Tuesday, November 10, 2009

Godin on Upside vs Downside Risk

Seth Godin has a good post about the change that occurs when a firm achieves economies of scale and ceases to be entrepreneurial:

A new restaurant might rely on fresh vegetables and whatever they can get at the market. The bigger, more established fast-food chain starts shipping in processed canned food. One is less reliable with bigger upside, the other—more dependable with less downside.

Here's a rule that's so inevitable that it's almost a law: As an organization grows and succeeds, it sows the seeds of its own demise by getting boring. With more to lose and more people to lose it, meetings and policies become more about avoiding risk than providing joy.
This is another way of saying that firms become less entrepreneurial and it's the reason scholars care so much about hi-growth firms, or so-called gazelles - those companies that go from zero to IPO faster than Tony Stewart's stock car gets up to speed. Once they hit the IPO stage they face a whole different set of problems and usually become more risk averse and boring, as Godin says.

This is also one of the reasons it's been so difficult to find good reprenentation for entrepreneurs in Washington. The people running the most entrepreneurial firms are very busy and are focused on bringing their dreams to reality. They simply do not have time to come to DC to talk to politicians about the cancellation of indebtedness issue, or some other specific and arcane bit of tax policy. Several initiatives from the Kauffman Foundation have tried to alleviate this problem, but it remains. Nevertheless, their latest initiative, Build A Stronger America, will hopefully broaden the audience and stir up the debate about the importance of entrepreneurhsip. And let's not forget that next week is Global Entrepreneurship Week.

1 comment:

  1. There is another way to describe what happens in a corporation that only slightly changes the words of your post; as corporations grow, they lose their heart. If corporations at least begin by being people, bureaucracy neglects their sense of meaning and purpose; their emotional IQ so to speak. To the extent they do that, they cease being human.

    If Schumpeter is to be proven wrong, if corporatism is to be reversed, then managers (and government) must view corporations as organisms which actualize, as opposed to polities driven by only reason.

    No entrepreneur begins only with reason. And his emotional and economic well being are on the line. Both must be re-instituted with modern corporations. What can the government do? For one, they can insist that anyone from director up in a corporation puts their personal wealth on the line, just as entrepreneurs do. There are others as well...