There’s a saying I’ve seen mentioned a few times over the past couple of years that was brought up again in a recent @venturehacks tweet.
“It’s just as hard to build a large company as it is a small company, so you might as well build a big company. It’s roughly the same effort.”
The tweet was quoting from an interview Venturehacks and AngelList cofounder Naval Ravikant did with TheNextWeb where he used the saying.
I don’t know if Naval was the original source, but I’ve heard it before this interview as well. I have a lot of respect for Naval and VentureHacks, and while I appreciate the spirit of the saying, I think it’s untrue and actually a little dangerous.
The spirit of the saying is that it’s really hard work to run a small business or a big business, so you might as well shoot for a big business with a bigger market where more money can be made.
If you looked purely at hours worked by a small business founder and a big business founder, the saying may be true. Lots of small business owners work incredible hours under a lot of pressure just like the CEOs or founders of Facebook and Google.
However, the difficulty and failure rate of businesses is what isn’t captured very well in that quote. In reality, it is MUCH harder to build a successful big business compared to a successful small business.
To make a small business successful you just need to consistently find enough paying clients or revenue to cover your lower expenses. There are fewer serious competitors, you aren’t dealing with a large staff, you often don’t have as many external stakeholders or investors, the press isn’t dissecting your every move, and it’s harder for your large company to shift gears to keep up with changing market dynamics.
Additionally, the founder/CEO doesn’t need the diverse skill set to manage the company through all the different phases of growth it takes to become a large company. It’s very different to run an organization of less than 5 people compared to running an organization of a couple of hundred.
I know many entrepreneurs who could consistently build successful small businesses, but would struggle to build a large company. It’d be much more of a shot in the dark. Should these entrepreneurs be advised to go for building a big business or a small business?
Often that depends on their own goals, but I think company size is the wrong way to even think about it. The spirit of the saying is really meaning that you should choose a big market to go after. Many big companies chose to just solve a certain problem in a big market and then expanded what the problems they solved, or maybe even chose a small market but expanded after they had dominated that small market.
The best advice would be to advise the entrepreneur to go after a market and problem they are really passionate about and have the DNA and domain expertise to succeed in. They are much more likely to have success doing that than to push them towards a large market just because “it takes just as much work”.