Why startups win or the “masses of asses problem”


big scienceThere was a period back last century that Microsoft was attempting to work with IBM. But I vividly recall a frustrated Bill Gates’ angry statement to the effect that “The problem with IBM is that they throw masses of asses at a problem, which just makes things worse.” This statement, along with the truism that small is better, have stuck with me and helps explain why small, lean startups so often beat out large incumbent companies.

I’ve seen the masses of asses problem firsthand myself: at Software Arts, meetings with DEC (Digital Equipment Corporation) then the largest and most powerful computer company in the world after IBM, would involve two or three of us and a dozen DEC people. At Course Technology I saw the same problem. Ernst and Young, a top five accounting firm, was a partner and they would bring in a dozen people to meet with two or three of us.

In mentoring startups I often remind them to focus on their customer and not worry about the giant corporations that may be the market leaders in the startups target market.

Today, the article in The New York Times,Can Big Science Be Too Big? A new study finds that small teams of researchers do more innovative work than large teams do sub-titled: Psychologists have found that people generate more ideas when working alone or in smaller groups provides hard evidence that small teams are more innovative than large ones. 

In the largest analysis of the issue thus far, investigators have found that the smaller the research team working on a problem, the more likely it was to generate innovative solutions. Large consortiums are still important drivers of progress, but they are best suited to confirming or consolidating novel findings, rather than generating them.

I  highly recommend founders read this article in full. It’s conclusions help explain that no matter how hard large companies try to be innovative they often fail: smaller groups were more likely to produce novel findings than larger ones.

And be careful of brainstorming sessions!

“We find that the product of three individuals working separately is greater than if those three people collaborate as a group,” Dr. Rajaram said. “When brainstorming, people produce fewer ideas when working in groups than when working alone.”

This came as a surprise to me as in my half dozen startups we often brainstormed about such things as a product name or new features to be added to a product.

This article, which is strictly about the effectiveness of small teams in science, ends with a quote about venture capitalists:

“Think of it like venture capitalists do,” said James A. Evans, a sociologist at the University of Chicago. “They expect a 5 percent success rate, and they try to minimize the correlation between the business they fund. They have a portfolio, one that gives them a higher risk-tolerance level, and also higher payoffs.”

And another sign that this article is highly relevant to startups is the use of the word disruption not once but three times!

Dr. Evans and his team rated papers and projects on a measure of “disruption.” Nobel Prize-winning papers tended to cluster at the top of this disruption scale;
So how do fast growing companies avoid falling into the “masses of asses” problem as they add dozens of new hires? Do what Bill Gates did at Microsoft, when a group got too large he would break it up into two smaller teams.  Thus while Microsoft grew to a very large size, comparable to the long time incumbents in the PC industry, they still were able to produce innovative, disruptive products.
One final quote:
Psychologists have found that people working in larger groups tend to generate fewer ideasthan when they work in smaller groups, or when working alone, and become less receptive to ideas from outside.
As with meeting attendees, keep your teams as small as possible, but no smaller. That will help you maintain your competitive advantage over well established, very large companies.

Author: Mentorphile

Mentor, coach, and advisor to entrepreneurs, small businesses, and non-profit organizations. General manager with significant experience in both for-profit and non-profit organizations. Focus on media and information. On founding team of four venture-backed companies. Currently Chairman of Popsleuth, Inc., maker of the Endorfyn app for keeping fans updated on new stuff from their favorite artists.

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