For a traditional management student, when structures and processes in organizations is introduced, he is made to believe small organizations are agile while not large organizations. My personal experience with such organizations comes out with a very different viewpoint. While every start up has a potential to become Google, they seldom make it really big. The better ones find alternatives in management exits while a large number of them do not realize their inability to manage software business. Failures of small companies in my opinion can be attributed to the following reasons.
Management Hubris
In a small company many a times the management starts to believe they are providing opportunity to a set of staff they have recruited. I have seen many small organizations where they think they have provided an open environment to their employees to work and hence they are in some sense Gods. They have right to decide destiny of employees. I will not say the management does not have a right to think so. After all taking up entrepreneurial risk is no small achievement. But in a market where talent is scarce behavior of this kind can only diminish employee morale. I have seen organizations, when they reach some fixed size, the employees suddenly start leaving the organization. They never grow any big.
The Inner Circle
Bureaucracy and politics is central to existence to any human group. In larger organizations politics is considered an impediment in many activities that an employee wants to pursue. What is funny is many senior management staff in smaller organization claim there is no politics in their organizations. My understanding is quite different. Small organizations work in principles of inner circles not a balanced political set up of large organizations. In the set up of second kind people try to win over the other ideas through balance of power. In small organization every decision is taken at the inner circle. Either you are in or you are not part of it. The typical exodus of executives from a start up/small organization can provide you enough insights on the power play of the inner circle.
The Un-parallel Techno-manager
Every of these organizations normally has a classic senior member who is considered the epitome of technology. I will suggest the management of such companies to get rid of these super heroes or provide clear indicators of their boundaries. The behavior of such staff is quite different depending on whether she is an employee or one of the proprietors. In an industry, where the newer generation learns from where previous generation left, you will find these people never upgrade their skill levels. They know, people of their experience and skill levels have quietly left the technology domain. Hence they look perfect techies in their community but you look deeper they never let anyone of technical superiority survive inner circle pressures. This leads to hiring of below average engineering staff and pushing back on every project stating that every project is substantially complex. Since, they are the only people in the management who understand technology or provide an aura of the same, the company's scale of innovation tanks. Then how do you identify such people. Very simple I will say - Just provide an innovative idea about the product these managers are developing and provide a huge amount of time to execute. Invariably, in the end you will hear a complaint of scope creep or tight schedule pressure. These kind of people can be there in the board as well. They will continue to provide the same sales pitch or product differentiation statement which the whole world would have implemented years back. How do you identify cases of this kind? Look for people holding multiple CXO roles in the executive teams.
The Retired Executive
This is a typical phenomenon in a venture funded organization. The retired executive will have about twenty years experience in the industry and now decides to lead smaller companies. These people typically operate on maintaining their own MBOs and somehow try to manipulate it well enough so that it's achieved. When the MBOs are set many a times the CEO and the board keeps the immediate problem in mind and they do not focus what may be needed in the long run. These executives exploit that quite smartly. They typically keep projecting non-committed acquisition expectations and create stories around the board and the staff with these expectations. Use their networking skills in creating one or two joint development programs with companies where they see potential acquisitions. You must be wondering how to induct the right executives. One interesting way is to look at the Google Story. The recruitment of the CEO will give some definite insights into hiring the CXOs. Commitment from executive team is quite critical. Google did a smart job of that.
The Inner Circle Promotions
Last but not the least it important to track how people graduate to inner circle. Typically, employees are assessed entry into organization based on their potential and ability in the vertical they serve. But, small organizations typically follow a different strategy. You will see there is a soft inner circle promotion of some staff. The executives will be talking about these employees in more than one occasions. There are two characteristics of people I have seen who make entry too quickly.
1. Quick Starters
2. Weak Personalities
Quick starters are people we will rather call street smarts. They start but never finish any task that's expected of them. They will add their names to anything and everything the organization is into. It does not need rocket science to identify these individuals. We all know them. Every organization has some finishers who will take charge to save organization reputation. Actually the organization management never needs finishers. Of course, due to their own insecurity. The second kind, is the one who will move around their bosses and they know their only survival is with their bosses' grace. They know they will never make very big and their bosses never feel threatened with these kind of staff. If any of your organization is consistent in rewarding such people definitely it never is a place for innovation. Because, innovation is an act of courage and needs extreme dedication and persistence to finish. That can only be taken up by people with strong personalities.
Does that mean small companies never make big? Not if they nurture these characteristics. Nor is it true that all large companies do not innovate. Innovation is a state of mind that individuals build and organization can only recruit it and nurture it. Size of the organization never matters.
