with a small-business owner about the differences between the US and Canadian economics. He told us that Montreal was a hot-bed of entrepreneurism. He claimed that this was due to high cultural value being placed on innovation and individualism and also because entrepreneurs knew they had a social safety net that allowed them to take risks. Politics notwithstanding, over the last 10 to 15 years, a new batch of companies has breathed fresh life into the Quebec economy, many of them becoming leaders in their fields — in industries as diverse as transportation, gaming, energy and manufacturing. It was what he said next that caught my attention though.

Our Canadian entrepreneur said that although some of these businesses are at the top of their game, many of them choose not to grow bigger. “Why should they?” he said, “They are great at what they do, they don’t answer to outside investors and they have happy employees. As long as there is a market for their goods and services, why should they get bigger?” As an example, he discussed a custom bike manufacturer that has consistently refused to go beyond its current staffing of around 500 employees. “The larger they get, the more they risk damaging the quality of what they do. As a small business, they can continue to make high-end, personalized bikes.”

I’ve been thinking about this example ever since. It seems that many today assume that growth is a given — that a growing bottom line, a larger staff or an ever-increasing GDP is the natural state of things and a sign of economic health. When we follow the business news or check stock prices on our phone, we often get excited about news of an acquisition or merger or giddy over better than expected earnings, assuming that these reports demonstrate a healthy economy or business success.

Growth in Nature: What It Says about the Natural Limits of Business

Although small, Meerkats function well in their environment

But is this true? In the natural world, most plants and animals grow to a certain size and then cease getting larger. They may get stronger, smarter or wiser, but their physical size has a limit.  If they continue to get bigger beyond their natural parameters, it is seen as a sign of disease or imbalance (e.g. an invasive plant species or a cancer). Are businesses fundamentally different?

There was a time when small businesses were the norm and the natural limits placed on human endeavor by geography, communications, weather and other factors would not allow most economic pursuits to grow to massive scale. However, the Industrial Revolution changed all of that and 21st-century globalization has pushed the envelope even further.

The Impending Swing of the Pendulum

Perhaps, after 150 years of pushing size, growth and economies of scale, the pendulum is beginning to swing back the other way. In April 2010, the PBS News Hour ran a report called Manufacturer Goes Small in Era of Too Big to Fail, in which they profiled small and mid-sized businesses that have intentionally remained small in order to stay nimble and adapt to a changing business environment. The implicit suggestion was that such businesses were an antidote to the misguided or toxic idea of a business “too big to fail.”

Earlier than that, in 2005, Bo Burlingham published the seminal book Small Giants, highlighting entrepreneurs who kept their business modest in size for a variety of reasons — to retain creative control, to focus on quality (à la the aforementioned bike manufacturer) or to create great workplaces. The book was subtitled Companies That Choose to Be Great Instead of Big.

Roll back further, to 1973, and you’ll see similar ideas promoted in the book Small is Beautiful by British economist E.F. Schumacher. In one of his essays in this book, Schumacher describes a world in which large businesses are divided into many small units, so as to ensure quality control, appropriate flexibility to changing projects and allow adaptation to external economic pressures. Rather than assuming they needed to grow bigger, Schumacher recommended that businesses form partnerships and create articulated business units rather than expanding for growth’s sake. Such a strategy would allow each business unit to stay lean and focus on its core competencies.

Growth as a Measuring Tool

Despite these examples, this counter-movement toward small business often seems overlooked in the larger narrative of business today. Why? Perhaps it is because we want or need a way to measure success and failure. Growth — of the bottom line, of the number of retail locations, of the size of the staff or even of market capitalization — is an easy thing to measure, see, and understand. It is harder to measure intangibles such as quality, customer service, employee satisfaction or company culture.

But if the old business axiom that “you get what you measure for” is true, is it any wonder that our economy has suffered a series of boom and bust cycles, followed by the bail-out of companies dubbed “too big to fail?” Growth has been artificially pumped up as investors and managers chased the Holy Grail of bigger is better. But is it? Are bigger businesses truly more stable, more creative, and more prosperous? Do they add more value to the economy than a small business? How do we measure success? Will we not need new metrics if we wish to develop an economy that creates businesses that contribute to true human flourishing — at any size?

Size is Relative

Let me pause for a moment to say that none of this is meant to suggest that there is no room for large businesses or corporate entities. There are some things that larger businesses can do better than small businesses. Projects of high complexity and endeavors that can benefit from economies of scale are good candidates to be larger in size. As one of my colleagues, a former Boeing employee, is quick to point out, “No one wants a Mom and Pop shop building their next airplane.” I suspect he is right. In the meanwhile, small businesses are generally better at customized products and “high touch” customer service (among other things).

How does one determine the right size for a business? Factors to be weighed might include the product or service the business is delivering, the nature of the market and the organizational culture the entrepreneur is trying to establish. Every business owner should at least consider how big they need to be to do what they do effectively, efficiently and with excellence. The intersection that best maximizes these qualities may help determine the “right size” for the business.[1] Growth beyond the minimum size should be given careful consideration.

Every business probably has a right size — a size at which it will retain maximum flexibility and adaptive attributes while at the same time delivering the highest quality product or service.  Some will be smaller and some will be larger. But how does a CEO know when he or she has reached that point? Let’s just hope that when they get there will they brave enough to say, “We’re big enough. Now let’s get better.

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Mark Oppenlander is married to Beth, who is a 2003 MBA from SPU's School of Business and Economics.  Mark is the Director for the Center for Applied Learning at Seattle Pacific University.

 


[1] This reflects some of the current thinking in both stakeholder theory and social entrepreneurship.  Measuring multiple bottom lines or balancing various needs and desires is harder work than simply measuring growth.  But it is important work.

 

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  1. Perhaps, after 150 years of pushing size, growth and economies of scale, the pendulum is beginning to swing back the other way.

  2. Sometimes companies try to grow too fast and take on too many investors. The entrepreneurial spirit so evident when the company first starts begins to fade as more investors – and their agendas – are taken in. Eventually the entrepreneur’s vision of the company disappears altogether.


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