Incompetent and Maddeningly Oblivious

The Wall Street Journal
By Dale Buss

Lawrence Irving came to a very clear crossroads a few weeks ago. His employer, a 325-employee software provider, was acquired by ADC Telecommunications, a diversified concern with a staff of more than 22,000.

The chief financial officer was offered multiple opportunities within Minneapolis-based ADC, even some that would have allowed him to stay in the Cranbury, N.J., area, where his employer, CommTech Corp., was located.

But instead, Mr. Irving took the opportunity to go in a different direction -- with a much smaller company. In August, he became chief financial officer of Synchronoss Technologies Inc., a company in Bethlehem, Pa. Synchronoss provides hosted and secure operations-support platforms for telecommunications carriers and has about 60 employees.

Mr. Irving isn't alone in favoring a small company. Many professionals are doing the same as layoffs at large companies continue. It may seem counterintuitive, because by definition small companies have fewer resources than large ones. The bursting of the Internet bubble, which caused the demise of hundreds of start-ups, has scarred many employees as well.

The 45-year-old Mr. Irving says he's never felt secure in a larger company. "Larger companies tend to become very inflexible, so that when the market changes, large companies can't make the changes they have to make," he says. "A small company can move very quickly with the market, especially in times like this."

Indeed, it makes sense to consider what smaller companies can offer professionals making career moves against the backdrop of a downturn. You should take these five factors into account:

1. Whether size really does matter: The layoffs in the 1990s proved that large companies no longer were the employment security blankets that they once had been. The current wave of job cuts underscores that point. "You're far safer in a smaller company taking a new job right now than in a large company, because things are so much more uncertain," says David Lewis, president of Operations, a Stamford, Conn.-based concern that helps small companies with human-resources issues. "The larger the business is, the more susceptible it is right now to some kind of reduction-in-force. And last-in, first-out applies more the bigger the business."

The National Association of Computer Consultant Businesses, based in Alexandria, Va., recently released a study showing that the business slowdown has been hitting large and mid-size computer-consultant firms much harder than smaller ones. One reason: Smaller companies tend to be start-ups and haven't reached the point of having to replace a significant number of projects that are coming to an end -- or scaling back their workforces to match reduced demand.

"I'm not convinced any longer that larger companies are better places to work," says Andrew Birol, president of Pacer Associates, a Cleveland-based business-development concern. "Larger companies can become such captives of their own direction, and they prove so inflexible -- how can Ford [Motor Co.], for example, which just two years ago was belle of the ball, now be announcing that it would lay off more than 5% of its work force? How can that happen?

"People say if customers catch a cold, small businesses catch pneumonia. But they say that only because larger companies can hide their mistakes longer. Yet once the mistake is found, a larger company has to decimate its organization to recover. A small organization can make smaller cuts and do them more quickly and more strategically."

In fact, in many ways, the big picture tends to favor small companies over large. Smaller concerns still create nearly all of the new jobs in the U.S. economy, continuing a trend that's been evident for more than a decade. The biggest new-job generators tend to be companies that are one to two years old, experts say.

And while the current slowdown likely will shutter many small companies, "New-firm start-up and birth rates go hand-in-hand with small-company death rates," says Larry Cox, director of research for the Kauffman Center for Entrepreneurial Leadership, a think-tank in Kansas City, Mo. "As the number of deaths increase, the number of births also increases. There's about a 1% different in the U.S. every year, even during times of churn like this."

2. The small-pond syndrome: It really can be better to be a bigger fish, no matter what the economy is doing. That's certainly the attitude of Jorge de la Torre, who with four other partners left the huge accounting firm Deloitte Touche earlier this year and established their own boutique company, Total Support Inc.

"I just felt I had more control of my own future being with a small firm, especially one that I helped start, than with a large one," says Mr. de la Torre, who is vice president of tax services for the new firm, which is based in Miami. "There's a direct correlation now between the time and effort I devote to the job and how much job security I have. Working with a larger company, I felt that no matter what I did, my fate was in the hands of someone else."

At small companies in general, each hire is likely to be much more carefully considered than at larger ones, meaning -- among other things -- that the employer has more invested in the result. "In strategic or operational-type roles, the chances are the hire has been very thoughtful because, in a 40-person company, say, the hire is more visible to everyone than it is in a larger organization," says Mr. Lewis.

