Tuesday, October 27, 2009

Of Course Size Matters

Who says size doesn't matter? Of course it does, especially when it comes to businesses.

Our recent economic and financial history has certainly demonstrated how "the bigger you are, the harder you fall." We knew this coming out of each of our past recessions, but we chose to ignore it. May be it was greed, capitalism, or some other factor. What's important is that we ask what we'll do moving forward.


The events and reasons that lead to our recession and the demise of so many companies will be argued and discussed for many decades to come. This was the same as the argument for the caused of the Great Depression.


Nevertheless, there's one lesson that I believe has become evident: we should never allow companies to become as big as Citi, AIG, among others. Why? BECAUSE they become so entrenched with our GDP and the country's overall economic health that any mistakes or intentional mishandling of the business will lead to yet another larger catastrophe.


The solution we've pursued so far, even those that have lead us out of the immediate dangers of this recent depression, have lead to one large company gobbling up another. In the process the acquiring company becomes larger with a greater influence on our economy, not to mention our social policy. Naturally, to realize as much benefit and profit as quickly as possible, during any such buyouts and mergers, any duplication of services and jobs have to be eliminated. This means getting rid of whole departments like Human Resources, Information Technology, Legal, Accounting and anything else that's not part of the core. What's more, many of the managers of the acquired companies are often laid off or asked to resign in order to bring in the new regime.


How does this help the economy? Does it help that each acquisition results in more lost jobs and a larger company? Does it help that with each acquisition, given that recessions are inevitable, the likelihood of government intervention to save that company becomes greater? Who foots the bill for each of these interventions?


I see a different solution to this conundrum, and that's in what every downturn produces: small companies. Many of these are the result of some creative mind starting a new venture of their own volition, or of those forced to do so through a lay off. In either case, many large companies today owe their starts to an economic downturn. When you then consider that anywhere from 60 to 80% of all jobs are created by small companies, you begin to question the sanity in allowing companies to grow past a certain size. For that matter, how many more jobs would our country have if the monies spent to bail out various large companies were, instead, used to promote starting or further developing small companies?


I have no doubt that years from now we'll look back at these times and realize how new and small companies helped us recover from spiraling to some economic doom, not the bailouts for large companies that only promote their continued future growth into a behemoth that we, once again, can't afford to let fail.


What Do You Think?

I'd love to expand this conversation through your participation. How effective are large companies? Are larger companies the answer to the ever shrinking creativity in our country?