Too small to fail?

As AIG again headlines the news, I hope that the phrase "too big to fail" seems more patently ridiculous than it did the the panicked finish of 2008. Nothing--and I mean nothing--is too big to fail. Not T-rex, not the Roman Empire, not the Beatles. Nothing.

Similarly, it's impossible to be too small to fail. But I can't help but wonder whether the odds are better. What if, instead of trying to game the numbers four times a year to impress investors (who have a goldfish's memory--maybe even less), The Suits put that energy into actually tending their business--and the stakeholders who have a longer-term interest in its success?

In software development, we talk about whether a solution "scales"--i.e. if your usage spikes from a few hundred to several thousand or million, will it crash the entire system? Like software, human managers can only scale so much. When you're talking about organizations that make more money in a year than entire countries, and possibly employ more people than entire countries, that's a problem. Mere mortals--i.e. the CEO--or even a small cabal--the Board of Directors--can only spread themselves so thin. After that, it becomes a question of organization and motivation.

But the inherent problem is that if the organization is structured to maximize returns to a select few (shareholders, particularly institutional investors), the growth of the organization concentrates the rewards in a top-heavy fashion. And, predictably, it becomes a better economic proposition for those inside to scramble for the spoils, rather than focus on the activities that actually bring in the money.

True, companies with deeper pockets can--or should--take calculated risks that smaller ones can't afford. That's a huge advantage. But as you add more people, you add more inertia and its consequent group-think. That requires strong and smart leadership to overcome. Assuming that this will magically happen is one heck of a gamble. If the person heading the company is a founder, that's one thing--they have skin in the game. But someone who's guaranteed millions win or lose? Eh, not so much...

So, without anything more reliable than a knowledge of human nature to go on, I would bet on too small to fail before I'd bet on too big to fail.

Your thoughts?