The 'Little-Guy Economy' is flourishing

By Jill Priluck

updated 7:36 p.m. ET March 17, 2009

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.

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