In our last edition of How To Kill Your Tech Company, we talked about the collapse of Vice Media, a company that spent many hundreds of millions of dollars to do All The Things, never landing on anything that would justify such spending and eventually declaring bankruptcy. We also talked about birdbees, and brunchlords, and how:
The moment any company starts what it intends to be a transformative, company-altering growth spurt, unless it is carried out by talents that do not come along nearly often enough for all such companies to share them, it sets the timer on that company's own eventual collapse.
That’s a bold and terrifying statement, so we introduced a theoretical small-to-midsized company with generally good management, very good profit margins, and plausible paths to success (look, I said this thing was theoretical, okay?) It looks something like this:
Our theoretical well run company consists of birds, bees bird-bees and bee-birds. Don’t think about it too much.
And now, we set our company off on the Path To Growth.
And how is that done, in modern capitalist America after about 50 years of inundation with new MBA programs that try to universalize management concepts by grinding them all up and presenting them as a cure-all soylent goo, and with fawning "business" cable television networks interviewing top business leaders who may or may not secretly be amazing screw-ups who can't work the office coffee machine without three assistants and an exorcist, and with airport bookstores filled with ghostwritten management books with some billionaire executive's smug face on the cover? By and large the small-company executives will always arrive at the conclusion the books and magazines tell them they should: We need to hire experts who have worked at big companies, so they can teach us how big companies do things. Then we will become a big company.
And thus the fuse is lit.
Because there's no point in hiring Big Company People to turn you into a Big Company unless they're given the power to do it, the new hires are generally slotted in at very high-level positions and given quite a bit of deference when they Bigsplain how to do things. That's not nefarious, it's a perfectly sound management decision—and for those of you who are already screaming that it most certainly is not, shhhhh. We're getting to that.
So now we begin the transformation into a Bigger Company. The company begins to spend considerably more money on poking for new avenues of growth, and is willing to lose a large chunk of the company nest egg to find and capitalize on one. Internally, a restructuring begins to teach the managers and employees of this already successful company how things work at the bigger companies the new managers previously worked at, and the answer is invariably and always that the company needs to bring in more process, because that is what larger companies need to have to manage their 10,000 employees. It's simply a business fact: If you want to someday have 10,000 employees instead of 30 or 50 then it's quite obvious you need to start doing it too. Got an Excel spreadsheet for this or that management task? Consider the big-company approach of purchasing a new middleware platform to do it instead. Still using off-the-shelf accounting software? Oh you poor thing, big businesses have discovered numbers you've never even heard of.
And because everyone here is smart, except for maybe Steve over there who does God knows what all day but is friends with one of the executives so nobody is even allowed to ask too loudly, everything goes great. The company hires more worker bees, and pushes into their new identified market niches, and because there's a heck of a lot more process in the big-company way of doing things the executive team needs to hire assistants to attend to it all, and one of the other rules of having a big company is that you need to have meetings, you need to have so many meetings, because how are you going to decide what the business should do next without meetings, so each executive may need another assistant or two to do the actual job they themselves were originally hired for, now that they themselves have to spend 20 hours a week just going to each other's meetings.
More birds, more bees, more cowboy hats. We’ve embiggened.
So now we're set up for rapid growth, or we will be if we just keep hiring Growth-Focused team managers and the human scaffolding they need to do their Growth jobs. It's a little unclear which person has which job duties up there at the top, but eh, that's the way things are done in these modern times when you're being growth-y and creating synergy and whatnot.
Nobody's being evil here. Nobody's swindling the company, or taking long lunches, or scheduling new regular all-hands department meetings all the bloody time because they're preening gobshites who would wither and die if they weren't allowed to give insufferable 20-minute monologues to a captive audience at least twice a week. No backstabbing, no flurries of HR complaints, and no intentional sabotage of one department in order to make another one look better—none of that petty real-world nonsense. Everyone's doing precisely what the Big Business manual says they ought to be doing to run a Big Business, and they're doing it competently and well. The company keeps looking for those new markets, and maybe even finds a few, and then ...
... something happens.
We all know how the economy works. There are booms, and there are busts. A sudden collapse of some other business sector that has absolutely nothing to do with yours can do widespread damage to every other sector of the economy and there's nothing you, in your own company, can do about it.
A collapse of some related business sector that you've come to depend on, though; now that can get existential very, very quickly.
