Friday, February 12, 2010

Why are companies in a rush to act big?

An interest of mine is watching how companies grow when they get venture funding.

There seem to be two paths:

On one path, the portrayal of the company publicly suddenly changes. It's like the founders sit down and say. "OK, now we have to get Serious." On their "about us" page they have Vice-Presidents of This and Vice-Presidents of That, and a picture of their office space. Maybe a description of their new expensive espresso machine to help portray their company as a Good Place to Work. They get a toll free number and a phone tree. The pictures of their founders change from 3 people having fun to a sport coat and button down shirt (no tie of course) for the men, skirt suit for the women. And only people at the VP level and above get pictures. Internally instead of just doing, there is a lot more talk about how to do it. Someone puts together an org chart. There are a lot more meetings. Planned outings explicitly for the sake of "employee morale" vs. the spontaneous ones they used to have.

On the other path is "smart growth." A certain vibe is maintained. Meetings are kept to a minimum. When you talk to the employees of the smart growth companies, they talk about what a great place to work it is. Not because there are bean bags all over the place but because there are people working there who respect each other and who challenge each other. If they get a 1-800 number it's because their customers need it. If they get new office space it's not to fill an ego, it's to make the employees happy. It's not superficial growth, it's necessary growth and it's smart growth.

Obviously the second path sounds like one we'd all like to follow as our companies grow, but then why do so many companies follow the first?

I would argue too many companies are simply in a rush to act big because they think that's the only way they'll be taken seriously, especially if they're selling to other businesses.

Maybe this is because of ego, or maybe they feel a 12 person company really does need a bunch of CXO's. There's also the pressure from their investors to not just be a dreaded "lifestyle business."

Sometimes it's smart business to get bigger and act like it, other times you run the risk of worrying so much about perception that you're damaging yourself. Two specific examples come to mind:

When it comes to security, acting bigger than you are can help. There are plenty of things we do in the daily operations of Inkling that if we had a consumer focused business, we would never do. That's because big companies, when it comes to your software, evaluate you on two levels. The first is business value. The second is security risk. It doesn't matter how good your product is if the BigCo Information Security Department doesn't sign off on you.

On the flip-side, when it comes to customer support, acting small has proven to be the smartest thing we do. I was reminded of this earlier this week as we helped a bank install Inkling on-site.

We only do installations when absolutely necessary because they are "high touch" situations and don't scale well vs. our hosted software business. As great a job as Javan has done on building and maintaining our installer, when someone wants to run Inkling on their own hardware in their own datacenter, we're dealing with a unique linux configuration each time which inevitably causes complications. So we've learned to do two things which seem to be right based on the positive feedback we've been getting. First, we put their sysadmin in direct contact with one of us. We own his problems with him until the installation is complete. We also use a tgethr group for all correspondence to keep everyone else on the project apprised of progress via email. In the case of the bank, those of us on the outskirts watched as our guy and theirs went back and forth troubleshooting until it was completed 48 hours later.

Basically, we acted small. We didn't have any 10-person phone meetings, we didn't charge them extra, we didn't say it wasn't our problem. We just worked with them until it was done.

Several years ago I had a boss who pounded in to my head that 1 bad customer experience requires 10 good ones to make up for it and I think he was right. But that has nothing to do with being big or small, or growing purely for perception's sake so you can be a Serious Company.

In other words, being small doesn't have to be a liability. In the right situations, being small or just acting small (but smart) can be a key strength and differentiator.

In our own world, we've run in to exactly one company who has explicitly questioned our size and chosen not to work with us because of it. Dozens of others went the other way and did choose to work with us because they like our product and we try to be easy to work with - even if we kept blowing them off when they asked us to get our Senior Vice-President of Global Everything on the horn.

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