In Praise of Small: Why Small (Business) Is Beautiful

By Mike Brcic,

Chief Explorer, Wayfinders

This is post 3 of my new [ALIGNED] series, with tips, tools and wisdom to help you build an Aligned Company: one that is resilient, self-managing, and purpose-driven.

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In Praise of Small: Why Small Businesses Are Surviving (And Thriving)

My previous business was all about biggering and biggering*.

I raised money (3x); I took on lots of debt; I hired staff; I expanded all over the world. I got on the hamster wheel of growth and I kept running and running, until it almost sank me (I’ll write more about this, and how I got off that wheel, in future posts).

When I started Wayfinders, I resolved not to repeat the same mistakes. I’ve purposely kept the company small, running two events/year since 2017. Every one of those events has sold out well in advance and received sky-high ratings. I’ve certainly had the opportunity to run more and/or bigger events - I’ve resisted those opportunities and will continue to do so forever.

I’ve loved running a small company.

I have 50-60 customers per year. I know them all and can call many of them up at any time to ask for help with some of my most pressing problems. They are among my closest friends.

The company is highly profitable, with great margins and miniscule overhead. I get sky-high customer satisfaction ratings, and I deliver extremely high value. I have exactly two employees: me and my wife, and I pay myself more than when I ran a company doing 50+ events/year.

All of this would be at risk had I decided I wanted to scale the business. And believe me, I’ve had lots of opportunities thrown at me, and lots of advice on how I could/should scale.

The answer has always been a flat no.

Staying small has also allowed my company to weather the covid-19 disruption fairly smoothly.

Because I know most of my customers well, when it became apparent that I wouldn’t be able to run my two 2020 events in the Amazon and Greenland, all of my customers were willing to postpone to 2021.

The level of trust my customers have in me is the reason comments like this were common: “I’m disappointed we won’t be able to go this year, but I know that next year you’ll have something even more magical in store.”

That would not have been possible in a larger company, where their customers don’t have the same connection to the founder or to its staff, nor the same loyalty.

*The Lorax, Dr. Seuss

The Perils of Big

I know a lot of entrepreneurs. And a lot of very successful ones, who run large companies. Since covid-19 hit, most of them have been hammered by the shutdowns.

Some have laid off over 90% of their staff and have been forced to sell off assets in order to cover large overhead bills such as rent.

Some are subsisting on government funding but facing imminent disaster.

I don’t write this to disparage large companies - I’m in awe much of the time at what some of my friends have built - but to point out that being big often comes at a cost.

For many of my friends, that bigness came with a cost even before covid-19: many of them confided in me over the years that running a large company with dozens or hundreds of staff was really stressful, and the strain of all that responsibility weighed on them every day (managing people is my least favourite entrepreneurial activity, which is why I don’t hire staff, other than a few freelancers to help with specific projects). They longed for the early days, when it was just them and a handful of staff, in it together.

Many of my friends who have now pared their companies down to the bare essentials have again confided in me: now that they’ve gotten through the initial stress and gut-wrenching pain of layoffs and restructuring, they’re actually enjoying their companies a lot more, and are calmer than they’ve been in years.

Small = resilient

Here are a few reasons why small businesses* are often more resilient during times of disruption:

*I define a small business as a company with 2-12 employees, which is of course very different from the typical government definition, which includes businesses with hundreds of employees.

Lower overhead and fewer sunk costs

This is an obvious one: smaller businesses have fewer staff, lower rents (if any), and lower overhead.

With less overhead to cover, they can suffer bigger hits to their revenue and gross profits.

They often have much lower sunk costs; for instance, a medium-sized manufacturing company (e.g. 100 employees) typically has big plants and assembly lines to pay for, and they have to run at high production in order for the economics to work.

My non-salary overhead for Wayfinders is less than $20/000 per year. Because I’m small, have a tiny customer base, and focus on value creation, my customers generally do my marketing for me via word of mouth and I spend virtually nothing on marketing.

When covid-19 hit and sales slowed down, I didn’t have to comb through my income statement looking for things to cut - my expenses were already super-low and I can run lean for many months to come.

Higher profitability

While it’s not necessarily true that smaller companies as a whole are more profitable than larger ones, profitable small companies can often have really high net profit margins. Some small companies I know have net margins in the 40-50% range, which is almost impossible in a large company with lots of staff and overhead.

With higher margins, small companies can often afford bigger hits to their revenues in times of disruption, without having to make massive cuts and/or scale back.

Closer connections to customers

Small companies invariably have a closer connection to their customers and deeper relationships to more of their client base. When customers can build a connection to the founder or CEO, they will typically feel more loyalty to them than when their connection is to a customer service rep in a call centre.

I’ve already mentioned the close connections I have to my customers; when a company has only a dozen or fewer employees, they tend to have better relationships with their customers, and often their founders and management teams maintain many of those customer relationships, which helps foster loyalty because people feel much more loyal to other people than they do to a brand.

When’s the last time Tim Cook talked to an iPhone customer, or Mark Zuckerberg talked to one of his advertisers?

Here are a few examples of small businesses that have adapted well to the covid-19-induced disruption; many have pivoted and thrived.

I want to close off this article by profiling a few companies whose small size and resilience has served them well throughout the opening weeks of the covid-19 disruption.

• Neole (4 employees): Neole has managed to triple their revenue during COVID-19 by being nimble and ready to adapt to changing needs. When business as usual came to a drastic halt, they realized that their experience in digital facilitation, collaboration technology and expertise in Creative Problem Solving prepared them to provide a very needed service.
• COO Alliance (4 employees): Run by Cameron Herold, COO Alliance has kept their full team in place, and easily. Their February & April events had record attendance, and they have 5 revenue streams - only one slowed down.
• ZipLunch (8 employees): Toronto-based ZipLunch is still keeping the lights on and everyone on board with no government support whatsoever. Since covid-19, they have pivoted to delivering lunch & dinner to residents in condo buildings and have been adding new condo buildings weekly. They’re even paying it forward to their restaurant partners by waiving 100 % of their fees to them throughout the pandemic - the only food delivery company that is doing so.
• Station Cold Brew Coffee (11 employees): When covid-19 shut down offices across Canada (much of Station Cold Brew’s customer base), they were able to pivot quickly to e-commerce and have almost completely rebuilt their revenue base.

SMALL IS BEAUTIFUL

Small doesn’t always beat big, and there’s certainly an advantage in having a big balance sheet, large cash reserves to draw from, and access to huge amounts of capital.

But most of us will never build those large behemoths and will instead spend our lives trying to build companies with a few dozen or few hundred employees.

If you’re fully aligned on that path and very clear about why you’re continuing to scale and grow, and the cost that comes along with that path, that’s great; however, many entrepreneurs just keep scaling just because they feel they should - and there’s often a tremendous cost associated with that, particularly in difficult times such as these.

I’ve discovered more joy, meaning, and profit in running a small business than I ever did when scaling a business with dozens of employees. For me, small is beautiful.

I’ll write more about the relationship between ego and scale in next week’s post Abandon Ego, All Ye Who Enter (publish date: June 02, 2020).

Until then, I’m curious… do you think small is better? Let me know in the comments below.

p.s. if you’re interested in learning more about the business models of small, profitable companies, join me and my friend Antonio Cala on today’s webinar (May 19), Small, Resilient and Profitable: New Models of Entrepreneurship in a Post-Covid World

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