Jared Diamond wrote a fascinating article in 1999 about how to get rich. The kicker is – he’s talking about societies, not individuals.
But the lessons are still there for entrepreneurs.
The key point that Dr. Diamond makes is that the reason that European civilization “conquered” the rest of the world instead of China or Japan is that Western civilization was fragmented, but not too fragmented. In other words, the centralization of authority in China and Japan made bad decisions far more costly than in the much more balkanized west.
He gives some great examples – China scrapped their navy because the new Emporer didn’t believe in ships. The Japanese Shoguns forcibly prevented guns from being manufactured because it messed with their Samurai ways.
For modern business, the points are the same – bigger enterprises with more central authority increase the likelihood that bad decisions will linger, and ultimately cost the enterprise dearly in the long run.
Consider, for example, all the ongoing efforts we see to merge and grow through acquisitions, “streamlining” businesses and making them more efficient. Have we seen significant success from this tactic? I’d say no, and I’d say the reason why is that it reduces competition, which in turn stifles innovation. Hardly anything new to capitalism, but nowadays this is true even within large companies. They are growing and “efficienting” themselves into future oblivion, because at some point, they will make a decision that at the time will seem minor, but will blow up in their faces as the rest of the world’s businesses pass them by.
There’s a way to avoid this, of course – keep your businesses balkanized. Don’t focus on efficiency by forcing your business units to align themselves to a command and control hierarchy. Leave them alone, out in the field, fighting the good fight. Sure, you may not have the most efficient organization, but you’ll have a more innovative and more responsive one.