Saturday, April 21, 2012

The problem with small companies

Up until the start of this year, I have been working for small consultancy companies.  While I have always enjoyed the flexibility of this environment, I have never really had strong exposure to large organisations until now.

The company I work for has been acquired by a much larger organisation, meaning that I am now part of a big company.  It’s been three months since the acquisition, and while the transition is still taking place, I am already noticing a shift in my thinking.  I would like to share this with you, and maybe add on to this post as more differences are identified.

Before I continue, I just need to add that the points below are not necessary points from the company I work in.  I have been in this industry for a long time, and have built relationships with all kinds of people in different positions and companies (including my competitors) and have managed to pick up some consistencies and facts worth mentioning.  Some of these points are negative, which is why I believe people are afraid to talk about it, but I also believe that these points are too important to keep to myself.  I hope you enjoy.


Small companies NEED work to pay salaries

As a small company, your biggest expense is salary.  If you don’t get enough work, you don’t have a good enough cash flow to pay salaries and other debts.  So, as a small company, your number one objective is to get that sale, no matter what!

“No matter what” may be a bit strong, but there is a lot of pressure to get that sale, and as a small consultancy company that specialise in Microsoft Web Solutions, you will know that competition is tight, and to make things worse, its tight against other small companies who also NEEDS the sale to improve their cash flow.

So what does this mean?  Small companies in a highly competitive market tend to over promise, and cut down prices to secure that deal.  After all, a little revenue that can make you break even, is better than no revenue, right? 

As a larger company, the cash flow is not a problem.  Salaries are paid by HR and no matter how much sales you get, you can rest assured that the salaries will get paid.  This does not mean that we can rest on the sales component and do less work.  No, while we still have the responsibility to be profitable, and to meet certain sales targets, the cash flow component is not 100% dependant on the sales we get. 

This is great, better cash flow provides more options.  More cash can be dedicated to infrastructure, training, staff morale and a few other perks that was not available as a small company.

Large companies are more focused

When you are responsible for a division of a small company, you are in charge of every single thing related to that division. You are fully involved in the hiring, the training, the social events and not forgetting the actual service delivery. 

When you are part of a large company, many of these tasks are “outsourced” to other divisions of the organisation that specialise in these things.  Things like social events are no longer your problem, your involvements in the hiring are training are also drastically reduced, allowing you focus on the things that are important – your service delivery.

And even on the service delivery side, you can focus on a specific service (like only SharePoint projects) while another division can focus on other services (like ASP.NET projects).  This focus provides huge advantages on the delivery quality side because your focus and training and strategising is focused and on a specific service, which is a huge adjustment when compared to small companies.

Small companies try to have as little staff as possible that can do as much as possible, or alternatively, they get a lot of junior staff that they task with more senior work (preferably mentored by a senior), either way, the objective is to keep their biggest cost down, the salaries.

Now in order to keep salaries down, and yet be able to deliver on whatever sales has over promised, small companies need staff that have a variety of skills, they don’t have to specialise in anything just be able to know a variety of things well enough to come off as a Subject Matter Expert and be able to Google the rest.  This sounds cruel, and may be a bit exaggerated, but sadly, not by much.

Small companies are more flexible

Being part of a large company, I must say that the processes for action and decision making are stricter and even a little longer.  There is a lot more paperwork that one has to go through to achieve the results.   It makes sense when you consider that there are more people involved, meaning that more can go wrong if we are working in a more chaotic state.

In a smaller company, you can get away with it because you usually have full control of the situation.  This lack of processes allows you to deliver faster but it also means that more can go wrong.  In the Microsoft Service Delivery space, clients are placing a high priority on speed so the smaller companies will have a big advantage here.

This “advantage” leads to another point.  Smaller companies are willing to accept higher levels of risk.  The faster delivery comes at a cost, and that cost is increased risk because processes are not strictly followed.  When you are part of a larger company, especially a listed company,  you have a greater responsibility to deliver well, after all, somebody’s retirement fund may be indirectly dependant on your performance, and because of that, a more risk averse approach is necessary.

Large companies has more available for less

As a small company, I have an internal design team that I use primarily for website designs, then team is skilled in designing marketing material like posters and banners, but whenever I get that type of work, I have to outsource the printing component to a printing company who charge normal market rates.  The same goes for software licencing and acquiring hardware.  While these services greatly complement my service delivery I just don’t have any skills, experience or equipment to deliver on this (and I don’t plan to build on this, because the demand isn’t there) forcing me to find alternative companies to assist me, who will offer there service at full price.  Over time, you can build a relationship with these 3rd parties and get the price reduced, but you get the point I am trying to make.

As a large company, these complementary services are more easily accessible (chances are, there is another division in the company that provides that service) and the cost is less because these divisions has built great relationships with their supplier and the work is not outsourced to a 3rd parties.  This allows the large companies to deliver more with less dependency on others and less cash.

This advantage goes beyond service delivery.  Benefits such as medical aid, RAF, etc.  are now available at better rates.  As a large company, you have more buying power with these insurance and medical aid companies and can form better relationships when compared to smaller companies resulting in better rates and cover.

Conclusion

Right now, I am very positive on what large companies can offer.  I say this from a point of view of a client looking for a service from a outsourced company or as a skilled individual seeking employment.  

They seem to tackle most of the disadvantages that exists in smaller company’s very well, especially the cash flow problem.  While the cost of this is stricter processes and longer turnaround time, this does create a more governed or less risky environment.  I also like the fact that the service delivery is more focused, thus resulting is higher quality output. 


UPDATE : The feedback I am getting on this post indicate that many think that I am wrong in my findings (something about be identifying common problems and not necessary the difference between small and large companies), this may be true, since I have only been part of the large organisation for about 3 months now and may be jumping to conclusions here.  So please think of this as my initial findings, and if my point of view changes, I will update this post - Thanks.