h1

Size Matters

March 19, 2010

A common mistake organization’s make is to assume if someone can run a large organization they can run a small one and vice versa. In my experience this is rarely true. The size of an organization plays a big role in determining the proper person to lead. I’ve been fortunate to have leadership roles in businesses as small as startups to as large as Fortune’s Top 50. I’ve personally experienced the demands on senior management at each level and can testify that it is very different depending on the size of the company.

When I started my first business I was the only employee, so I needed to do everything. In this environment you quickly find yourself moving across disciplines like finance and accounting, sales and marketing, and product development. Most people can’t do all of these jobs and hiring or contracting people eats up cash. Cash is like air in a startup; without it you die. The CEO’s ability to do multiple jobs conserves cash and this is absolutely critical.

Now contrast this with a large company. The biggest business I ever managed was a couple hundred million in revenue and was part of a $1 billion dollar company. At this company I worked for someone who, prior to joining the company, ran a large high-end consumer goods company (Fortune Top 50). This person was extremely intelligent and very well respected, but he struggled to lead the billion dollar company towards his vision.

He believed his vision was clear and couldn’t understand why the organization wouldn’t follow his leadership. I was on the senior team and had a firsthand view of what was happening. My belief was that he simply didn’t understand that a vision alone would not suffice. A company this size requires the CEO to develop a clear plan that can be executed, a high level vision is not enough. Strangely, the problem wasn’t that he couldn’t develop the plan he simply didn’t recognize the need to do it. In the consumer goods company the vision alone enabled his staff to execute. In a smaller company more is required of the leader.

To illustrate this point further let’s look at another company I led as CEO that was approximately $20 million in revenue. I had a competent CFO and CTO, but as CEO I was required to be the chief product strategist, marketing department, and get directly involved in sales. I also had to manage outside investors and a law firm. This was a very mature business, which made the Board and Investors easier to manage. If the business had been a startup that rapidly achieved the same revenue the Board and Investors would have been pushing for a liquidity event. Driving for a liquidity event is like taking on another whole job. You still have to do everything above, but you also must find a willing buyer and negotiate the sale. This is burnout central for most executives.

From the above I can see how you could come to the conclusion that it is easier to run a larger business than a smaller one, however this isn’t necessarily the case. Running a large highly complex business is very difficult and very demanding. There are lots of moving parts and understanding the business and competitive landscape is a real art form. You have to have excellent business instincts and the ability to digest and analyze enormous amounts of information. You also have an incredible amount of noise coming from outside of the organization in the form of Directors, Investors, Banks, and even the Press. Everyone has an opinion and everyone is playing backseat driver. This is why they get paid the big bucks. In a small company there isn’t anywhere near the complexity or noise and you are free to focus on executing a core vision.

The maturity of the market and organization also plays a big role in what is required of management. Early stage companies are all about growth. Late stage companies in more mature markets are generally earnings driven. Early stage companies focus on exit strategies while late stage companies focus on growth through acquisition. Acquisitions also require integration planning and implementation skills.

Hopefully you are starting to get the picture. The entrepreneur that starts a business, achieves rapid growth, and then drives towards an exit is not a likely candidate for CEO of a Fortune Top 50. These two jobs require very different skill sets. This is why when BigCo acquires SmallCo the CEO of SmallCo stays a year and moves on. They are simply a fish out of water.

The thing I don’t get is why no one seems to recognize this when they are searching for the next CEO. SmallCo always wants BigCo’s executive and BigCo always wants the SmallCo entrepreneur. This is because SmallCo thinks the BigCo executive knows what it takes to get big, and BigCo thinks the SmallCo entrepreneur knows how to innovate. I’ve got news for you, the BigCo executive knows how to manage it when it’s big not how to get there, and the SmallCo entrepreneur is more likely to suffocate in BigCo than innovate. The lesson here is: If you want to find the right person don’t factor out the environment because size really does matter.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: