3 September 2018
It’s been a while since we featured one of Luke Johnson’s columns. This is a superb one that assesses how entrepreneurs are programmed to seek growth – it’s the essence of human progress – but it can be hard to keep the same sense of pride and loyalty towards a large organisation.
One of the few advantages of age is that it gives one perspective. When I was a young entrepreneur, my priority was to get rich as quickly as possible, and to build companies as big as possible. Now I have the benefit of some experience, I can say that the single-minded pursuit of wealth, power and status has significant limitations. There should be other priorities in life, which in the past I was too callow and narrow-minded to see.
In business, scale becomes an end in itself. Growth at all costs is generally the mission. Who wants a company that isn’t expanding? That feels like failure, like surrender. Yet there are other purposes out there for any commercial undertaking — and I’m not simply talking about a company’s social purposes, and looking after all its stakeholders.
The American capitalist philosophy has always been about endless growth and damn the consequences. Silicon Valley embodies this to an emphatic degree. There they create companies to rule the world. They look for big winners with huge paybacks. They fund firms that make no money but have global ambitions, with the hope that more and more sales will eventually turn the venture into a profitable enterprise.
So Uber offers a global solution to urban transport, Amazon reinvents shopping for the 21st century, Google dominates the advertising industry. A part of me greatly admires their achievements, and respects the wealth generation, jobs and innovation they produce, but they also generate considerable collateral damage. Meanwhile, across almost every industry there is creeping but relentless consolidation. Technology, globalisation, finance and economies of scale drive ever more mergers and rising market shares for multinationals. Most big sectors — from oil to automotives to banking to airlines to supermarkets — are now highly concentrated. Many are, in effect, oligopolies. This can help boost profit margins and return on capital for owners, but it can also make society more boring, provide consumers with less choice and fuel anti-big business sentiment among the public.
Alongside such giants, the vast majority of firms can feel like also-rans. Yet I think many smaller companies have much to offer their customers, their suppliers, their communities and their proprietors. Smaller can be quirky, personal, and individual. Local firms can reflect better the character of a neighbourhood. Owners who know all their staff by name and their customers personally tend to care more. Healthy, diverse economies should not rely on a tiny number of gigantic corporations. Small businesses remain the backbone of many regions and still account for the majority of private sector employment.
Interestingly, when I’ve met highly successful entrepreneurs who’ve created large companies, they generally become most animated when talking about the early days. Once the business attains a decent size and critical mass, it inevitably becomes much more corporate, more regimented, and duller: staffed by more bureaucrats and fewer pioneers. It is a less risky, but also less exciting venture. I note many of Richard Branson’s tweets are nostalgic memories of his start-up days at Virgin — with little mention of his current sprawling empire.
I have helped lead teams that have built at least five food brands from a modest size — typically six branches — to national scale — 50 or even hundreds of locations. The whole exercise is definitely more fun at the beginning, when every single new opening can make or break the business. Once an operation reaches the point when it’s opening a new outlet every couple of weeks, then inevitably, it becomes more routine, less flexible and more serious.
By their natures I think entrepreneurs are programmed to seek growth — that is the essence of human progress. There is huge merit in creating jobs and offering more customers a great experience. However, it is harder to keep quite the same sense of pride and loyalty towards a large organisation. I confess that I much prefer to see a play in a small intimate theatre than any performance in a giant auditorium, and to eat in a little bistro rather than a huge, impersonal restaurant. Big brands and hypergrowth are impressive, but they cannot be the only or the best answer.
The government and the financial sector must remember to promote domestic business in good faith, and should never neglect local entrepreneurs for multinationals.
Luke Johnson is chairman of Risk Capital Partners and the Institute of Cancer Research.
Here’s the original article in Luke Johnson’s Animal Spirits column in the Sunday Times.