When the youngster leaves home

First published in the Financial Times on the 15th January 2013.

If a founder sells a business to a large company, something dies

When does an entrepreneurial company become corporate? And what is lost?

Usually the change is centred around ownership. If a founder sells a business to a large company, often something dies. The creator’s passion, pride and eye for detail fade. The loyalty and quirks which made the company special melt away. I have watched the sad decline of Strada, a restaurant chain I started and owned with partners, after it was sold to a much bigger group. It feels as if the magic is no longer there but no doubt my view is prejudiced.

Perhaps scale alone leads to this dilution. As a company moves from being “independent” to national to global, its personality and individuality become blander. Size brings systems, financial disciplines, bureaucracy – and responsibility. Big businesses must adopt policies on everything from climate change to bribery to whistleblowing to supplier relationships. Seat of the pants, whimsical management tactics will no longer be adequate.

The complexity of big modern companies is extraordinary. Regulation and media scrutiny mean more regimentation and uniformity. New enterprises can remain relatively simple – their main focus is usually staying solvent – so by default, or through ignorance, they just disregard much of the red tape. This permits new companies to embrace greater flexibility and attempt more innovation. Large concerns do not get away from the burdens so easily. I like to own and run organisations that can be transformed in real terms. My preference is to at least double the size of a business during my ownership. This is hard work in a mature economy – and very difficult in really large companies – which is why I mostly buy stakes in medium-sized businesses. Moreover, such organisations have a character and intimacy that large ones don’t. As a director you feel a degree of direct responsibility that is impossible in an edifice where everything is delegated through many layers.

I’m enjoying being part of Metro Bank, an up-and-coming player in Britain, where we compete almost exclusively against monolithic banks with thousands of branches and millions of customers – many of them unhappy. Our rivals have been around for decades, and have huge legacy issues: bad debts, outdated IT, unions, pension deficits and mixed reputations. Meanwhile Metro can give high-touch service and is growing at 30 per cent a year.

Similarly, our artisan bakery Gail’s has a tiny fraction of a huge market, the vast majority of which is controlled by three operators who bake bread using the “Chorleywood” process of industrial bread making, criticised for making it less healthy. We prepare handmade loaves with only natural ingredients.

There are also disadvantages of scale when it comes to non-profits and government. I championed the creation of a family of academy schools at the RSA when I was chair because they enjoy a freedom and independence which is impossible under the old governance model. Headteachers of academies can adapt their strategies to local conditions, whereas education authorities insist on more rigid controls.

I like spending time and money with small charities – one feels they have more heart than the faceless and politicised organisations which larger charities too often become.

Of course most companies have a built-in compulsion to grow, so there is an inherent conflict between retaining human scale and offering career opportunities for ambitious managers. Some businesses resolve this by creating franchises; others devolve power to regional branches and avoid any form of head office or holding company mentality.

I never oblige our partner entrepreneurs to pool their procurement or use common technology, even if adopting such methods might produce efficiencies. Leaders need to feel they control their destiny. It is far more important for them to keep their dignity than win some petty savings at the price of demoralisation.

There is no perfect size for any company, and many industries demand a certain mass to be viable: car manufacturing is an example. In some cases, customers and employees may choose the security of a multinational over a local offering. But generally I like smaller, dynamic organisations run by owners who truly care about their business.