The advantages of being small and private: big public companies aren't always the smartest.

People who run businesses often dwell on the advantages of large, publicly held companies, whether they are competitors, customers or suppliers. What we often forget is that smaller, private firms enjoy some very significant advantages.

While studying for my M.B.A. years ago, I analyzed big companies such as General Motors, IBM and Sears as models of highly successful organizations. I believed small businesses should be designed after their larger, public competitors. But eventually I came to realize it is much easier to acquire the expenses of a larger competitor than it is the income. Hence, smaller companies must differ in organization, operation and culture, which ultimately produces competitive advantages.

One factor is a must: The CEO owns controlling stock. It may be a family business, as long as the plan is to operate it for the long term and there are sound provisions for both ownership and management succession. The biggest asset a private company has is stability and long-term thinking.

As president of a smaller company, I can play by a different set of rules from that of a large business. I will not be fired for a mistake, so I can afford to take risks. Yet I am careful not to bet the farm. The CEO of a public company, however, whose compensation in most cases includes stock options, may be tempted to "shoot for the moon" in hopes of personally cashing in. If the gamble is unsuccessful, he simply doesn't exercise his options and moves on to another company, perhaps even before the consequences of his mistake are clear.

Just as I must live with the consequences of my mistakes, I also must face the consequences of false or inaccurate statements. Because I will be in the same position for years, I cannot afford a poor reputation. Although this may sound like a disadvantage, it really is not. If a private company CEO explains that he is unable to make lofty promises as large as the competition's, and that certain actions being made are for the good of all concerned, honesty and integrity win out. His credibility is strengthened because he will be around for many years to come.

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In larger companies, divisional managers and other senior people rotate from position to position every few years. If they perform well, they get promoted, and often this means moving to another division or location. If a person fails to perform on a short-term basis, then it's on to another company. In fact, no one in a public company can commit to the future. Not only is there the problem of frequent turnover, but whenever the CEO or the head of any division changes, every policy of the old regime is subject to revision.

By contrast, in a smaller company opportunities for promotion of upper management are not as frequent, so people tend to be more experienced at their jobs. When they do get promoted, they are often responsible for training and supervising their replacement.

In terms of structure, large companies consist of a number of divisions that operate like smaller, independent companies. But these units lack the flexibility of actual small companies because they are subject to direction from above and have personnel transferring in and out. While some divisions may be well-managed, other underperforming divisions drag down the company's overall performance.

Employee positions at all levels in smaller businesses tend to be tailored to people's knowledge. Smaller companies offer more flexibility and less need to "go by the book." This means that more of a person's talents can be used. Not only do employees get more experience, but they tend to be happier in positions where their abilities are used more effectively. Conversely, if an employee lacks one of the requirements of a position, it is often possible to furnish the employee with an associate who can provide support.

Naturally, presumptions regarding smaller companies do not apply universally. But for the CEO of companies large and small, public and private, they're well worth keeping in mind.

Richard B. Wright is president of Wright Tool Company, a maker of sockets and wrenches based in Barberton, Ohio.