The same logic can work to professionals' advantage when times get tough. "The pain felt about doing without you is a much more difficult decision at a smaller company," Mr. Lewis says. "Large companies do get rid of even good performers if they have to cut costs. But companies that are smaller tend to think twice about getting rid of people and are more likely to try to weather the storm. Just look at the morale issues that can be created when a small business does a layoff. Most small companies aren't prepared for that, whereas in a larger company, all the machinery is there to do layoffs, so it can be done almost without emotion."

3. The value proposition: What seems to matter most for a company's prospects these days isn't its size, or even its track record, but whether right now it's on a path that's in synch with where its industry is headed. "Does the company have a good strategy? Look at it, the niche it's after, the market it's in, how competitive it is," advises Mr. Cox.

Answering this question is even more important during a downturn, Mr. Birol says. "The thing that's most critical in a down economy is: Is the need for what the prospective employer provides accepted and valued by its customers?" he says. "The little guy who knows how to cable wireless servers together is just as secure as anybody at the phone company. It's if you do something well that counts."

Small companies that are trailblazers or innovators naturally are the most desirable. "If a company is attempting to create the demand or define the category, it's far less likely that the company's customers will make changes during a downturn," Mr. Birol says. Customers "just move right into risk-avoidance mode, and change becomes even less attractive to them."

On the other hand, "If you feel that the company's value proposition is in any way vague, and they're still attempting to define it, that's a risky enterprise to join regardless of the size of the company. And right now, employers from Lucent" -- the huge telecommunications-equipment AT&T spin-off, which has been making massive layoffs -- "to some local company that thinks fruit omelets are a good idea are equally risky propositions."

4. The need for research: Professionals should adopt the advice given by legendary investor Warren Buffett: Never invest in a business you don't understand. The need to conduct "due diligence" research is especially great when it comes to smaller concerns, which unlike large corporations aren't already being watched intently by thousands of shareholders, stock analysts, government regulators and others.

Natural places to start include the Internet and other repositories of information. But it's not untoward for candidates also to try to talk directly with people who deal with the prospective employer, including former and current employees, and customers. "Go talk to their customers or who they say their customers are," Mr. Birol urges. "The primary consideration is evidence that customers are making purchases from this company. And if this customer can't tell you what is the value of buying from the company you're considering, if that's not clear -- run away."

Valeri Marks did "a phenomenal amount of due diligence" before deciding in July to take a job as chairman and chief executive officer of Sockeye Networks Inc., a Newton, Mass.-based firm that helps companies efficiently route their Internet traffic. That's partly because, after 20 years with Ameritech and its successor company, SBC Communications, she had left to head a broadband-industry start-up in the summer of 2000 -- and then the bottom fell out of the broadband market last fall. By February, it was up to the 43-year-old Marks to shut the company down.

This time around, about Sockeye Networks, Ms. Marks found out, among other things, that the company had $28 million in cash reserves. Cash is king as tech companies continue to wait for consumer and business demand to surge as much as expected. Ms. Marks also discovered that Sockeye had a partnership with Akamai Technologies, a well-regarded tech firm. The information she garnered made it easy for her to go with Sockeye rather than a large telecom company.

5. The entrepreneur: The smaller company, typically the more important the owner or entrepreneur should be to your calculations about whether the employer will be a good fit for you. One aspect of this consideration is the chance to have an impact on the owner and vice versa. "Look at companies where the owner is someone you can rub elbows with on a daily basis, so you don't have the separation of ownership and the person who's really going to be making decisions about your livelihood," says Ray Silverstein, president of the Presidents Resource Organization, a Chicago-based concern that creates and facilitates advisory boards for small companies. "You should be able to get very familiar with this person."

Just as important is what the owner's circumstances and attitude convey about the future of the business. "A good way to tell if success is more likely is to understand the owner's character, heritage, expertise and experience," Mr. Birol says. "Look for people who are confident and people who've had some experience surviving relevant battles.

"For instance, if you're dealing with an owner whose business is slowing down as a result of the downturn, if he's got 10 years of retained earnings in hand and kids who are out of college, this owner may be more interested in maximizing his reputation and standing with his peers at the trade association than necessarily going to war to try to grow the business by double digits. Because the pain isn't there."

--Mr. Buss is a journalist and editorial consultant based in Rochester Hills, Mich.

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