By Philippe MEDA in Newsletter — 01 Jun 2023

🟢 Small is Powerful

Ten years ago, I wrote an article that would end up being key to how Stéphanie and I would define our business. The article's title was Small is Beautiful, a Vision of Excellence with Fewer than 10 Employees. I was arguing at the time that micro-enterprises might be the most effective at delivering the most cutting-edge value to the market. Beyond that, it was also an open-ended discussion on how the common business acumen was pushing for growth, whereas I didn't believe "growth" was a mathematically correct answer to "how should a business perform?"

It's 2023, and an update is long due.

Here it is.

The long tail of the economy

Common sense leads us to believe that when creating a company, the core barrier to entry is the initial lack of size and resources, which inherently puts us at a disadvantage with the incumbent, larger competitors. You should be wary of common sense. These difficulties? They can be switched on as powerful drivers of differentiation and utter effectiveness. But there's a price to pay for sure, which is investing in the fact that growth might not be an answer and that there's a whole paradigm shift for companies that, instead of chasing scale, want to keep it small. Imagine the start- without the -up, if you will.

I'll admit that envisioning building excellence and becoming a giant in your own right while being a 'boutique' or a micro-company is vastly counter-intuitive. Business literature doesn't help in that regard. Who cares about your company if you're not listed on a stock market or have a properly multi-layered organigram? Are you even a company when you don't even have ten employees? Banks, management schools, public or private investors, employment agencies... In the business ecosystem, everyone's salary depends on not caring or understanding that small can be powerful. And we'd rather discuss how to increase market share, manage thousands of people and create trillion-dollar valuations out of nothing.

And that's fair.

But despite this lack of consideration, in the EU 93% of companies have fewer than ten employees (Eurostat, 2020), and these micro-enterprises comprise 20% of the global European GDP and 29% of the total employment. So, at the very least, let's face that very small businesses have weight. They are quite the long tail of the economy and, maybe most importantly, our society.

And it's way more than that; very small businesses also have an extraordinary superpower they can activate if they choose to do so: total freedom.

Side note: Most startups are in this category, too, even though they mostly do not contribute directly to the economy, and most never will – or when they do, they end up contributing to the U.S. GDP.

Everyone fears a killer rabbit

As I was inferring moments ago, when dealing with business management, our thinking seems to be always top-down. When banks and investors, trying to gauge the potential of a new company, ask what the total addressable market they aim for is, they consider that proper business strategy commands that you reach for as much as you can. Obviously, your market valuation will be deeply correlated to this metric.

But what if, instead of asking how fast and how much could you grow, you'd ask how I can be among the best-in-class business in my category? What if I only focus on excellence instead of building value by being the largest? And no doubt you can achieve large size as a business and still dominate the market through product leadership (queue in your Tesla or Apple references), but this is not the automatic answer anymore.

Quite the contrary.

If you go back to the aforementioned business literature and teachings, you will soon realize that we discuss large businesses so much because they are the ones that are so vastly problematic to manage, operate and strategize for. The larger you grow, the exponentially least focused you will be. I mean, you can have some problems getting a five-person business to focus on, but they (mostly) only have to decide if and when they want to. Whereas a 5,000-person multinational cannot just flick the focus switch overnight. It will be forever an inherently chaotic organism requiring entire teams and millions spent monthly to just operate in a modestly cohesive way.

Said differently, small or micro-businesses have zero barriers to entry to focus on a niche, develop a clear and aggressive strategy, and offer a tremendously strong value proposition within that niche. Focus leads to excellence, and a small headcount always favors focus.

This is the very essence of "small is powerful."

In the story of David vs. Goliath? Despite what the biblical metaphor wanted to convey, Goliath couldn't win...

David was part of a specific type of military section of the time. Heavily trained and focused front-runners, attacking at range at the start of any engagement to powerfully whittle down opposing forces. David wasn’t lucky with his proverbial sling at escaping a sure death at the hands of Goliath. Goliath hadn’t a chance to begin with. - David vs. Goliath, by Malcolm Gladwell

This is the starting point to leverage a strategically small size to outcompete big, sluggish operators who try everything to protect their famous market share. And even, in some cases... make them fear you!

From David, you become Monthy Python's killer rabbit:

Look! There's a rabbit! Look, he's just a harmless little bunny, isn't he?
That's no ordinary rabbit! That's the most foul, cruel, and bad-tempered rodent you ever set eyes on!

Owning a niche...

The first real step in being able to go against the social business norm of growth is to keep it very pragmatic. It starts with the money. If you keep it small, shouldn't you fear not having enough resources or simply being too fragile to survive for long? When you stay small, the odds of generating as much cash flow as a company ten or a hundred times your size are slim.

Who cares if you can have the same EBIDTA or more? Good question. This is you starting to think as a killer rabbit. How do you position yourself to get very high margins from a very focused market? By keeping a small footprint, you can aggressively target the thinnest slice of the market that will pay you off the most.

In this game, crises are a boon for you. In any given market, large companies can only profit from the status quo. Reinventing themselves, rebranding who they are, hiring new talents to adapt to technological changes... all this translates into heavy investments and costs of operation. They end up trying to be as stable as possible and finding customers that will allow them to feed their staff regularly—regularly being the operative word. But for a micro-enterprise, a crisis is when you can flex your muscles, be ultra-reactive, and redefine best-in-class offers.

