Size does matter

When does a company get too big? For most companies, success is defined as rapid, profitable growth. But at some point, the company becomes unwieldy, hires more HR, lawyers and "operations" people than ever imagined, and starts to erode the essential sensibility that made them what they are.

The bigger and more mature an organization gets, the more inwardly focused it gets. (Yes, there are exceptions, but in the main, I think I'm right.) When you start out, and are an unknown underdog, you can't afford to care about anything else but your customers, and building and shipping your product. You are incredibly responsive to the market and your customers, because you'll die if you aren't.

But at some point, you become more focused on yourself, your perception, your opinions, than you do your customers or your products. It's not to say that lip service isn't paid to the customer and the market, but let's face it, even that is a more self-aggrandizing gesture. You take yourself so seriously that now the PR department has a deciding voice in policy.

And if you're looking for the sure sign that you're there: it's when people in the organization get measured on internal awareness campaigns, and actually spend real money advertising to the employees about some little program that only that team cares about.

Another impediment growth was articulated extremely well in this article by Scott Anthony. He talks about how companies raise the bar for successful innovation. In a survey of Fortune 100 companies, some stated that $1 billion was the minimum market opportunity they would target. In other words, innovations that could not demonstrate a $1b revenue opportunity did not qualify for consideration! How do you know? Who knew that you'd be this big when you were starting out, so how are you able to discard opportunities so arbitrarily? Finally, are you really going to believe a forecast a bunch of MBAs wrote based on historical trends and analysis? How often are they right?

It seems that to grow, one must have the willingness to think small, and adopt the rules that encourage an open-minded view of innovation, change and opportunity.

Seth Godin, another very smart guy wrote this really interesting piece recently, in which two paragraphs  connected with me:

Ideas that spread, win. Sometimes ideas get changed in transmission, and sometimes those changed ideas spread even farther and with more impact than the ideas that came before them.

In business, if you lock down ideas, make them difficult to change and spread and have impact, you fail. If you accept the fact that change is real, that there is competition for your ideas and that amplifying the good stuff works, you can grow and thrive.

He's absolutely right. This is a critical element of sustainability, and is ignored often at the organization's peril.

But now I'm wondering - why do I need to grow at all? Why does a company have to keep getting bigger to succeed? Is it possible to stay small and be successful? What if a company (even a public one) decided that it was no longer seeking revenue growth, but feels instead that it's making enough money and that improving its products, processes and services but remaining relatively the same in size is success enough?

What if the employees of this company were happy with that as well? They didn't all want to be CEO, they didn't all need to earn that much more money, they were content with the status quo...

OK - that's just absurd - human nature will not allow this.

Since we can't live in this Zen-infused complacency, how does an organization sustain success? How about combining the views of Anthony and Godin while maintaining a sense of smallness?

What if we were able to build a company whose employees were shareholders, and where innovation and change were embraced. But when an innovation began to flourish, they did three things:

1. The company sold off 60% of the new business, retaining a large but non-majority stake
2. Recouped the cost of its R&D, etc. and hopefully made some profit from the 60% sale
3. Allowed employees related to that business the option of staying or leaving

The effect on their organization would be a new revenue stream added to the investment portfolio, but no commensurate headcount or physical asset growth. If the spin-off did well, they benefited; if it didn't, they didn't lose, since the sale of 60% was implicitly profitable, plus they'd get to write off the 40% that was still on their books.

In the end, the company's performance would be based on their ability to maintain the business they started, and with their culture of open-minded change, the ability to spin off as many profitable innovations as possible, creating new revenue streams, employee growth opportunities, and happy employees and shareholders.

Size does matter, but happiness and success don't require you to be biggest one on the block...

UPDATE:
Pierre de Vries wrote this brilliant entry a couple of days ago (I wish I'd read it before I wrote this). In it he describes the four stages of evolutionary transformation and rebirth (my words) as: "exploitation or growth, a mature conservation phase, a catastrophic release, and finally reorganization leading to new growth." This is conceptually very aligned to what Anthony and Godin talked about as well a most viable alternative path to the one I suggested above. A cycle of continual reinvention might be a very natural and effective way for organizations to avoid bloat and stay vibrant and engaged.