One thing I’ve believed for a long time that as an organization grows it gets increasingly unwieldy. With a company of 7 employees, you can easily keep things under control. You have good control over spending. If you decide you need to shift directions, it’s easy to do. There’s a good sense of innovation.<\/p>\n
But now suppose you’re a Fortune 100 company. As CEO you lose control over lots of little issues. But the worst part is that you can’t really “steer” the company. You get caught up in what you are doing. Status quo ‘sticks.’ You can’t change direction.<\/p>\n
So here’s how I think it should be fixed. Let’s say you make $600 million in profits when it’s all said and done. (Net profit.) You’re a huge company, after all. Take $10 million and get some of your company’s “revolutionary thinkers” together. You become an “internal” venture capital firm. You brainstorm ideas, and fund the top 10 $1 million each. (Buying out small upstarts is also within reason here.) The companies operate independently, but the corporation still has ownership. You don’t want to be too nit-picky here, either.<\/p>\n
Let’s say you’re Microsoft, and you’re brainstorming ideas. Someone’s idea is to make a “lightweight” word processor for MacOS. MacOS is your competitor, and the word processor would compete with Word. Do you do it? If it makes your top 10, yes. Because if it sells, you’re making money from Mac users, a new market opportunity. And won’t it cannibalize Word sales? I’m not so sure. You’d want to look into whether people would buy it instead<\/em> of Word, and, if so, which is a higher margin product. You’re basically competing with yourself, but you’d want to steer people into your own thing.<\/p>\n The companies would have none of the baggage of the parent company. They’re separate companies. This is an important part. It makes it easy to start up. But you can also allow them the benefits of the parent company: you might already have a good marketing team, and a good legal team, and all that. So you let them take advantage of that. But they’re not bound by it, either: if the management thinks that one of their parent company’s weaknesses is, say, marketing, they might hire a marketing company.<\/p>\n Now let’s say that you’re Apple. They have boatloads of cash. And someone pitches the idea of a web hosting company. Services really aren’t Apple’s thing. Do they do it? Absolutely! That’s the whole point: these mini-companies are also “feelers” for new markets to enter. You greatly reduce your risks by keeping it as a separate company. But you create a ripe way of entering new markets and exploring new ideas. $1 million is pocket change to a gigantic corporation, and yet they’re deriving tremendous<\/em> value from it.<\/p>","protected":false},"excerpt":{"rendered":" One thing I’ve believed for a long time that as an organization grows it gets increasingly unwieldy. With a company of 7 employees, you can easily keep things under control. You have good control over spending. If you decide you … Continue reading