I’m enjoying Chapter 8 of Matt Ridley’s The Rational Optimist. The following two passages remind me of this post of mine on business experimentation and also this previous post about Ridley’s book, on how countries generate and accumulate wealth and then successive generations spend it. It’s essentially the same concept, applied to businesses. This is from page 260:
Far from being able to spend their way into novelty and growth, companies are perpetually discovering that their R&D budgets get captured by increasingly defensive and complacent corporate bureaucrats, who spend them on low-risk, dull projects and fail to notice gigantic new opportunities, which thereby turn into threats.
The bureaucrats or politicians that take over a successful company, use the wealth created by that previous success to pad their power fiefdoms. In this sense, they act much like trust fund kids.
The only quibble with this passage is that companies rarely discover this. More typically, they die a slow death as outside innovators make them obsolete. But, I think Ridley was perhaps writing colorfully.
Though they may start with entrepreneurial zeal, once firms or bureaucracies grow large, they become risk-averse to the point of Luddism. The pioneer venture capitalist Georges Doriot said that the most dangerous moment in the life of a company was when it had succeeded, for then it stopped innovating.