Why big companies can’t change

Why big companies can’t change


There’s a very good TED Talk by Simon Sinek about how great leaders inspire companies by asking why? I think it also goes a long way toward explaining why big companies don’t handle change well. It’s not that they can’t ask why?, it’s that the answer doesn’t make sense at their scale, though it should.

The Dow 30 Industrials that make up that all-important stock average began in 1896 as the Dow 12 and of those original 12 only General Electric survives on the list today. None of the other 11 are on today’s list even under different names, though some of the companies do survive. Many of those former industry titans, though — companies like American Tobacco and U.S. Leather — no longer exist at all. In some ways that’s surprising since big industrial companies take decades to build and we continue to need most of the stuff they make, so what was the problem?

Times change and big companies don’t like to change with the times.

At the polar opposite position from big industrial companies sit startups, nearly every one of which begins with an effortless expression of why? Big companies ask What? then How? but almost never Why? according to Sinek, who I think has it absolutely right. But good startups are motivated from birth by Why?

Nearly every good startup begins with why? and that why? is traditionally quite simple — because the founders want one for themselves. A hardware device or software application doesn’t exist and they’d really like one, so they invent it. For startups why is easy. If it isn’t easy then you probably don’t have a good startup.

If as a founder your answer to why? is “to get rich” you are in the wrong job.

Applied to a more mature company, looking at Apple we can see the why of the iPod and iTunes was “to take your entire music collection with you wherever you go.”

That sort of thinking isn’t common in big companies. Some of this is due to scale, some due to arrogance, and some to simply losing their way. But no matter how big a company grows, asking why? is still vital for continued success. They just don’t know it.

Back in 1986 I helped write the business plan for Illustrator, Adobe Systems’ first consumer product. The Why? for Illustrator was “because (Adobe founder) John Warnock wants a drawing program,” which is traditional startup. As I recall the business plan had the new consumer division with a net-net positive cash position of $87,000 after five years. Millions invested creating an entire new business for a new set of customers through a completely new distribution channel for a lousy $87,000?

Most companies would never have done it.

Yet if you look at Adobe’s market cap of $13 billion today probably $12 billion of that is based on consumer and professional software that began with Illustrator.

That $87,000 grew to $13 billion over 25 years.

Adobe had an OEM cash cow business selling printer controller designs and software in 1986 but that could only grow so big. And thanks primarily to Microsoft cloning Adobe’s PostScript, that OEM business would eventually decline and almost go away. PostScript is a small part of Adobe today.

This sounds to me like the position faced by many large, successful companies with mature product lines facing obvious challenges down the road. Such companies (I’m sure you can name a bunch if you think about it) see the problem approaching but are paralyzed by the need to envision $10 billion replacement markets. They can’t do what Adobe did in 1986 because there is no obvious Why? and $87,000 after five years wouldn’t even get before the board, no matter how important it really is to the company’s survival.

Adobe was lucky to have a curious founder still at the helm. It was lucky to be making enough money to risk a few million on an alternate future, too.

But 2011 is nothing like 1986. Looking five years ahead for business justification isn’t done any more. Heck, five quarters is a long time in business today. But then the average CEO tenure is also, what, four years?

And that’s why big successful companies roll over and die.