When you're young, you can't wait till you're older. You eagerly anticipate every birthday. You imitate adults: wearing Mom's high heels or "shaving" with Daddy's empty razor. As you reach adolescence, your attempts at acting older get more daring, and you imagine all your problems would disappear if only you were grown up.

Many business owners think the same way. They imagine that if only they were bigger -- had more revenues, more employees, more products or services -- their problems would be greatly reduced. They attribute most of their difficulties to being small.

But size doesn't always count. Sometimes getting bigger just means getting bigger problems. You may find that what you wanted to be is no longer what you are; your company no longer fits your values -- you've gotten too big for your britches.

Growth Without Trying

Patagonia, the outdoor clothing manufacturer, learned this lesson the hard way. Founded in 1957 by mountain climber Yvon Chouinard, the company grew slowly for its first twenty years. Chouinard originally manufactured climbing equipment and later broadened Patagonia's offerings to adventure wear. An avid outdoorsman, Chouinard was obsessed with quality. The clothes he made had to be as good as the equipment he built; after all, a mountain climber depends on it under the most severe conditions.

As a small company with a niche market, Patagonia could manufacture its products to meet Chouinard's high quality standards, set prices accordingly high, and still satisfy its customer base. But suddenly, in the boom years of the 1980s, Patagonia was "discovered." Sales skyrocketed, and the company grew rapidly. Between 1988 and 1991, payroll increased 40 percent, the number of stores wanting to sell the company's merchandise ballooned, and Patagonia was on track to be a $1 billion company within eleven years.

In the midst of this kind of growth, you don't stop and ask yourself, "Is this what we want to be doing with our company?" No, you hustle to fill orders. And you naturally get excited by all that money rolling in. Patagonia was no different. Since Chouinard, an ardent environmentalist, "tithed" a percentage of Patagonia's gross sales to environmental concerns, increased sales meant he could give more money to the causes closest to his heart. It should have been the best of times.

But even good intentions can pave a road to business Hell. All this expansion required additional financing in the form of bank loans. The company was rapidly adding staff, many of whom did not fully relate to the company's vision. And Patagonia's market base had undergone a metamorphosis: Customers were no longer die-hard adventurers carrying backpacks in the wild. Instead, they were work-hard suburbanites carrying groceries in their minivans.

There was a lot of competition for those suburbanites. When a recession hit, Patagonia's sales stalled. The company was stuck with massive amounts of excess inventory and was heavily in debt. Then things got even worse: Patagonia's bank was sold, and suddenly their loans were being called.

The company was in crisis but not without resources. Patagonia had a well-respected brand name, outstanding products, strong customer loyalty, and a vast unexploited market potential. Chouinard could quickly find another bank to take over the loans, he could seek outside investors and stay private, or he could finally take the company public. It would have been easy for an investment banker to envision Patagonia departments in every Macy's in America.

But this wasn't just a financial crisis, it was also a moral crisis. Chouinard and the people of Patagonia took a good look at themselves and asked: "Do we like the kind of business we've become? Does our business fit our values? Have we gotten too big for our britches?"

As Patagonia was discovering, a lot of growth brings a lot of problems. In a rapidly expanding company, income almost always lags behind expenses. You've got to spend money months before you get paid. So you have to take on more debt or bring in more investors to finance your cash flow. This means you lose both control and sleep. But, I hear you saying, if you don't grow big enough fast enough, you'll inevitably be beaten by bigger, richer competitors. The trick is to play a different game.

Honey, I Shrunk the Company

By 1991, Patagonia's founder knew his britches were certainly the wrong size. And there were far too many of them! To meet market demand, Patagonia's catalog had 375 different products. Excess inventory was mounting.

Fortunately -- and the company now considers it fortunate -- Patagonia was in financial crisis. It certainly wasn't a huge fashion apparel business. Fashion companies are based on changing styles, colors, and trends. The goal is to have consumers buy new things each season. As a sportsperson and environmentalist, Chouinard wanted to make products that people would buy once and use for years.

He realized growth was controlling his business. "What we were trying to do in 1990 was grow a single company into a size that was too large for its own britches," he reflected. "There's an optimum size for any endeavor, any business, government, city. If it gets any larger than that, it doesn't work any more."

The mountain climber knew Patagonia's increasing dependence on outside financing was dangerous. "One lesson climbing teaches you, or any type of risk sport, you never exceed your resources.... It's a matter of living and operating within your means."

So they shrunk the company. Patagonia cut back the number of styles, eliminated many distribution channels, reduced the size of the staff. It was a wrenching experience. But it gave the Chouinards back their control, and it gave Patagonia back its soul.

It's My Company. I Can Do What I Want

Staying smaller freed Chouinard to focus on issues other than just financial gain. The most dramatic example is organic cotton.

A few years ago, Patagonia conducted an environmental assessment of the four main fibers it used in its clothing. The company surprisingly discovered that the fiber with the greatest negative environmental impact was cotton. Patagonia's board of directors recommended that the company phase out its use of regular cotton, slowly moving to organic cotton over a number of years. Organic cotton is more expensive and the supply is limited, so this would take time.

Chouinard said no. Patagonia would not phase out regular cotton. It would just stop using it. Now. Not three years from now. As of the next catalog, Patagonia would no longer offer products made with traditional cotton. Boom!

Chouinard could never have made such a decision if the company had been committed to growth; cotton products represented 20 percent of its sales. There wasn't enough organic cotton on the market to substitute for the amount of regular cotton the company used. In the short term, this meant reducing the number of products offered. Over the long term, it meant that Patagonia would spend significant amounts of money and energy on research and development of organic cotton products and helping to build the supply. It was a very expensive decision. And it was certainly not motivated by the market; Patagonia's customers never expressed a demand for organic cotton. But it's what Chouinard wanted.

Patagonia is now the country's largest producer of organic cotton. When the company stopped thinking about the size of its britches, it was free to think about what its britches were made of.

Rhonda Abrams lives in Los Altos Hills, Calif., and writes the nation's most widely read small-business column, distributed by Gannett News Service. She is also the author of the bestselling book, The Successful Business Plan: Secrets & Strategies. Abrams is also an entrepreneur. In 1986, she founded a management-consulting practice that has clients ranging from one-person start-ups to Fortune 500 companies. In 1995, she was an Internet pioneer, founding a Web-content company, which she later sold.

Reprinted from Wear Clean Underwear: Business Wisdom from Mom
by Rhonda Abrams.
Copyright 1999 by Rhonda Abrams.
Published by arrangement with Villard Books.
Available at the McGraw-Hill book store and from Random House by calling 800 793-2665.
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