Worst-case scenario, you still can fail quickly, learn fast, and restart stronger in the right direction. While a large incumbent will drag itself through market studies, you can go in, rapidly prototype, and operate on an accelerated life cycle.

All this might sound very idealistic, but there is a price to pay. The price? Being radically competent at what you do. You cannot avoid this if you go down the "being small" road. Small and average will not cut it (or not for very long). You will invest months and years to create and refine your added value—every hour.

For decades, one of the best restaurants in the world was a family-won sushi bar in downtown Tokyo.

If you're a relatively competent engineering small team with good skills in robotics, do you choose to work as one of the thousands of OEMs in the automotive sector, or can you rapidly develop extra skills that will make you one of the rare teams developing ultra-specialized robots squeezing in high-radiation crawl spaces and tubing? Do you want to run the millionth 'global communication agency' billing by the hour, or do you have a shot within a few years at becoming one of the rare commando teams saving NASDAQ's CEOs from major communication crisis troubles?

I'm not saying it will be easy. I'm saying there's always a way up that doesn't imply growth but specialization in a niche market.

Everyone is not your customer

Another worry I often hear for small but powerful companies is certainly the lack of visibility. How do you exist if you're a team of six doing something amazing somewhere in the world? How do you get enough traffic on your website to get the 0.03% of the clicks that are business opportunities? I genuinely think that, again, it's the wrong question to ask because you're (again) using a large company's playbook.

If you are small enough, you can become hyper-focused on your communication, become radically clear about your niche, and not even try to address "the market." Your only end-game are the few dozens customers that need to know about you. Hell, you can probably even mail them directly or, at the very least, produce the type of content that they will only care about. Trust me. I know that writing extensively about innovation portfolio strategies will not land me a Nike sponsorship. That being said, 60% of our tiny newsletter are European VPs and Directors in industrial groups struggling with innovation 🥰

In some cases, even measured radicality is extremely efficient for small operations. In which case Seth Godin's The Purple Cow is a remarkable how-to:

If you’re remarkable, it’s likely that some people won’t like you. That’s part of the definition of remarkable. Nobody gets unanimous praise–ever. The best the timid can hope for is to be unnoticed. Criticism comes to those who stand out.

(Another one lost in time, yet still powerfully efficient, is Guerilla Marketing, written... in 1984 by Jay Conrad Levinson.)

If in doubt, ask yourself what your local Chamber of Commerce would recommend and do the opposite.

But above all, consistency is key in a messaging vertically designed for your core audience and being utterly trustworthy about how you deliver. This will open up what every marketer dreams of—the fabled and elusive word of mouth. Being internally recommended by your first customers to the next ones with high praise is not something you can engineer. It's not a construct you can learn from Youtube or the Harvard Business Review. It's just something that will happen by itself.

"I'm CEO, Bitch"

Marck Zuckerberg's infamous business card from the early days of Facebook does say something about what every business owner strives for—independence if not freedom.

The magic at play here is that the smaller you are, the shorter the circuit between making a decision and taking action is. Freed from standard procedures, you are all CEOs capable of making immediate decisions on what's best to do without having to rally your team around a risky decision or asking the marketing or logistics department if they can keep up.

This of course, implies a few things...

First, (unless you're strictly alone), your small team needs to be capable of trusting each other and having crystal clear roles. Like on a sailing boat racing through the Atlantic, everyone has a clear role and knows what to do and when. This is seriously not as easy as it seems and is, in my experience, certainly the major obstacle to overcome in this configuration.

Secondly, it's about surgically removing as much as the non-value-added tasks you'll have. What can you pay someone else to do for you that will give you more bandwidth to focus on your excellence? If you're doing accounting yourself, you've lost focus. Symmetrically, if you don't own your communication and marketing, asking an intern or a freelancer to write blog posts for you, you're also lost.

Lastly, "everyone being the CEO" is not so much about power. Everyone in your six-person company is CEO, after all. No, it's more about identity, embodying your values, and what your business is all about.

Excellence is always a personal matter.

How expensive can you be?

The very last part of this discussion should be about money. I could go about it in so many ways, and at the beginning of this article, I inferred that you could have as much net income as a micro-enterprise as a larger business with X times your turnover. How does it work? Do you have to be super-expensive as an elite business owning such a profitable niche?

If you can? Sure.

If not, I think it would be quite honest to simply quote me from ten years ago about pricing as a small consulting business where everyone is seemingly a potential competitor ( I mean, innovation consulting? Who doesn't do that?):

In principle, a larger and more well-known competitor will naturally command a higher market price. They might not be strictly the best but they always be more reassuring. The question is whether you are capable of outperforming them by reducing the client's bill to account for the fact that you won't have six juniors working on the project for three months but rather deliver the service in less than three weeks with one or two senior associates. Doing so, multiplying the proverbial day rate by two or three doesn't matter anymore.

Another way to put it, that was a complete and sudden epiphany for me was in 2013 when after a keynote (that I forgot everything about), Oliver Reichenstein from iA (a rockstar design agency), when asked about the cost of his agency's services, replied: