When one contemplates the amazing dominance of our largest companies, it’s easy to conclude that would be competitors of such market behemoths would be best advised to quit the race, and hire out for one of those companies. But Google was once a startup, and AltaVista was the big kid on the search block. You never heard of AltaVista? It’s a fairly good bet, that most of thirty companies making up Dow Jones Industrial Average in 1940 would be unfamiliar to you today. So how did smaller companies compete effectively against the giants of their day?
Meetings and Committees. It is an enduring mystery why the number of meetings seem to grow geometrically, as the size of a company grows linearly. For a proposed course of action, its likelihood of being timely implemented is directly related to the number of committee meetings it will pass through before becoming an actual course of action. Regardless of the reason, management’s love of procedure in large companies is a reliable source of inflexibility and slowness in reacting to markets.
Fear of losing what has been attained, i.e. sunk costs, is another mindset that cause a large company to circle the wagons instead of embracing change. It’s well known that losing $100 brings more pain than gaining $100 brings in pleasure. There are well known psychological forces at work. This applies not only to the company as a whole but to department managers who are understandably desirous of protecting their salary and bonuses. Why should they rock the boat and risk their personal prosperity?
Companies tend to gain weight over time by providing increased services and products. When it comes time to trim the fat, heads of departments that have been added over the years will tend to fight with great energy to save their department. It’s hard to push for what’s best for the company, when what’s best for the company is very bad for you. There is no easy solution to this problem, unless you consider ruthlessness a good choice.
Something about being really big can make large companies reluctant to ask a question that many startups ask themselves every time they consider a new product, that is, “What is the simplest thing we can do that will work?”
Older management. It takes longer to climb the management ladder at a large company. Older management often means stodgier management. Forty-year olds don’t like to think of themselves as stodgy, and some are not. But if you’re 40 or 50, ask yourself, “Am I truly as open to new ideas and risks as I was when I was 25?” There are tangible benefits that come with age and experience, but the speed and flexibility exhibited by startups with younger management are not among them. Even a startup with middle-aged or older management, may exhibit more flexibility than a much larger company with management comparable age.
Perhaps even mega-businesses cannot escape the nature’s cycle of birth, growth, and death. See Peter Lowy on a High for more information on this topic.