If you're a company like Vice, or Twitter, or Tesla or Boeing or Oracle or any other you can name, there are a heck of a lot of market externalities you can't control. What if online advertising revenue collapsed, and the majority of your whole business just happens to have depended on ad revenue? What if it crashed by a whopping 90%, possibly but not necessarily due to the near-entirety of the business world finally realizing, oops, that Google's advertising products were veering ever-closer to becoming outright scams? If you're a company anything like Vice, you're going to be well and truly boned.
Even the best-run company on the planet will find that sort of market downturn to be an existential crisis. For a company attempting a managed growth spurt at the time, spending down its nest egg or racking up new debt while stuffing itself with all the bells and whistles of Big Company management because that's what's needed to "manifest" success later on, according to a bunch of preening gobshites who now live exclusively inside their ghostwritten airport bookstore management books, it means almost certain death. To repeat: Once a company starts that deficit-driven growth spurt, no matter what happens next, only a handful of them will succeed in reversing the process if things go bad. It's just not possible. There's no airport books on how to turn your big company into a smaller one, and the few that pretend at it are written by Big Company authors whose own bragged-about approach turns out to be, on closer examination, "and then I won the lottery, which does too count as a strategy."
Once a company starts that deficit-driven growth spurt, no matter what happens next, only a handful of them will succeed in reversing the process if things go bad. There are no management books that tell you how to shrink a large company into a smaller one.
The moment a company becomes successful enough to attempt a spurt of rapid, order-of-magnitude sized growth into new markets that may or may not be there—whether it be a self-funded attempt, a venture-funded attempt, or being purchased outright by a Big Company that wants to make it a new Big Company division, it lights a fuse. The company either makes it big, or they collapse under the weight of what they've become.
Let's look at how our theoretical well-run and growing company is most likely to respond to this new crisis. Well, thoughts of rapid expansion are probably done for, so the experimental forays into markets that might not even exist are put on hold. Costs need to be cut much more than that, though, and that generally means layoffs. We can't lay off the senior staff because then there'd be nobody around to Save The Company at the time it most needs saving, and their assistants aren't going to be cut because the executive team's workload is if anything going to rise the more dire the company's fortunes fall. Can't have that.
The company invariably decides that the majority of the layoffs need to come from much lower down in the company than that, so here we go. It's time to "trim the fat," the executives announce. All those new worker bee positions have to go, and since we're still losing money even after that we're going to need to get rid of even more people.
Whether you call it the brunchlord class or just Doing The Executive-Approved Executive Thing, a company flipping from Growth Mode to Survival Mode, Growth Team Version Of, will always end up looking like this:
Looking a lot less triangle-y now. That can’t be good.
We've now got a much leaner-looking company than it was at the height of its expansion attempts, but it doesn't look much like the old version. It's going to retain that big-company shape, at the top, because everyone hired on during the growth spurt has been drilled on Big Company management styles and doesn't have the foggiest idea how they would get anything done otherwise. Compared to the company that was making enormous profits on their previous $10 or $20 or $50 million yearly budgets, this version has a whole lot of problems.
• Overhead is now enormous. None of those Big Company people come cheap, and the executive ranks as a whole have ballooned tremendously from the company's more smaller, more profitable times.
• Production capabilities, on the other hand, have tanked. There are fewer workers to produce the company's product, to market it, to sell it, and to provide customer support. These aren't things that can be automated, and unless you're the sort of brickheads who turned CNET into a robot vomitorium you're not likely to be dim enough to try.
• The company may have shrunk but the commitment to Big Company Process is sacrosanct, and that means the process of creating or iterating on company products significantly more expensive—and, more importantly, much less nimble. Nothing we can do about that either, says the new executive team. Our hands are tied.
• And as for those previous teams that once allowed the company to make big profits with far fewer workers: They don't exist anymore, and they're not coming back. The company got rid of them to staff up new versions headed by new managers who collect larger paychecks but know little to nothing about where those previous efficiencies came from and, because this is what every would-be executive is taught in their MBA programs or by their Big Company mentors, they most emphatically do not care. MBA programs are premised on the notion that "management" is a generic concept that can be applied to any company or department with no prior knowledge of what any of your new underlings actually might do all day, and all of modern corporate culture in fact relies on the premise for its musical chairs-version of Doing Management that sends executives hopscotching from company to company in short bursts, each time with more "qualifications" that require higher pay at their new growth-oriented company.
