THE PARADOX OF SIZE: Why large organizations are so risk averse

Having spent most of my professional career working in large enterprises, I have been able to observe first hand one of the major drawbacks facing large organizations.  A paradox exists in most large companies.  The larger the organization the more risk averse it becomes.  This makes little sense, but it is commonplace. 

As organizations grow in size they become accountable to an ever-growing number of constituents including employees, board members, customers and investors.  For public companies they become a slave to Wall Street and quarterly earnings, plus guidance.  Each of these demanding audiences seduces organizations into playing it safe in all aspects of the business.  Unfortunately that usually leads to a cultur that squelches innovation.

On the flip-side most startups and small companies embrace risk and innovation.  It is their lifeblood and their competitive advantage.  They live by the mantra “innovate or die”.  Startup cultures attract opportunistic employees who are passionate about what they do and the chance to be a part of something special.  One risk taken by a startup has the potential to kill the organization as has happened with numerous startups, but those risks are required in order for startups to grow and flourish.

Eventually a successful startup becomes an established company that attracts attention and greater scrutiny.  As an organization matures the culture shifts and unfortunately that often means that risk embracing culture that made them successful is replaced with a cautious plodding culture.

It is time for enterprises to break the paradox and begin to take more risks if they hope to compete with the growing number of startups who are looking to disrupt their businesses.

My advice to large companies is to compartmentalize risk by creating incubators and startup focused enclaves within the organization.  This separate approach can create great learnings for an organization, can drive innovation and most importantly can create a much more engaged workforce.