I was in the US last week for meetings and had the great privilege of listening to a panel of company founders discuss the net benefits (or costs) of selling to a much larger corporate parent. They were talking to a group of people occupying large-company corporate roles.
The founders outlined a long list of benefits and identified a few of the costs (they were, as a group, very polite). One founder then tried to summarize the discussion at the end, and I will do my best to paraphrase:
As a tiny company operating in a vast ecosystem, you have only one real competitive advantage: speed. Without any real brand recognition, we struggle to even meet with some of our target customers or attract the talent we want. But we have speed. When we start a dialogue with a customer we know deep in our hearts, we can get them exactly what they want, tailored to their specifications, faster than any of the big boys. Speed is our main asset. If I reflect on all the comments today, there’s a theme emerging. When the scale of the corporate buyer helps speed us up, that’s a good thing. When it doesn’t slow us down, that’s also a good thing. But when your “value added” slows us, that’s the kiss of death.
Interestingly, the panelists mentioned a long list of benefits from new ownership. Here are just a few examples:
- “It took me a while to get used to it, but I love that I don’t have to decide our accounting software, write our legal code of conduct, choose lawyers, copy machines, etc. It is all off the shelf for me, from the corporate parent, and I can stay focused externally.”
- “We tried for three years to get a meeting with Company X [the largest player in their industry]. The day after we sold, we called Company X again, using the corporate parent’s name, and I was in a meeting before the end of the week.”
- “I was amazed by the functional expertise of our new owners. Whatever the issue, I could find with two phone calls someone who could give me good objective advice—be it on supply chain issues, a factory safety issue, etc. Every expert was a friend, not a third party pitching services. This saved huge time.”
In each of these examples, the corporate “value added” enabled speed—it let the founders focus on customers and respond rapidly to their changing needs.
While shorter, the list of negatives was hard-hitting:
- “Too often, corporate employees had never worked in a small company and were clueless about small-company constraints. We were asked to roll out the latest IT systems during the quarter, and the number of IT specialists from corporate that visited us was twice the number of my entire company. We were overwhelmed with corporate love.”
- “Our corporate parent has a wonderful phrase that sounds good on paper—‘we’re a buy-in culture.’ And, no pun intended, initially I bought into this. But at its worst it feels a lot like a ‘no-trust’ culture. I’m told to get two people to approve every decision now, which is more than I’m used to, but at least it’s straightforward. Then I’m advised that I should really get the buy-in of a dozen more players because that will smooth things. To be frank, it often sounds like what the corporate parent is saying is, ‘A dozen more players don’t trust you to make the right decisions for the greater firm.’ And that slows me down.”
- “Where are the pragmatic voices? I would love to have someone from corporate say to me once that he/she can help me make the decision in one day, not 20. I would like one corporate process to speed me up, not slow me down. If folks in the corporate functions had risen up in a small company, had faced the competitive pressures of meeting daily—hourly—customer’s needs, I think they would be a lot more pragmatic in what they ask of me, and how they choose to help me.”
I found this discussion fascinating and took away three things:
1. The importance of the speed question as you scale a company. All of the founder-led companies we work with are struggling with the issue of how best to scale. It is the question we’ve explored throughout these blogs—how to scale rapidly without losing the Founder’s MentalitySM. I think the lens of speed helps hugely in answering this question. Will adding this function help speed up the “kings” of my company (those trying to deliver to customers), or will it slow them down? As I interview this new potential supply chain expert to join us, am I confident that she’ll do whatever it takes to help the front line deliver with speed, or will she slow things down?
As companies seek to gain the benefits of scale and scope without sacrificing the benefits of Founder’s Mentality (to “go north” in our framework), the idea of building the company to maintain (and maybe enhance) speed seems to me a profound one. I was particularly struck by the “buy-in” vs. “trust” issue—while buy-in sounds great on paper, it often comes at a huge cost in speed. Shouldn’t we look for opportunities where a little trust would speed things up?
2. The importance of circulating top leaders between “king” positions and “court” positions. The panelists raised the issue succinctly: Can someone in a corporate functional role ever understand the importance of speed unless they’ve faced customers’ need for fast response directly? In all of our discussions with founder-led companies, the leadership talks about “throwing heroes at problems,”—i.e., creating a culture where people gang-tackle problems, rotate rapidly between different jobs and think about all customer-delivery issues as a team sport. And they all raise concerns about what happens as they scale and specialize—leaders get locked into roles and forget that serving customers demands a team.
What it feels like is that frontline people have their foot on the accelerator and those in corporate roles have their foot on the brake. As companies scale, in my view, it is more important to throw heroes at problems and accept a little chaos than it is to embrace specialization to such a degree that those who are supposed to help the front line have never been on the front line. If everyone knows the issues faced by others, maybe it would enhance trust and there would be less need to secure buy-in for every decision.
3. The huge value in diverting focus from non-customer issues. This is so obvious, but it surprised me. Each of the founder-panelists talked honestly about the tension they faced as they joined a large corporation and the personal journey that tension launched for them. One summarized this well: “As a founder, I loved being completely in charge. And I defined myself in many ways as the decision maker. The kind of decision became almost less important than my role in the decision-making process. I liked the power, although I would never admit this.” The founder continued: “When I joined the corporation, hundreds of decisions were taken from me and it bothered me a lot. I initially saw it as constraining. Over time, though, I understood it for what it was—incredibly liberating. I was making so many decisions that had nothing to do with my company’s customer mission; they just kept the infrastructure humming. Joining a large company changed all that. I was liberated from these decisions and could focus on what I did best—sell to and serve customers.”
In all my experience with large multinationals, this issue is at the center of most problems—how to empower the front line to serve customers, while taking away non-customer-focused decision making and make it feel liberating. If you want speed, and speed is defined as the pace at which you deliver needs-driven solutions to your customers, you need to liberate your leaders. This should be one of the most important benefits of scale. But, as we’ve discussed, scaling slows rather than speeds. Part of this is the problem of the court—they don’t see their role as serving the kings. But these founders pointed to something else: part of the problem lies with the kings—they like to be the decision makers regardless of the decision. They don’t see the support of the court as liberating. They can be part of the problem.
Leave it to founders to keep things simple: “We compete through speed. Help us go faster or, with all due respect, get out of the way.”