Put it all together and the competitive advantage that boosted the company's fortunes has now been completely scrubbed out. The teams that brought to the company to success were likely disbanded, and if they're not they're buried under too many new layers of management to ever be able to be granted authority to do what they did the first time. The company might well be able to still sell as many widgets or, in the case of Vice, produce as many articles as before, but with all the new overhead the profit margins have dropped and may even have dipped below zero.
A company that once thought itself primed for rapid growth off $20 or $50 million in yearly sales may now have dipped back to that same $20 or $50 million income range—but now instead of being able to tuck away good profits at that income, now it's unsustainable.
Yeah, that company's dead. It may sputter along, with executives telling all who listen that well this is a rough patch but our remaining skeleton crew will get through it, but it's done. You can't run a small company off those same Big Company methods, and there's not one Big Company-trained executive who's going to figure that out even as the bank account drains to zero. The last thing that happens is a memo to remaining staffers that says something like:
As all of you know, our company has been severely impacted by changing market conditions. While our executive team tried all possible methods of returning to profitability, those market conditions have continued to be severe and the team has decided there are no further options available. It is a crying damn shame that these severe and changing market conditions unexpectedly came in to shatter our team's grand and perfect vision, but that's business. You have three hours to clean out your desks.
The executive team then holds one last executive pity party, decides how much of the company bank account needs to be diverted to paying them each a bit of going-away money to make up for all the emotional trauma they endured trying to save the ungrateful buzzing worker bees, and now their resumes have a new line that says something like empowered workers and reorganized corporate structures to respond to changing market conditions and off they go.
Nobody did anything untoward. There were no long lunches. They got paid what the industry says important Big Company people ought to get paid, and nobody considers those salaries outlandish—at least, nobody among those who have any say in setting those numbers. In our fictional company, nobody intentionally tried to siphon away every last cent of company money while destroying the company's means of survival; they just did what the books told them to do. When it didn't work they did it a few more times to make good and sure.
The Growth Bomb went off, and now the company is just another bit of rubble cluttering up the industry landscape.
This isn't just a sad story for the sake of sad stories; we can learn a lot from our fictional example. Unlike our Vice Media example, our invented case isn't tainted by questions of whether the executive team made decisions that hemorrhaged money or whether someone bought a new boat as company coffers went dry. The point, instead, is that once a company charts a path to growth that significantly and suddenly expands its staff in order to capture new Big Business status, a fuse is lit on a bomb that will go off no matter what happens next. Either the company succeeds in finding its new windfall—or it bloats itself into irrelevance and collapses before it happens.
Making matters worse, in our new business world in which nobody is expected to know anything about the delicate internals of a company before popping in and Managing The Hell Outta It, the odds of this team of newcomers finding a golden goose that the smaller but very successful previous team didn't think of after many years in the business are very close to zero. The odds of management being able to go back to the old status quo if things go wrong are at absolute zero, and we're talking zero degrees Kelvin here not any of this Fahrenheit or Celsius nonsense.
All those stories you hear about the founders of some company closing up shop and starting a new company from scratch? It isn't because those founders got bored. It's because it's easier to create a whole new company with lean teams and small-company agility than to convince the executives at their collapsing last company that they needed to winnow their own ranks, abandon now-pointless process bloat, and go back to the formulas that made their now-struggling company successful the first time around.
As for the lessons to be learned from the fall of Vice and the fall of innumerable hedge fund-purchased or venture capital-captured profitable firms before or since, the biggest of all is that fatal flaw we brushed up against in the beginning:
By and large the small-company executives will always arrive at the same conclusion: We need to hire people who have worked at big companies, so they can teach us how big companies do things. Then we will become a big company.
Yeah, that is not how that works. Oh, it might work, but it's putting the cart well before the horse. That cart is about three miles down the road and nobody's so much as even tacked up the horse yet. Adopting big business process before you need it is just overhead, and overhead is the thing that all those MBA programs were insisting be trimmed to the bone because it was bad, bad, kill-your-mother bad whenever anybody but you insisted on doing it, but when you do it suddenly it's the magic elixir that will make your employees poop unicorns.
