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Monday, April 20, 2009

The bigger they are... the harder they fall

Jason Cohen's post in his Smart Bear blog (check out fear #6 and his answer to #6 later in the blog) gave me this idea for a post that I think we at the Corporatepreneur know a thing or two about... inefficiencies at big companies. Let me tell you some things about big companies that an entrepreneur can exploit.

Overhead: Big companies hafta pay pensions, bonuses, cushy office chairs, and salaries of people who are not quite ready to retire yet but have stopped working.

How to exploit: If you can find a better cost structure (i.e. selling something online instead of through big warehouses), you can not only beat big companies but they will run away from you because they don't want to dilute their margins (the books Innovator's Dilemma and Innovator's Solution talk about this)

Functional Silos: Big companies have lots of functions (R&D, Marketing, production, Finance) and with each function there are numerous managers. Each function feels like they need to carve out their influence and create their empire. A lot of times products are sub-optimized because each function is trying to serve their best interests, not the best interests of the company as a whole.

How to exploit: Since you have a more holistic view, you can create a product that's good on all fronts. Plus, you can tweak things on a whim to improve them for a particular customer, or adjust prices as you see fit, or even name a product something you dreamed up last night. Any one of these things at a large company requires meetings and pre-meetings about these meetings. You can change things on a whim to delight your customer. Or make more money.

Risk Averse: At big companies, people are always trying to CYA (Cover Your Ass). You don't take risks, because failure gets you fired. You hafta test things a million times, document all the stuff you learn and why you made a certain decision, and get all kinds of approvals from people. Sometimes something as simple as the color of a package needs to get VP sign off.

How to exploit: An entrepreneur can take calculated risks and beat a big company at it any time. Want to try to sell something online? Google it, maybe read a few blogs like Adam McFarland's, get on Yahoo small business, and do it. At a big company, you'd probably hire consultants and have numerous team meetings. Want to try a new ad slogan? Go for it. At a big company, you hafta go through legal, who's on vacation this week, then marketing will get mad at you because you've stepped on their toes.

I could go on forever, but it's good to keep blog entries short and sweet. Jason, hopefully this helps illustrate #6 for you.



Russell D'Souza said...


I like how you went into depth on Jason's point number 6. I have limited experience in a large company (been lucky to have an entrepreneurial career thus far) but I was always struck by how difficult instituting broad change was when I was there.

At the end of the day, I believe that interacting with customers is the most important thing that a company can do. If every person in a company spent time with customers, they would always be pushed to think of effective solutions and would be adamant about making sure those changes got implemented. The current recession will mean that lots of companies have to rethink their corporate structure and I hope that leaner enterprises take shape which emphasize making the customer happy. How else can you win in this economy?

Jason Cohen said...

Great response Dale! I've now linked to this post from mine.

Dale said...

@Russell: Welcome! Difficult to institute broad change? How about difficult to institute a tiny change! Great point about needing to understand your customers even better... and an in touch small company can do that better than any big company.

Adam McFarland said...

Dale -

Thanks for the mention! I think you and Jason are dead on. We've made it our business to win by being smaller, more efficient, and quicker to respond.

Take one of our competitors for example. They have ~20 employees and ownership is in their 50's. Their payroll must be astronomical compared to paying 4 guys in their 20's. They have a warehouse that's 3x larger than ours, but probably 10x more expensive due to location and some of the perks they built in (I'm speculating a bit here). Sure, they might get their inventory a bit cheaper than us, but we have far less expenses and the advantages in customer service, technology, and flexibility. We can stop on a dime and change our business model if need be (and we have). They can't.

Personally, if we grow too big I think I'd want to get out and go back to running a small company again. I just love the flexibility and freedom of being small. And of course, I love trying to take down competitors that are incumbents in their industry and doing a bad job of servicing their customers :)


Anonymous said...

I'd prefer it if you said "have to" instead of "hafta". It's just childish and hurts credibility.

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