SMALL FIRMS CAN WIN BIG

by, Richard B. Wright, Chairman, Wright Tool

Business executives often dwell on the advantages of large, publicly held companies. What we often neglect to remember is that smaller, privately held businesses have some significant advantages, too.

While studying for my master's degree, I analyzed organizations such as General Motors, IBM, Sears, and The Catholic Church as successful business models. At the time, I believed small businesses should be run as models of their large, public competitors.

Eventually, I realized it was much easier to acquire the expenses of the larger competitor than it was to acquire their incomes. Hence the realization that smaller companies must differ in organization, operation and culture-which ultimately produces important competitive advantages.

For example, the executive of a publicly held company may be tempted to "shoot for the moon" in order to win big on his stock options. If the large gamble is unsuccessful, he simply does not exercise his options and moves on to another company. I, on the other hand, must live with the consequences of my mistakes. And because I will be in the same position for years, I cannot afford a reputation for ignorance or dissembling. A company's position is strengthened when its leader reinforces that he will be around for many years to stand behind his statements and actions.

In many large companies, top managers rotate from position to position every few years. If they perform well, they get promoted - and in many larger companies this means moving to another division or location. Or, if the person is not successful on a short-term basis, then it's on to another company.

In a smaller company, the opportunities for promotion are not as frequent, so people tend to be more experienced at their jobs. When they do get promoted, they are often responsible for training and supervising their replacement. This is a tremendous advantage because it provides a degree of credibility and support that is not easily obtained.

Positions at all levels in smaller businesses tend to be flexible and often can be tailored to the incumbent's aptitudes and knowledge. This means that more of a person's talents can be used - a benefit to the employee and the company. Employees tend to be happier when their abilities are used more effectively. Conversely, if an employee lacks one of the requirements of a position, it is possible to furnish him with an associate who can provide support. Longer job tenure makes this more practical and productive.

Of course, it's just as true in small companies as it is in large ones that some employees do not take advantage of opportunities, and that 10 years of experience on the job consists of one year, repeated 10 times. However, due to competitive pressure, smaller companies are less likely to tolerate a static level of performance. The need to develop employees for promotions provides an incentive to maximize the talents of the people hired.

Naturally, certain presumptions regarding smaller companies do not apply to all privately held businesses. But the exceptions do not contravene the basic pattern. And, in the end, long-term thinking beats short-term thinking.

Article published in Industrial Distribution, December 2001

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About the Author:
Richard B. Wright is chairman of Wright Tool Company, a leading manufacturer of professional-quality sockets and wrenches. Located in Barberton, Ohio, Wright Tool manufactures more than 3,600 tools for the industrial, contractor, and MRO markets.

Mr. Wright holds a degree in Mechanical Engineering from the California Institute of Technology and an MBA degree from the University of Pennsylvania Wharton School. A licensed engineer, Mr. Wright holds several patents in the field of hand tools and electrical instrumentation.