Uncommon Gazelles (cover story)

Though fast-expanding “little giants” are the stars of today’s entrepreneurial economy, their real estate strategies often buck real estate best practices, a Site Selection survey indicates.

Gazelle has become the buzzword of the business zeitgeist, a mammalian metaphor for the fast-expanding firms that are jump-starting economies around the world, many analysts contend.
In fact, Sigmund Freud today would likely be plumbing the shadowy psychic corners of Gazelle Envy. Expansion-minded “little giants” are so influential that firms of all sizes are scampering to understand what makes them tick, coveting the extravagant price/earning ratios with which financial markets are showering them.

“I still want us to act, smell, feel and look like a $400 million company,” says John Correnti, CEO of NUCOR, in reality a $4 billion company.

Gazelles, however, face formidable real estate challenges, ones so extreme they can be the stuff of survival.

“If you don’t understand expansion costs, you can simply grow yourself out of business,” says Jerry Saunders, a small business counselor at Charlotte, N.C.-based Ben Craig Center.

Says Arthur Mirante II, president and CEO of Cushman & Wakefield, “In hypergrowth companies, there are huge pressures for rapid response, for having a new plant next week. Inadequate facilities can hold hypergrowth businesses back. Growth clearly outstrips the ability of infrastructure to prudently manage real estate challenges.”

Strategies at a Glance

In meeting those challenges, gazelle-type firms often shun traditional real estate strategies and best practices.

“Speed seems more important than cost or quality in gazelles’ real estate decisions,” says Robert Materna, deputy director of global research services for the International Development Research Council, the world’s foremost corporate real estate association, which is studying member firms’ fast-growth strategies.

Microsoft has certainly outgrown the gazelle stage, yet “Microsoft still has a bit of gazelle nimbleness,” says Stephen Walbridge, senior managing director with Julien J. Studley Inc., which handles all of Microsoft’s U.S. portfolio except the Redmond, Wash., headquarters.

Speed, for example, is still a paramount concern in Microsoft’s real estate strategy. “Microsoft wants deals done faster and faster, because it looks at real estate as enhancing its ability to make money, not as an additional cost,” Walbridge says. “We’re developing parallel processing to eat into the time it takes to do a real estate deal.”

The emphasis on speed is only one of the unorthodox real estate strategies that small and medium-size enterprises (SMEs) are pursuing. Here, in summary form, are the other real estate characteristics that typify gazelles, as identified by Site Selection‘s research and survey:

• CEOs/COOs are usually intimately involved in facility expansion decisions.
  
• Internal infrastructure is often integrated by shared “strategic frameworks” that focus expansion activities.
  
• They’re decidedly acquisition-oriented, usually using acquisitions to expand internationally.
  
• Usually lacking a separate real estate function, they import service provider expertise when expanding.
  
• They distrust traditional sources of expansion assistance and financing.
  
• Some manufacturers handle dramatic increases in demand by off-loading work to other SMEs in flexible manufacturing networks.
  
• Their expansion is sustained, without downsizing.
  

— Jack Lyne is Executive Editor of Site Selection