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August 15, 2016updated 28 Mar 2017 5:26pm

Being big but acting small

By John Oates

One of the main reasons big companies end up stagnating and being replaced by smaller more nimble competitors is that it is very difficult to keep the good things about being a small company when you reach a certain size.

The ‘start-up mentality’ isn’t just about working long hours for bad pay. It is about being agile, flexible and able to move fast in new directions. Some of this is an inherent advantage of being small – if you want to shift 15 people onto a new application or platform it is pretty simple. Doing the same for 15,000 people requires a bit more planning and preparation.

This leads large companies to focus on operations rather than innovation – creating stability, in systems and in products, at the expense of innovating both in terms of internal systems and the products and services they create.

Likewise with hiring and firing – it is relatively easy to find a few staff to work directly for you or for a team you know intimately.

But once an HR department or recruitment agency gets involved there is an inevitable distance between those recruiting and those managing staff which leads to mismatches – the wrong people end up in the wrong positions.

The mythical ‘start-up mentality’ is also meant to create entrepreneurial workers constantly looking for new revenues streams and other opportunities for the company. Couple this with a supposed flat management structure and start-ups, the theory goes, are able to shift ground more quickly.

However we shouldn’t ignore the downside to this.

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Anyone who has worked in a start-up will tell you that a desperate search for revenue does not always create a beneficial working environment or do anything to encourage innovation – quite the opposite in many cases.

A big, well-funded company should be able to avoid this trap. There’s no good reason why an established player cannot provide better funding and support for its own innovative ideas and people.

But it needs a supportive management structure which is as likely to say ‘yes’ as to say ‘no’.

The problem with the majority of larger businesses is there is always a bigger list of people with the power to say ‘no’ – at zero risk to themselves – than there is of people able and willing to say ‘yes’.

Rewarding risk is a very difficult management problem. Risk obviously brings with it the possibility of failure.

In the world of finance the way to mitigate against risk is called ‘hedging’. Effectively this means betting against yourself in order to cut your exposure to risk.

For instance if your business will need to make a big purchase in euros in six months time it might be sensible to buy some of those euros now in case the currency rate falls dramatically.

Of course the currency might move against you but the risk is still reduced.

This process is actually much easier for the larger company than for the start-up.

In terms of technology too it is easier to experiment if you have bigger requirements.

For instance if you need massive amounts of storage capability then it is relatively easy to experiment with different providers or technologies.

You don’t need to get finance to sign-off a wholesale change. Instead switch one department to a more innovative solution and see what happens.

At worst you might need to switch back but at best you’ll have a use case to support wider changes. The potential benefits are bigger too – a small saving for a major business cost means substantial savings.

But doing this at a start-up is much more difficult – cutting up already small contracts can increase costs and add to management headaches. And assuming your company doesn’t have huge storage demands the benefits are reduced too – even if you do make a good saving it will have little impact on the bottom line.

Enterprise technology is now moving so quickly that all organisations, of whatever size need to find ways to embrace it – being big is no longer an excuse.

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