• Processes designed for 100 workers are ridiculous when adopted by 10-person teams. The whole point of the large-company processes is to standardize and generify a hundred people's worth of tasks into scannable bullet-point-like lists for department managers to have any hope of being able to see the whole from the parts. But all processes are by definition overhead, and processes that don't accomplish anything are called makework. I couldn't tell you why, precisely, a sizable percentage of all MBAs spend their time boasting about how much makework they're able to create. I definitely couldn't tell you why the ability to slow progress to a crawl compared to how the company's smaller teams functioned somehow translates into expertise the previous team didn't have, but anyone coming from a Big Company environment is usually very insistent on that point..
• The very premise of hiring "Big Company" managers to learn how to become a Big Company is flawed from the outset. When companies look to hire on managers who can "grow the company to the next stage," they aren't hiring the corporate managers who grew the Big Companies to that size. Those people are few and far between and your small-sized company likely can't come anywhere close to being able to afford them. Instead, the executive teams found to "grow" the company aren't people with experience growing companies, but people who merely have Existed at those big companies. They weren't there when the processes they used were put in place. They don't know why those plans were instituted, or what flaws the old systems had. They were told to do it This Way and so from then on, like any manager worth their salt, they will forever tell everyone they work with that This Way was the way to do things and all the other ways are stupid and unprofessional and the sort of stuff primitive hillfolk would do between cave-painting sessions. How did your company get anywhere without doing it This Way? How did you manage to find all these employees who never thought to do it This Way? Well things have got to change around here, that's for darn sure.
Next hint:
Because there's no point in hiring Big Company People to turn you into a Big Company unless they're given the power to do it, the new hires are generally put in high-level positions and given quite a bit of deference when they Bigsplain how to do things.
Is that how it should be done? Why?
No, really. Why? It's a legitimate question, but one that many companies never think to ask.
On the one hand your smallish company is already successful, with good profit margins and a staff that likely spent years polishing their own processes to smooth out the rough edges of your particular industry's needs. In the process they've gained institutional knowledge that has boosted your company over your rivals; whatever you're doing, it's clear you're doing it well.
On the other hand, your company now has the opportunity to hire new, more expensive executives and managers who likely know not a damn thing about your specific business niche and who instead bring to the table the Big Company pantomimes that are supposedly so universal that your company will achieve new and better successes just by adopting them.
If you really intend for your company to survive even if your new growth spurt doesn't pan out, which of those two groups ought to be put in charge of which?
There you go. That was the second disastrous mistake. And again: It's not one a company can come back from.
There's two major ways to grow a tech company; you can either do it by Team Expansion, which takes the existing teams and blends in new assistants and processes that help your team leaders determine which processes need to be tightened up and which, for your particular industry, amount to pointless hokum. Or you can do it through Team Replacement, in which you overtop each of your currently successful managers with new, less knowledgable hires who then reorganize their new teams according to the Dungeon Master's Big Book Of Business Rules And Hokum, stripping all decision-making authority from your previously successful teams and substituting their own.
Hedge funds and venture capitalists generally insist on the Dungeon Master role-play approach because they're promising to dump tens or hundreds of millions of dollars into the company and they're going to want to be damn sure that your company is following the instructions they want you to follow—but it's a destructive process. Once it takes place, there are no old teams to reconstitute if things go bad, so it's an all-or-nothing bet.
Unless they're in a dreadful hurry, private companies tend to instead prefer expansion of their existing teams, which is almost always a much slower process because it's iterative instead of destructive. That's how a company with $1 million in annual revenue gets to the $20 million point to begin with. It's safer. It's at least partially reversible. It can be tweaked according to each iteration's results.
If you're in charge of a privately held company and you instead attempt the all-or-nothing Dungeon Master toss-the-teams-out method without someone bribing you into it to the tune of a few hundred million dollars, I don't even know what to tell you. That's like agreeing to nail your tongue to the conference room table in exchange for a now-empty box of Thin Mints.
If we ask ourselves what Vice could have done better, the only real answer is DGB: Don't Get Bought. Once a set of benefactors-slash-overlords decided that they were going to make Vice the biggest name in media, the game became raising money and then spending that money. Whatever once made individual pieces of Vice successful was always going to be ignored in favor of the plan of "we're going to buy a truly gluttonous number of lottery tickets and count on at least one of these babies paying off." The Growth-At-All-Costs fuse was lit and the bomb went off, and then it was repeated several more times for good measure; the outcome was the same story that's become commonplace across all of tech-focused media these days.
