From the threat of nationalized banks to half a million layoffs at the nation's largest companies, the titans of the U.S. economy are suffering. Incongruously, in this bleak economic landscape, the free-flowing credit markets and top-heavy organizational structures that supported these towering entities in the past are now becoming liabilities. The result: While giants are drowning or barely treading water, small shops with low operating costs that leverage their smarts are staying afloat and, in some cases, thriving.
With less overhead, a slim-to-none bureaucracy, and a philosophy that goes against even the most innovative Fortune 500 game plan, little guys in industries such as finance, marketing, entertainment, and media are busy, some more than ever, and a few are moving into territory where the big fish can't swim. Whether making deals, planning ad campaigns, or signing talent, all small fish have the same slogan: lighter, cheaper, faster.
Welcome to the Little-Guy Economy, where boutique investment banks make deals while big finance is frozen, where Web geeks field calls from big media and corporate clients who need viral video and other digital-branding tools, where small law firms prosper and laid-off lawyers open their own shops, where independent music labels innovate faster, and where the word "team" can have a whole new meaning. As their bigger, more established peers restructure departments, sell assets, and slash budgets, little guys who offer better, more streamlined, and less costly services are healthier and, in some cases, flourishing.
Nimbleness can come with strings attached. In the little-guy universe, the London office is nonexistent, and clients do things the little-guy way—or else. Little guys are loyal, choosy, frugal creatures, and if you enlist their services, they will demand respect for their expertise. They don't have time for incompetence and misguided strategy. They want to do the job they were hired to do the way they know how to do it. They aren't priggish. They just want results. "Most of the time, we are on the same page, but, if a client says, ‘I believe you're wrong. Our property's worth two or three times more,' and I say, ‘You're wrong,' then we'll say that we aren't the right fit," said Wilma Jordan, founder and CEO of the Jordan, Edmiston Group, an investment bank specializing in media and information.
Finance, especially in the areas of mergers and acquisitions and private wealth management, is seeing an ever-widening pond of smaller, highly specialized shops. While firms like Goldman Sachs and JPMorgan Chase depend on freely flowing credit markets, boutique firms, which do smaller deals, rely more on private equity sponsors—and don't have the same bank, credit, or securitization obligations. It is easier to get a $50 million loan than a $200 million to $2 billion one, experts say.
And even though small firms face the same problems in this era of low profits and revenue levels, they aren't nearly as hard hit—and they also don't charge a minimum fee of $3 million to $4 million like the big banks. In the transforming bank sector, niche firms like JEGI and MC Alcamo & Co. ride the sails of their expertise in media and information, while huge debt-strapped Wall Street firms scramble to figure out whether they want to be in that business at all.
For every laid-off investment banker, there's a story of a veteran who is going boutique, starting a hedge fund or trading shop, or brainstorming something new and different. Experts say the financial sector will resemble a tadpole, with a head consisting of five to six global megabanks and a long tail of hundreds of boutique shops. This month, New York City Mayor Michael Bloomberg announced an effort to spearhead small business and entrepreneurship in the financial services sector. As part of the program, giants Bloomberg LP and Thomson Reuters will provide free data feeds to this ever-growing field of little tails.
In advertising and marketing, small operations are beginning to win out over larger, more top-heavy ones. We're Just Friends, a marketing company, can plan a program for $30,000, compared with a $300,000 program at a big agency. The group's flagship operation, Myopenbar.com, hosts events—and enlists its 55,000 aged-21-plus subscribers to attend free parties of up to 2,000 people with free Bacardi, Newcastle, Dewar's, and other brands. We're Just Friends partner Jason Fried says, "We basically showed the liquor companies that they've been paying a marketing agency to find us."
Unlike larger agencies and public relations firms, We're Just Friends runs on a shoestring. It shares an office space with other startups, rents a few desks, and has no full-time staff (aside from the five partners). As a result, it can forgo, among other costs, the $15,000 to $50,000 a month preproduction retainer that many agencies require right out of the gate.
Fried and his partners aren't the only thriving little guys in marketing. In August of 2006, video producers Lindsey Johnson and Leo Borovskiy of Lush Life Productions posted a video on YouTube featuring The Chad, a 25-year-old redhead who caused late night comic-style havoc at an American Idol audition in East Rutherford, N.J. It was viewed 1 million times that month. Almost three years later, Johnson and Borovskiy's clients include Hearst Digital, among others, and they are in talks with Absolut. "We've gone from only working for advertising agencies and marketing companies to having corporations directly approach us with their brands and ask, ‘What can you do and how much can you do it for?'" said Johnson.
The music industry, with its large infrastructure for selling compact disks and transforming digital arena, is another example. While compact disks still make up 70 percent to 80 percent of the industry's sales, digital growth has imposed major changes on the big-four labels. "The small guys are able to grab faster. We can make a split decision in a staff meeting and run with it the next week," said Jacob Harris, chief operating officer at JDub Records, which released reggae artist Matisyahu's first three records. (The third was in collaboration with Sony.) The small label just launched a new Web site, is holding 15 events this month, and is planning more than a dozen releases in the first half of 2009. At a big company, adds Harris, managers can't ask staffers doing specialized functions to be generalists.
Little guys love to flaunt their flexibility, which is part of a larger philosophy that is less General Motors, more Google—a big fish that not so long ago was a little guy, too. For some, the emphasis is on providing exceptional services or products without being overly preoccupied with profit and revenue. "It's not about monetizing up front," said Lush Life's Borovskiy, echoing Jeff Jarvis' treatise What Would Google Do? "It's about being able to reproduce it. If you can produce without money, you can reproduce it with money."
In this bleak economy, little guys get it, sometimes more than big-fish counterparts who are beholden to outside forces, such as clients, staffs, and outdated models. What happens when little guys grow, however, is another matter.
Just ask Google.