Big company guys don’t do small

Big company guys think that they can run startups because they’ve run small divisions of big companies. So that must be the same, right?

Actually the two things are very different and not many people seem to be good at making the transition once they have got used to how a big company works, with their assistants, and finance organization, and HR department and all the rest.

When I was at VLSI and the fab was not running effectively, the company would hire a VP from TI or Motorola (where the CEO had previously worked and so knew good people he’d worked with before). These guys were used to running a fab that was running smoothly, with a large organization around them. They were not used to sorting out a dysfunctional fab with very few people to support them. When they didn’t work out, they were doubly expensive because they needed big severance packages to get rid of them.

When you become CEO of a startup, you have do everything yourself. Especially if the startup is attempting to run very lean with minimal cash burn, and conserve most of that cash for engineering. You want to put together a business plan? Fire up Excel. There’s at most a part-time accountant in the finance department and you can’t delegate it to them. Even if you have a “CFO for a day” part-time senior finance consultant, they don’t understand the business intimately like you should because that’s bound up with strategy which is not just something financial. They can help review the plan but they can’t do it for you.

If you’ve not got a very good engineering manager then you can’t rely on the current schedules. And you don’t have enough money to do what you would in a big company and hire a good engineering manager, or even a really good product management specialist. You have to do that yourself too. In a typical startup, as CEO, you will probably be the only person who isn’t writing code or designing chips.

Another problem with big companies is that people don’t really know how successful their business really is, since it is often very bound up in company-wide financial measures that are not closely enough tied to reality. So it is easy to look good when you aren’t, or looks undeservingly bad. If you are in a big EDA company, nobody knows how to really allocate revenue from big volume purchases to product lines. If you are in a semiconductor company, the cost model is rarely as accurate as necessary, and fab variances (because the fab is overloaded, or underloaded, or not yielding as expected) distort it again.

If your company has a few hugely profitable product lines (think Intel or Synopsys) then the smaller product lines may look good or not depending on how the overhead of the company is handled, and whether the profitable lines eat a lot of overhead leading to everyone else looking good (margin bleed-through), or the opposite, leading to everyone else looking worse than reality. It is too expensive to do full activity-based costing (ABC) and so overhead is often misleading. If cost of sales is a fixed percentage  of revenue, that assumes all products and all order sizes are equally easy to sell, which is clearly not true. But this may make some product lines look great (hire that manager) and others look poor (and he looked so promising) even though it purely an artifact of the underlying management accounting.

Although it is possible to make the transition from a big company to a startup, but both EDA and fabless semiconductor are littered with people who failed to do that. They were very successful at running a division of a big company, but were unable to translate that skill into success at either founding or coming into a startup and getting it to run well.

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