Anyway, for anyone that loves the Wire check out Jason Policastro's blog. He's an independent journalist in Baltimore providing a glimpse into the stories behind the city's politics, crime and culture. http://www.jasonpolicastro.com/wordpress/

I am a red-blooded entrepreneur like any other, so I love what you're saying, but I am not sure that most large organizations feel the need to behave like start-ups, or that one group is dying off any faster than the other. I don't know–

Good luck Aniq! Working on first hire and equity split now before pursuing external funding. It detracts from productivity time though.

Not sure I agree with the moral implications of your BigCo story.

This same scenario could be described differently: BigCo, with a strong balance sheet and operating scale, buys a smaller high-growth company. The deal positions BigCo for growth in its competitive global market. BigCo uses its scale to expand distribution of SmallCo's assets, while reducing costs to optimize operational performance and simultaneously enable the purchase premium paid to SmallCo's investors. (Assume the premium is very high given SmallCo's 50% growth rate; the early investors and founders have a fantastic exit.)

The public markets, and M&A arbitrageurs, who are more sophisticated than you imply, will make a call on true value; i.e.: is this a repeat of the 1960's EPS buying game or an EPS-accretive smart strategic move? Public market investors will decide and either reward or punish BigCo's share price – a fine check & balance on a fine capitalist endeavor.

A close-up look at the hedge fund environment of Argentina. Speaking with managers of two of the largest funds operating in the region, Alternative Latin Investor looks at the capital markets, politics and economics, which affect the operation of hedge funds.

http://www.alternativelatininvestor.com/hedge2.php

Jm from France

From one guy who cares about real value.

The investment thesis is that the bigger company, with better scale, mgmt, costs of doing business, brand, etc., can actually make all the little companies worth more.

The cynical view is that the market with pay a higher multiple for larger companies, so if you buy 20 companies doing $10 mm in revenue at 5x EBITDA, you can smush 'em together into a larger company doing $200 mm in revenue and float it on the markets at 8x EBITDA.

Good insight and nice hook with the Wire intro

1. Compensation (see your post)
2. Organization (strict hierarchical system are reactionary. Opposite “smart system” brain structure and plasticity, in economy start ups).
3. Over reliance on data. (From CYA to “be wary of Geeks bearing formulas” to my play on it “be wary of CEOs bearing golden parachutes”).

All of these interact and pretty fast create an inflexible system by itself unable to react to the market or anything else. Just optimized to serve one purpose, increase influence and income at the top.

These early “cottage” enterprises were small organizations characterized by close relationships where workers' social identity was inseparable from their work and their organization. People even took on surnames to reflect their work (i.e., Fisher, Weaver, Baker, etc.) Workers didn't need financial incentive or regulation to behave appropriately because they saw their work was a reflection of who they were.

During the Industrial Revolution, factories used the efficiencies of scale to put cottages out of business. People became cogs in a machine. Treated poorly by their foreman, people had little incentive to do more than the minimum required.

Big organizations today are still shaped under the logic that economies of scale mean bigger is better. Certainly that is still true for organizations like Wal-mart. But for many organizations in today's Information Age, we've automated or outsourced anything that benefits from scale (manufacturing). What remains are “knowledge workers.” Scale actually hinders–not helps–that sort of work (http://j.mp/85HaHd).

Today's tech startups are lot like cottages. In high margin, knowledge-centered industries (like software), cottages have speed, flexibility, and passion that will win over factories.

(P.S. Products that benefit from network effects, like social networking, search, operating systems, etc. are another exception where scale trumps everything else.)

If you ever want to start a blog specifically tying together lessons from The Wire/Homicide (and he's got a new show coming) to entrepreneurship you just found your first writer.

Sheeeeeeeeeeeeeeeeeeit.

As for compensation and accounting rules, as you know these are huge, complex topics. Another time….

Congress is looking like our biggest institutional failure to me.

But – the Q&A itself, fielding questions from Republican congress members, is a glimmer of hope. I hope President Obama keeps up the chastising of both parties.

Maybe in a future post you could highlight some of the questions you ask yourself and your portfolio companies to make sure that things are on track and moving forward (other than what the balance sheet says). I think that advice is portable to the BigCo's of the world.

Also – what do you think are the best mechanisms for rewarding people? Obviously startups can't/shouldn't write out big bonus checks (nor do I think that throwing monetary incentive is the best reward). There are already so many intrinsic rewards to startups and maybe just fostering that culture and the belief that you're doing something that will positively change the world is enough.

excellent illustration of why CEOs are fixated on growth. in effect, the CEO's boss is the shareholder/investor, and they put enormous pressure on the CEO to keep delivering steady growth. pursuing deals that are accretive to earnings is almost an easy way out (inorganic vs organic growth).

minor quibble- i think these transactions hits the balance sheet (cash, goodwill, etc.) more than the income statement. after the transaction, there is an impact on the income statement since all the future earnings are summed, but the costs of acquiring those earnings is mostly reflected in the balance sheet.

It struck me in the situation you brought up that the enabler of this happening is when people are reduced to a role and just playing within the forces of the incentives of the institution structure they are in. Something to keep in mind if you're in a position of control…

The CEO in your tale would have been replaced until the CEO was found who would do exactly what happened – it's built in (rigged, as you said).

So if you have a company and take VC money instead of growing organically – you have to be aware of the institutional forces that is going to put you under I think. Same for going public or getting acquired.

I'd imagine the happiest people in business are the ones that are able to stay independent and grow their business under their terms – where they define the forces of their own institution essentially.

Sure, a lot of these “BigCo's” with the budgets to snap up innovative startups will just let them die – but I don't think there are any winners from what you described. Yes, those are the guys and gals that make money in the short term, but once your corporate culture fades to the point where innovation isn't rewarded on actual merits – it's probably only a matter of time until things fall apart completely.

The larger the organization the more things/people there are for others to hide behind. It gets easier for people to be cowards or just lazy and not take a stand for doing the right thing (in business, morally, etc.). I think some of the clusterF stems from people playing the system as you point out. No doubt about it.

But I also think some of it is just organizational behavior that tends to happen on its own as things get big unless there are genuine leaders who won't allow it. I don't think people realize the culture they're creating until it's too late.