Wednesday, March 14, 2001

In praise of midgethood:

I'm not referring to height (I'm 5'11" myself), but to the size of your venture. One of the most disastrous myths from the dot-com era was "Get Big Fast." I remember hearing this from my professors when I was at Harvard Business School. The problem is that size may sometimes be an evolutionary advantage, but it always restricts flexibility. The dinosaurs learned that lesson the hard way.

The "Get Big Fast" philosophy was predicated on two assumptions. One, that vast amounts of capital would be available, and two, that behemoths would dominate the world of business.

The proponents of this philosophy, most notably, set about constructing businesses of T. Rex proportions. No amount was too great to spend on marketing, hiring, or building. Revenues and growth were everything, and profits were for wimps.

And then, the sky fell in. Like a giant asteroid plunging to Earth, the Nasdaq cratered. The shockwave that ran through the capital markets dried up the supply of funding.

Then, like the lumbering dinosaurs of old, the Get Big Fast proponents began dying out. With their gargantuan size, they couldn't adapt to the suddenly frigid funding climate. $1 million can easily get a small, nimble 5-man company to profitability. Bronto-sized CMGI lost $1.2 million an hour this past quarter.

Yet when the dust cleared, there were plenty of survivors. A recent survey by Verizon indicated that 55% of small businesses with a Web site say that they broke even or made a profit on the web.

Small businesses have lower overhead, greater flexibility, and faster time-to-market.

My own experience reflects this. Sadly, my company fell into the same Get Big Fast trap. We hired like mad, bought like crazy, and quickly grew to 40 people. Our burn rate skyrocketed, our strategy ossified as different managers defended their fiefdoms, and I grew frustrated with getting less done by managing others than I could have gotten by doing it myself. In my defense, we learned. We fired all but 8, slashed our overhead, ditched our old (failed) strategy, and carved out a path to profitability. But we never could have done it if we had stuck to our saurian ways.

Dinosaurs died out. The mammals survive. Which do you want to be?

* No offense to Billy Barty and he rest of the little people. After all, without you, we wouldn't have the Wizard of Oz, Charlie and the Chocolate Factory, and, of course, Time Bandits.

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