What Big Companies Can Learn From Startups

Big and Small Companies
A well run startup is in many ways the most optimized organizational structure in business. It has just enough of the right resources with the right goal alignment to operate its business. It also has high cohesion, optimized communication, and is highly adaptable. It has these things for a very simple reason: if it didn't, it would be out of business.

Startups live on a razor's edge, where mistakes can have a direct impact on the viability of the business. Mike Cassidy, a fellow Easel alumni, gave a presentation a few years back in which he claimed it is necessary in a startup to get 14 of its first 15 hires exactly right or risk failure. He is likely not far from the mark.

This got me thinking of the lessons that large high-tech companies should take from startups. Here is my list:

Risk Taking

As big companies grow and age, they tend toward the risk adverse, a tendency that only retreats with the introduction of a strong top-down leadership. Just look at Microsoft, a high tech giant that if it were a person, would likely spend days struggling to answer Twitter's question "What are you doing?".

Some of the adversity to risk is justified: big companies have large and established brands to maintain and defend. But some of the risk adversity is the result of organizational lethargy, often caused by the lack of fresh talent across all ranks. I'm not advocating that big companies follow the famous Thomas Jefferson quote: "the tree of liberty must be refreshed from time to time with the blood of patriots and tyrants." But in some cases, individuals stay at big companies sufficiently long where in they lose their edge and can no longer see the line between personal self-preservation and well-managed business risk.

Solution: increase job rotation and planned turnover, particularly across executive and middle-management ranks.

Dis-economies of Scale

As big companies scale, their organizational structures need to adjust to their competing demands. Most companies will organize along one or more of the following principles: geographic, functional, product, and customer segment. No matter which direction you turn, there is some trade off to be made. When you are customer segment driven, you take a more holistic view of your customers, but do so at the expense of geographic, functional and product specialization.

In short: organizational complexity allows companies to operate at scale, but at a cost.

Solution: big companies need to incubate a few targeted internal "startups" that break their organizational model and challenge their status quo.

Never Higher a Plumber to Do an Electrician's Job

Almost every person hired in a startup has likely performed their job at a similar company at least once in their professional career. Many have done so in the same industry. In short: you know they can execute because they have a proven track record of doing so. A startup would never hire a QA manager to run marketing, or a marketing manager to run development.

Big companies are more apt to field the players they have instead of the players they need for two reasons:

  1. Career development - Large companies take chances on existing people in new roles to support long term talent retention.
  2. Inability to make micro-talent adjustments - Large companies let people go for two reasons: redundancy and non-performance.  They do not however let people go because they can hire someone better.
    Sometimes an employee can rise to the challenge, acquire the expertise required of their new role, and be successful. But more often than not, they cannot, lowering the level of play for everyone who depends upon them.  If done on a large scale across a business or functional unit, the results can have a substantial long term impact.

Solution: rely on people with proven track records in executing.  Be willing to have forced and targeted turnover in your ranks (“tree of liberty”) to ensure you are always fielding the players you need instead of the players you have.

Put More People in the Boat

I once managed to overturn a sunfish sailboat in sight of a family vacation house.  As I struggled to right the sail, my family provided lots of suggestions and advice from the land.  I know all of the advice was well meaning and intended to help, but the simple truth was: I needed more people in my boat, not helping me from the shore.

As big companies scale, they need to specialize functions to support their organizational growth.  Even well run companies that move between centralizing and decentralizing functions to suit their changing needs will have imbalances at any given point in time. Every time there is an imbalance, you introduce a speed bump to organizational agility and productivity.  Some speed bumps will be necessary to doing business at scale, but too many and the wrong types will result in organizational drag.  Of particular challenge are centralized services in which the supporting organization is only matrixed “part time” to the supporting business unit or department.

Solution: be willing to adopt both centralization and decentralization of functional units in targeted areas, particularly in your incubated startups.

Conclusions

Large companies can never achieve the optimized organizational structure of a well-run startup. But with some targeted top-down changes, it is possible to increase agility, increase innovation, and foster greater entrepreneurial drive. In doing so, it is possible to blend some of the best qualities of both large companies and startups.


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