The Scaling Trap

Why Growth Makes Companies Feel Dumber

Let’s unpack that start-up mantra “move fast and break things.” You’ll hear it when corporate behemoths - generally at the wrong end of an earnings report - start banging on about getting back to the explosive growth start-up mode. It’s as romantic as people who live by quarterly reports get, but beware: If you are going to move fast, you better know what needs breaking.

That’s not always obvious because as companies scale, decision-making becomes abstracted from market realities, despite bringing greater resources and more data to the problem. Responses become sluggish and consequently, one step behind the faster and smaller rivals.

In my experience, larger companies break the wrong thing, creating a disconnect between a decision and its real-world consequences. As “decision distance” grows, systems become unstable because they are insulated from reality in a way that start-ups aren’t. The variable isn’t generally size, or even the added complexity of the larger system, but in the way various components of a complex system interact with each other.

It might help to visualize a start-up as a single, market-facing “operations” system. As a business grows, it will add more market-facing “operations” systems that must be managed within a larger system. Without getting too into the weeds, think about Benoit Mandelbrot’s concept of fractals: Nearly all complex systems – broccoli, river networks, humans, snowflakes, and lightning bolts – are made up self-repeating smaller systems. It is a mathematical language to describe the organized chaos of the natural world. In the case of living systems, those fractals must have some way to coordinate to move forward – a “management” system.

Why Start-ups Feel Smarter:

The short answer is a tighter feedback loop between decisions and a market-facing “operations” system. Market inputs produce a lot of information and “noise” which is handled on a tight feedback loop. The real-world reacts quickly – often painful, but incredibly efficient. Add another “operations” system and amount of information increases exponentially. You will need an additional “management” system to make company wide decision if you want avoid absolute chaos.

This necessarily creates looser feedback loops for companies as they scale by creating distance between market signals and a decision. Not only is the information delayed, but it’s likely been averaged so that while the facts remain, actionable signals are lost. In my experience, “operations” are also much better at dealing with rouge market outliers – which will really mess with your data quality.

Some of this is unavoidable. Some of it – like endless rounds of management sign offs – is not. Those loose feedback loops don’t just slow you down, they give off a false security from having more data and more people in on the sign-off. You think that you’re making better decisions, you’re often just making better defended decisions. And that’s not the same thing.

The Feild Guide:

As much as you can, allow individual systems to address most of this noise locally, as it arises, rather than through central planning. This will decrease the amount of “noise” coming out of each, increasing the available bandwidth of management systems to deal with problems being passed up the chain. Every fractal in the greater system also needs to communicate with each other in a way that the critical signal is understood. And those signals need to be sent fast enough to be the basis of action without too much lagging debate from within management. The second order effect here is decreased employee turnover, which increases the likelihood of this communication being handled informally.

A simple way to spot trouble is to ask two questions of any major decision:

1. How far is the decision-maker from the consequences?

2. How quickly will we know if we’re wrong?

Now place it mentally on this grid:

Low distance + fast feedback  = safe to move quickly

Low distance + slow feedback = add early warning signals

High distance + fast feedback = bring decision-makers closer

High distance + slow feedback = decentralize to “operations” system

In the real world is that once market contact is made, speed of learning beats any planning. Growth doesn’t make companies dumber. It just pushes them further away from the consequences of their own decisions and makes market intelligence theoretical. The companies that scale well aren’t the ones with the best strategy decks. They’re the ones that systematically engineer their way back to painful market clarity.

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