The company crashed, and those in the once-successful bits of the company who had the wherewithal to do it abandoned ship to form their own new versions that—you guessed it—did away with all the new layers of gutpunchingly expensive management to focus instead on steady, sustainable incomes for the people doing the actual work. That was also the rescue plan for the similarly overburdened Onion, which was left for dead by G/O Media and revived with a bare-bones executive teamorganized by former NBC News reporter Ben Collins.
It's that drive for exponential profits that set the bombs now going off over all of media, and that, dear readers, is why journalism, opinion writing, and every other form of serial writing is now moving to one-author or several-author subscription-based websites. Every company is suffering the same damage and is in fire-the-workers mode as their Growth Teams try to figure out what to do with their bloated executive structures, wiped-out institutional advantages and Steve, who apparently will never be fired even though right now he's given up on drawing his mysterious charts and is just openly playing with Legos in the office.
If there's any good news for online media during the industry's near-total collapse, and it's really stretching things to say so, it's that hedge funders and other get-richer-quick, gambling-obsessed wealth groups may be getting tired of setting their money on fire in the hopes that the smoke will summon the grand and fickle spirit of The Next Big Thing. They've moved on from media and are lighting even larger piles of money on fire trying to teach vast banks of computer hardware to write poetry, under the dead certainty that if they can get an acre of silicon to write poetry that this will somehow be worth All The Money.
As for why all of these industries and companies are being full-on attacked by spin-the-wheel private equity groups obsessed over finding that next big thing no matter how many companies they have buy and kill off to do it, one good summary can be found at Apperceptive. The short version is that private equity became addicted after two big tech success stories netted lottery-sized jackpots, and they've been chasing that same high of supposed "exponential growth" ever since. The problem with that approach is that the markets have changed, and the odds of repeating those successes are now vanishingly low.
Software is eating the world," proposed Marc Andreessen, who had parlayed his brief time building the first graphical web browser into a career as a sage among a set of people overwhelmingly convinced of their own importance. Endless treatises were written on how transformative new business strategies had allowed for—would continue to allow for—this kind of transformation. VCs invested in companies based on what they described as the "hockey stick" growth curve. They were looking for businesses where scale and revenue would hit an inflection point where they would start to grow something close to exponentially, vastly outstripping the underlying costs. They wanted this because they had had it before, because they had come to believe it was not merely their due, but something close to the ineluctable purpose.
[...] The same dynamic is at play when private equity—or large conglomerates behaving like private equity in acquisitions—buy newspapers or websites on the premise that they will achieve vast and cost-less achievments in efficiency, whether by replacing writers with AI or some other more-or-less implausible snake oil. It might not work, indeed it probably won't work, but history tells them that the payoff if it does work is so extravagant that the risk, to them, seems perfectly worth it.
What we have in the tech and media markets right now are irrational investment patterns that amount to a string of all-or-nothing bets, one by one by one, to snap up companies, shovel money into "growth," and then shutter them entirely when the bet doesn't pay off. It's compulsive gambling, nothing more, but compulsive gamblers have written an unending stream of books about how their scant few wins prove that they've got a system that can overcome the odds and pay off, just you watch. It's a truly insane way to run entire industries, but here we are. Attempting to regulate these same bozos is what earned the Biden administration widespread techbro ire, because after those first wild successes all of Silicon Valley was rewired as a gambling den for rich misanthropes. Pivot to Video; Crypto Everything; Poetry By Robot; you name it, the same eternally weird private island owners have flocked to it and insisted that you, you chump, are the mean one for not believing in them.
Want to kill your tech company? Want to kill your media company? Want to kill your media company that's also a tech company? Take a successful business model, pluck it out from the hands of the managers and employees who built up the institutional knowledge that's given you that special something that none of your competitors could quite duplicate, and hand it over to a new, larger, and much more expensive executive team that doesn't know your business, neither knows nor cares what your product actually is or what niche it's aimed at, but is simultaneously very, very sure that they can turn your company into the next industry giant just by pantomiming whatever the hell the geniuses over at Boeing were doing right before parts of their planes started falling off.
Yeah, that'll do it all right. There's no coming back from that.
The full version of this story originally appeared at The Journal of Uncharted Blue Places.
Also from Uncharted Blue:
