A blog about social, economic and spiritual networking

Thursday, June 09, 2005

Is Less Really More? Is Small Really Big? - Sorry, No...

Ok, so I like for Pete Caputa to find cool posts for me to read. He's my "newsreader"! It saves me time :-)

Here's one he found on Fred Wilson's blog, called Less Is More going into the whole "small is the new big" thing.

He (Fred) says:
"Our dream at Union Square Ventures is to one day fund a company that gets to a billion dollars of revenues with less than 10 employees and does it legally. We may never do it, but someone will. Because less is more."

I don't know about that. Economics and free-market activities will tend to bring an equilibrium to the productivity of the *people* involved, especially if there is some arbitrary constraint to a "specific number of people", such as 10.

Ok, so NewLittleBigFirm.Com hires me to come in and do a SWOT analysis:

Here we go:
Strengths: You have 10 people - that's good; costs are low, productivity is really high
Weaknesses: You have 10 people - that's bad; we really count on everybody to put in 24/7 at 110%
Opportunities: We could do X,Y, and Z, but everybody is working pretty hard already, and Jane is going out on maternity leave, and Bill is going out on vacation...
Threats: Oh my, we only have 10 people, what if one leaves?; OMG, what if all 10 leave???

And then there is the issue of actually *collecting* the $1 billion in revenue. If clients know that you don't have anyone keeping up with your A/R, your DSO numbers will skyrocket, sending the collectability of *all* your revenue spiralling downward, which sends your valuation plummeting, and the phone calls from your board multiplying, and before long, you got nothing...

Actually "small is small" and "big is big". A lemonade stand will remain small; it can never become big without a stimulus. No matter how cheap you buy lemons for or how many hours you stay open, you will be limited to *small* without "expanding to capitalize on a huge burgeoning market", thought out and skillfully executed with an accurate market hypothesis. And the whole point of attracting "capital" is to "capitalize" on the unrecognized market opportunity, before someone else who *does* have capital identifies your vulnerability, due to your lack of capital, and beats you over the chasm.

A billion dollars in revenue with 10 employees is actually a pretty easy thing to do. Find a big company with a billion dollars+ in revenue (say like GM or United Airlines), and then fire everybody except 10 people. [Hmmm, wait a minute, that's what GM and United Airlines *are* doing...]

Oh, but you say you want to *build* a company form scratch with a billion dollars in revenue and ten employees. I'm as positive a leader as anyone else is, starting and building a business is hard, even if you are an experienced CEO. Building a profitable, growing, sustainable, healthy business into a growing marketplace is even tougher, I don't care who your ten employees are. It's just not gonna happen.

Do these "small is big" marketing types *sleep* through their required accounting, economics and finance classes when they are going for their MBAs???

1 Comments:

Carlos N. Velez said...

Outsourcing.

The 10 people won't be doing the actual work, but managing the portfolio of contractors and consultants who are performing the actual work. This notion of a 10 person, $1 B company has been tossed about by many others, such as Tom Peters in Re-Imagine!

Now, having said that, you raise an excellent point, which is that with only 10 people, the margin for "error" is very small. You may have a difficult time if 10% [sic.] of your workforce leaves! Where is the redundancy? Who steps in if the VP of Manufacturing is incapacitated?

The other issue to consider is which industry (ies) would this work/not work. Software? Maybe. Pharmaceuticals/Biotechnology? I doubt it would work with 10. Twenty, maybe, but not 10. Others?

7:10 AM

 

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