Tuesday, November 28, 2006

So many bad companies in the world

It never ceases to amaze me how many bad companies there are in the world.  Companies that provide bad customer service, poor products, treat their employees badly, break all the rules in management books and yet continue to survive and trade, and even make profits.

Such companies grow to a certain size, usually not very big, a few hundred people at most, and then stagger on for years.  Sometime I think starting a company is as easy as falling off a log, it is growing of a company that takes skill.

Unfortunately I've worked for a few of these companies in my time and many of my friends still work for such firms.  It seems incredible to me that software firms don't invest in training, don't send their people to conference, these guys are in the knowledge business, how can they close their eyes?

And I wonder about restaurants were the food is poor and service worse.  Don't these guys ever eat in other restaurants?  Why should I wait 45 to get the bill? Does anyone ever come a second time?

Poor websites are one of the things that get me often.  Has anyone who works for British train companies ever booked a ticket online?  You can choose from about 8 different sites, each of which simply has a different skin over the same (poor) booking system.  Then the choice of tickets - why tell me about the tickets I can't buy?

Now I must say I do not include my last employer in this list, sure they laid me off but I actually consider them amongst the good - or at lest the neutral.  Sure they made mistakes and they weren't perfect but they were good, not bad. 

Good companies on the other hand seem to be few and far between.  Sometimes it seems there are so few of them I can name them: Toyota, Dell, Shell, Southwest Airlines, SAS Institute, my former employer, ... - OK, I know, I've read too many case studies at business school, the same names come up again and again.

Optimistically I want to believe that there is a silent majority of good companies out there that just don't get case studies written about them.  Actually, I think most of us assume that to be the case, that's why we keep looking for these companies, unfortunately it can be hard to tell them apart when you only have a few hours in an  interview. 

A suggestion for job hunters: do your own due diligence on potential employers, search the net for them, not just websites check news groups and mailing lists too.  See if you can get some financial information on them - I've been using UK Data and Companies House to get some financial background.  You might not find a lot but you might find a red flag.  Yes, you have to pay for these services but its not a lot of money when you look at your salary then multiply by several years.

Anyway, back to good companies...

I'm not saying the good companies are perfect, most of the companies I just named have slipped up at some time or another but on the whole they get it right.  But why are there so few good companies and so many bad companies?

So I have a theory.  The theory is in two parts.  I've already given you the first part: there is very little to stop you founding a company.  At least in the UK you can be banned from being a company director but you have to break the law first.  Many of the companies I'm talking about are just run bad, not illegally.

As long as you have some idea that is different enough from the competition you can get into business.  I'm not saying this is easy, look at the life expectancy of new companies, most fail.  I'm just saying that if some element of your product is good you can get up and running.  You could have a unique product, a great sales guy, you could be first into the market or just a good location for your shop or website.  This is all you need, you don't need to know much else, the better this one idea the worse you can be at everything else.

If you get that bit right you can get everything else wrong.  You can treat your staff badly, you can ignore strategy and you can ignore your customers.  And the longer you are in business the more entrenched your position will be.  Sure you are open to competition but as long as nobody notices you can continue.

(Advice for software companies: make sure you sell on going support and maintenance for your products.  I've seen companies survive for years on this revenue alone without selling anything new.)

The flip side is you probably won't grow very large, and if someone does notice your weakness they can easily topple you but in the meantime you can employ a bunch of people who don't actually have a good time working for you.  Thus explaining why so many people seem to work for bad employers.

The second part of this explanation is statistical: being a good company means doing a lot of things right.  First you still need the product, location, idea what ever, you still need that essential driver.

Then you need to do your product or idea well, you need to treat your customers well, you employees well and get everything else going well.  This is so much more difficult than being a bad company, there are a lot of ducks to get in the row.  And if you are successful you'll probably attract more attention from competitors - although you should be able to fight them off better.

So, simply because being a bad company is so much easier than being a good one I would expect there to be many more.

Now, under this model, every bad company reaches a size were it is just about manageable by the people who run it badly.  Think of this as the Peter Principle for companies if you like.  Some good companies will start off good but as they expand they'll get it wrong, expansion is hard and they too will hit the Peter Principle.

A few companies will get it all right.  They will manage the growth, they will keep the good product/idea/location.  These companies are real killers, they will be super successful.  Its just that there won't be very many of them because this is hard.

Consequently, most of my friends are condemned to work for bad companies.  Sorry.

I have to put a disclaimer in here.  I've never founded a company that employed anyone other than me. I've come close a couple of times but I've not done it.  Real entrepreneurs out there are quite right to say "What does he know?  He's never done it."  I agree, I've never done it.

All I'm saying is: to me, it looks like starting a company is as easy as falling off a log - provided you have an idea.  The hard bit is growing a company, keeping it good and avoiding the Peter Principle.