The Small-Company Advantage in a Downturn

Last Updated Apr 13, 2009 8:58 AM EDT

You'd think big companies rather than small have the advantage in waiting out this economic unpleasantness. But Harvard Business Publishing blogger Peter Bregman sees just the opposite. Goliaths are beating Davids at every turn, he says in Why Small Companies Will Win in This Economy.

Bregman's thesis: The Big Boys are shedding employees at a frightful rate. Customers can't figure who they need to speak to resolve a problem. High-touch service has become "Call back when Andy is here." But at small companies, you can get the CEO on the phone. And that's reassuring to customers, says Bregman.

"Small companies with low overhead, reliable owners, a small number of committed employees, personal client relationships, and sustainable business models that drive a reasonable profit are the great opportunity of our time."
See his story on Passlogix, a tiny software development outfit that beat out IBM and CA to win millions of dollars in prepaid commitments from customers.
"Now, how do you explain that?," asks Bregman. "The bigger companies aren't getting similar deals. It's not standard in this industry to prepay contracts of that size and duration. And the clients received only a small reduction for their upfront payment, less than the cost of capital. I think it's a trend. And understanding it might just be the difference between failing and thriving in this economy."
So you might think twice about making that key acquisition to get bigger. Staying small might be the better strategy, at least for the short run. Just keep your CEO near the phone.
  • Sean Silverthorne

    Sean Silverthorne is the editor of HBS Working Knowledge, which provides a first look at the research and ideas of Harvard Business School faculty. Working Knowledge, which won a Webby award in 2007, currently records 4 million unique visitors a year. He has been with HBS since 2001.

    Silverthorne has 28 years experience in print and online journalism. Before arriving at HBS, he was a senior editor at CNET and executive editor of ZDNET News. While at At Ziff-Davis, Silverthorne also worked on the daily technology TV show The Site, and was a senior editor at PC Week Inside, which chronicled the business of the technology industry. He has held several reporting and editing roles on a variety of newspapers, and was Investor Business Daily's first journalist based in Silicon Valley.