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The Case For Small Companies

As Anthony McClure hangs up the phone, he's slightly amazed to find himself turning down another VP of International Marketing position with a Fortune 500 company.  This is the second unsolicited offer in the last two months he has decided to refuse.  Why does he reject the money, the power, and the perks that are beating a path to his door?  He's found his mission.  Amadeus, a European training firm just getting a foothold in the United States, has given him the opportunity to teach executives how to reach their highest potential.  As he sees his clients changing their lives and corporate cultures through using his process, he can't imagine a marketing position that would give him more satisfaction.

Gail McDonald and Mina Brown, a former HR VP and CFO respectively, have recently incorporated a consulting firm called Transition Resources.  Their new company combines human resources and financial acumen to help organizations undergoing major changes, such as mergers or acquisitions, turnarounds, exceptional growth,  and IPOs.  Both of these savvy executives have decided to use their expertise in a context where they have greater control over their careers and personal time.

Jim Loffler, who recently joined RSP Manufacturing in California, loves working for a small, fast-growing employer committed to high-quality products and exceptional customer service.  With great enthusiasm he talks about "doing exciting things like inaugurating a plant in Guadalajara where the President of Mexico was in attendance, buying a plastics company and a sheet metal/stamping plant in Scotland, being awarded 'Supplier of the Year'" and achieving recognition from top management for his innovative work.

While these professionals come from a variety of backgrounds, they have all decided to leave big corporations for smaller, more entrepreneurial ones.  All of them enjoy making a greater impact on their companies' colleagues and cultures while charting their own course, even though they must adjust to the decreased prestige and resources inherent in a large organization.  Although these executives' transitions haven't been idyllic, they have no desire to escape to more familiar territory.  They are having too much fun.

People contemplating a move from a large to small company come in contact with a number of myths and truths about entrepreneurial firms.  Most of the myths are perpetuated by stereotypes that are true in some cases, but rarely universal.  Others sound suspiciously like sour grapes.  While the truths aren't new, they have only recently been discovered by professionals smarting from corporate downsizing, mergers or politics.  Below are some familiar statements about small businesses.  Which ones can you believe?

  • Small businesses employ more people than big ones.  Because small companies attract relatively little publicity, their impact on the economy is generally discounted.  In 1995 the National Association of Women Business Owners commissioned a study on women-owned businesses which revealed they employ more people than the Fortune 500 combined.  Taken as a whole, small companies comprise a powerful, dynamic economic community which makes a tremendous impact on both domestic and global growth.

  • Small businesses pay lower salaries and provide fewer benefits than large companies.  This is true in many cases, especially with slow-growing, family-owned operations.  However, there are a number of small businesses that provide equal or greater compensation packages than their larger counterparts.  Many entrepreneurs decide to start their own companies because of the upside potential for income.  While going it alone may be riskier than working for someone else, if they choose the right niche and succeed, they can reap handsome rewards.  Start-up companies funded by venture capital seed money generally pay their employees well because they expect them to produce quick, exceptional results.  Quite often young organizations offer less in cash compensation, but give their workers generous stock options.  As the corporation grows, executes an IPO or finds a buyer, these options can be worth millions.

  • Small businesses offer less security than large ones.  Not anymore.  Those halcyon days of employment for life in large, patriarchal organizations are long gone.  Today, many entrepreneurs start their own companies because they have been downsized or reengineered so many times, they are determined to control of their own destinies.  They trust their abilities and decisions more than those of their former employer.  People who work in smaller companies with good management generally feel more secure about keeping their jobs, because they have a more personal relationship with the owner.  Small business owners will move heaven and earth to make payroll.  Most lay off people only as a last resort.  Stockholder expectations are not an issue for them.

  • Small businesses have fewer opportunities for advancement.  This is often true, particularly in small, family-owned or stagnant companies.  However, fast-growing small businesses must continually add employees and managers to keep pace with the demand for their products and services.  Because associates in these organizations wear many hats simultaneously, on-the-job training is a mandate and continual learning and increasing responsibility are requirements.

  • Outsourcing has increased the business potential of small businesses.  With rampant downsizing and reorganization in large corporations comes the opportunity for small firms to provide services that used to be performed in-house.  How many professionals do you know who have been laid off, then return to their former employers as independent contractors?  Now that organizations are "going back to their core businesses" and eliminating or reducing staff departments, small firms that can execute these functions are in great demand.  Ed Rankin's company, Human Resource Solutions, is one of the 100 fastest growing small businesses in Dallas.  He and his colleagues have built a thriving consulting firm offering a variety of human resource services to both large and small clients who don't have the needed expertise on board.

    Big companies have also become more interested in doing business with smaller ones.  They have found entrepreneurial vendors often provide higher quality service for less money, because their staffs tend to be seasoned experts with low overhead versus newly-minted MBAs with inflated expenses.  Many larger firms and government agencies have internal goals for contracting with minority or women-owned firms.  Along with an increasing trend to outsource, these affirmative action initiatives provide opportunities not previously available to small businesses

  • Small companies are more interested in an employee's ability to produce results than his specific work history or credentials.  Most large corporations rely heavily on education and experience requirements as screening tools in their hiring and succession processes.  They want to put "square pegs into square holes."   Many small company managers tend to be more lateral thinkers when they are filling a position.  While they look for similar work experience, they may be equally impressed with a candidate's enthusiasm and innate skills.  And they are often more willing to hire a career changer or less-educated professional, if they think he can do the job.  As entrepreneurs they trust their own judgment and ability to see possibilities.

  • Small companies often offer the opportunity to make a greater contribution to the organization.  Jim Loffler is particularly impressed by the authority his company has given him to ramp up its tooling department to a more sophisticated level.  As the company adds new plants, he is responsible for ensuring their tool and die design meets quality, cost and efficiency standards as well.  It would have taken many years and a much higher management position for him to have a similar impact on the large employer he just left.

  • Smaller companies are better at finding emerging niches, making quicker decisions and moving ahead than their bigger brethren.  Back when a much smaller EDS had been a subsidiary of GM for a few months, a very frustrated Ross Perot said, "If someone at EDS sees a rattler, he kills it.  If a GM manager comes across one, he puts together a committee to discuss the situation."   Small businesses tend to be more creative, more nimble, and more aggressive in pursuing new opportunities.  They have far fewer layers of management and fewer people likely to chant "if it ain't broke, don't fix it."  Entrepreneurs don't have the luxury or comfort of being king of the jungle.  As a popular motivational plaque says,  "When a gazelle wakes up in the morning, he faces two choices:  He can either run like hell or be eaten."  Small businesses have a lot in common with gazelles.

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