There are some advantages small firms have over larger ones. Because they have less employees, they tend to be more flexible and the environment is more friendly. Management may have an easier time keeping a smaller number of employees happy and feel valued, improving the chances employees will stay with the firm longer.
Management can also be more involved with all aspects of the firm’s operations. For example, when clients work with smaller firms, there is a good chance they will actually be working with someone at the management level.
To build upon the previous answer, a small firm can have a faster response time to clients and can means fewer automated calling services or let-me-transfer-you-tos, which clients appreciate. In a creative scenario, small firms can pick and choose projects that keep things interesting for the employees rather than taking on all of them and burning out junior staff with the same types of projects.
Small firms also attract those searching for a unique product or style, which megagiants tend to lose sight of and go with mainstream techniques, protocols, and creation.
Small firms can tend to work harder through a recession to keep their employees and tighten the budget elsewhere, whereas a larger company may lay off several sets of employees as an easy fix, reducing morale among remaining employees and adding to their plates.
I may be a pessimist, but I figure that while some successful companies choose to stay small, other small companies may not make enough money to expand, so never get larger.
The above answers are excellent and present valid reasons, but I tend to agree with tutt47. I think that given the opportunity, few companies would consciously choose to refrain from (sound, sustainable) expansion. I think those that do either have a very strong vision, are functioning within industries that allow for or prize smaller, “boutique” firms, or are successful enough to be selective in their growth plans. Of course, it depends on the industry in question, and whether we’re talking about a Mom and Pop hardware store (see link below) or an investment firm, but generally I think capital is a key driver.
A major reason is control. Remaining small allows the owner of a firm to retain full control. In most cases, in order for a small company to expand, a large amount of liquidity is needed, and that money comes with strings attached. Suddenly, there are people to answer to, your hands bound, the creativity is stunted, and the firm begins to feel less and less your own. To say that most people given the opportunity would expand is to say that most are money driven, and maybe that’s true. Yet, there are many owners who take great pride in the brand they have created, and to expand would only compromise the image they have worked so hard to create.
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