Trouble in Lilliput

While big business surges to new profit records, the nation's 300,000 small manufacturers complain that the boom is passing them by. Most share the lament of Chairman Glenn H. Friedt Jr. of Detroit's United Platers, Inc., which handles chrome plating for the fast-moving automakers: "I find it embarrassing to admit that this year is no better than last year." Worse yet, Dun & Bradstreet reports that 87% of the nation's 15,800 bankruptcies last year were small businesses, i.e., those with liabilities of less than $100,000.

What is wrong? Most frequent cause of trouble is the inability of management to keep pace with the increasing complexity and costliness of doing business. Small manufacturers--who are not as diversified or as well-financed as the large companies--tend to find themselves squeezed for profits, short on capital, and without enough technical talent. Says President Matthew Meyers of Los Angeles' Alvo Nut & Bolt Co.: "We're paying more to make the product itself; yet because of competition, we are selling it for less and less."

In dealing with labor, many small firms must meet the wage rates set between unions and the giants; in the area of management, they have trouble at tracting the bright executives tempted by the glamour and security of bigness.

Their disadvantage with customers is an equally sticky problem. Small manufacturers are often wholly dependent on single big customers, such as auto or aerospace companies, which are increasingly making for themselves the parts that they formerly bought outside. When corporate Lilliputians seek other customers, they come up against giants that get tougher as they grow bigger. In the past year, the 500 largest companies in FORTUNE'S annual listing raised their share of all U.S. industrial sales from 56 1/4% to 56 1/2%--and that fractional gain widened the gap between them and small manufacturers by $1 billion.

Money & Maneuverability. An even greater worry is raising growth capital. Though credit is easier than usual these days, small businessmen have to pay interest rates up to 20% for it, and many are crusty independents who object to yielding some control of their operations to lenders bent on protecting their investments. Big companies get much of their capital from depreciation and retained earnings, but Chairman Herbert Woodward of Chicago's hose-and duct-making DK Manufacturing Co. notes that if a small business has a good year, "you tie up so much money in inventory and accounts receivable that you don't have a thing left for research and development." For new-product ideas, small manufacturers must often rely on trade fairs, visits to foreign plants, or suggestions from their salesmen.

Little firms pride themselves on being more flexible than their bigger brothers, shifting quickly to meet changes in demand. What worries them is that the large companies which are computerizing their operations may soon be able to react as rapidly as they themselves can. Says President Andrew L. Hannon of Hannon Engineering Inc., a Los Angeles maker of public-address systems: "We can move fast and stay ahead of big companies. But we can't compete once we meet them head on."

How to Keep Up? Some small manufacturers seek to survive and prosper by diversifying. In Detroit, United Platers has begun to retail its own line of chrome-plated auto wheels, and hopes for a free lift on advertising from Buick, which will offer similar wheels (made by United) as optional gear on its '64 models. Other firms are narrowing their lines, with the intent of making fewer products better than anyone else. Beau-tee-Fit Co. of Los Angeles retrenched from manufacturing a full line of brassieres to only top-quality models, lately has begun to specialize in nursing bras. Detroit's American Electrical Heater Co. gave up appliances to concentrate on soldering equipment.

For all their woes, few of the Lilliputians intend to sell out willingly. To them, big companies spell the organization-man way of life. "Exciting" and "challenging" are the words they use to describe their own careers, and they rightly believe that there is plenty of room for the small manufacturer with a good idea--no matter how stiff the competition. Besides, the big man in the small company usually draws a handsome salary and expense account even when his firm does no better than break even.

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