Value and Vision: Why I Prefer Working With Small Businesses

Jiro Ono owner and operator of sushi restaurant Sukiyabashi Jiro in Japan.

Jiro Ono owner and operator of sushi restaurant Sukiyabashi Jiro in Japan.

I have a decent amount of experience dealing with large and small businesses, both as a consumer and small business owner or decision maker in a small company.  It isthrough these experiences that I have developed a preference for dealing with other small companies.  I would define “small” as companies with a local focus and “large” as those with a national reach.

To start, I understand that it makes more sense to go with a larger company for certain products.  A good example of this would be any type of commodity.  The simple reason for this is based on economics.  Commodities, due to the razor thin profit margins invariably have to be produced by large shops.  Economies of scale provide the ability for these companies to operate with the thin profit margins that they do.

This changes when you get into more specialized products and I believe almost all services.  The reason services differ from products is that economies of scale do not come into play.  Services ultimately have to be performed by a person.  Subsequently, the most important consideration when analyzing the quality of a service is the person performing it and secondarily the company.

I have found when dealing with smaller companies it is almost universally easier to get in direct contact with a decision maker.  It is true that many large companies are great at providing a quality product or service to a general market segment.  The problem comes once you need a customization or dispute resolution.

This problem stems from the nature of large businesses.  Large businesses want a standardized level of service through their entire structure.  This means they have to limit the ability for those at the bottom of the company to make decisions.  Those that deal directly with customers have a limited scope of action and are often not trained to look at situations with common sense.  They are trained to follow company policy and check all the right boxes.

This reminds me of when my Step Father tried to refinance his house with a large national bank.  He has consistently made an income at the top percentile of the country, has significant equity in the property, which is located in a stable and appreciating market. He also has a healthy ratio of assets to liabilities. To top all this off he literally has a perfect credit score (850).  The bank made it extremely onerous for him to refinance because he is self employed. It become so bad that he opted for a higher interest rate with a small bank because they processed the refinance and cut out all the unnecessary paperwork required by the large bank.  Why couldn’t the large bank expedite the process?  Because the underwriters were really not underwriters at all but just glorified box checkers.

Another consideration when dealing with large companies is the disparity in resources.  Where this really becomes a situation is during a dispute.  If you have a dispute with a very large company and cannot reach a resolution, you will most likely be turned over to their legal department.  I am a small business owner and I don’t have a legal department on staff.  In most cases I am my legal department.   This doesn’t mean that you can bully a small business, but a small company is more likely going to sit down with you and work out a resolution.  Large companies know that if they send you threatening letters written by their on staff trial attorneys you’re going to acquiesce, regardless of who is right or wrong.  This is a serious consideration, the greatest injustices occur due to a disparity in power.

The best experiences I have had, (i.e. those purchases in which I felt I really received a great value), have more often than not been from smaller companies.  I don’t have solid reasoning for this and I understand it is purely anecdotal but I have a few guesses to why this is the case.  I believe very strongly that the passion and vision of the founder or leader is an important component of a great business that provides great products or services.  The best example of the effect this can have is how Steve Jobs was able to transform Apple upon returning.  I know that Apple is a very large company, that is why this is not a universal rule. Many large companies work because they have infrastructure, systems, relationships and assets.  The person who started the company and defined its values in many cases is no longer alive or involved in the day-to-day operations of large businesses.  Over the years these values and guiding vision gets watered down which is why we get many of these faceless conglomerates driven forward simply by past inertia.

My experience with great small companies is you are still very close to the founding vision and passion.  You, more often than not experience a direct connection with the founder or visionary behind the company (such as Jiro Ono as pictured above).   It is hard to put a finger on what exactly I am describing here, but I think everyone has experienced this at one time or another.  Sometimes it occurs when there is a problem and you feel like the company went above and beyond to solve it.  Sometimes it is those extra details added to the product putting it a step above the competition.  Sometimes it’s a responsiveness, excitement and energy you feel emanating from the people you deal with at the company.  This I believe all stems from great leadership, which has to emanate from a true visionary that is very much involved in all aspects of the business.

I want to emphasize that all companies are just people.  It is easy to view a large company as an entity in itself, but I always remind myself that it is made up of people. Your experience and level of service will be determined by the people you interact with.  Ultimately, a company’s reputation and history are irrelevant.  If the people you directly interact with are sub-par you will have a sub-par experience.  This is particularly important when dealing with service businesses.

It is usually harder to find those truly great small businesses to work with. There is usually limited information out there about them (unless they are consumer facing).  I believe it is worth spending the time finding and vetting the right businesses.  You should particularly spend that time on integral vendors and suppliers that directly affect the quality of your products or services.  Think of the time spent as an investment because in many ways your business is only as strong as the relationships you have built.

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