We at Strawman know that bigger isn’t always better. There are plenty of reasons for that, but one of the more enduring comes from William H. Whyte’s classic The Organization Man from 1956. His central point was that large institutions tend to nudge everyone toward the middle. The bigger the machine, the more it wants predictable cogs.
Comfort goes up, but creativity slips away. Imagination gets traded for a sense of safety, and that tension sits right at the heart of investing.
Of course, size has real advantages. Big enterprises enjoy economies of scale, pricing power, brand recognition, lower costs of capital and, whether we like it or not, a decent amount of political sway.
But, as Whyte argues, there are some major drawbacks too.
Once an organisation gets big enough, simple coordination becomes a major challenge. Coordination needs process. Process pulls in committees. And committees tend to produce whatever feels comfortably acceptable. Nobody sticks their neck out and everyone plays inside the lines.
Whyte reckoned this was the natural drift of large institutions. Cultures start rewarding caution over initiative and consensus over originality. Over time the system becomes very good at avoiding mistakes and not so good at creating anything genuinely fresh.
And this is where small caps have a genuine edge. A founder-led small cap doesn’t need a bureaucratic obstacle course to try something new. Its advantage isn’t muscle, it’s speed and agility.
According to Whyte, creativity lives where individuals still matter. Where people own their work instead of their job titles. Where ideas compete on merit rather than seniority. Early-stage businesses often keep that spark, not because they’re inherently smarter, but because they haven’t yet built the heavy machinery that flattens the odd and the unconventional.
A small company can afford to be more daring in a way that a big company often can’t. When something fails in a large organisation, it triggers an entire melodrama of reviews, politics and finger pointing. When something fails in a small outfit, it’s usually just a prompt to try another angle. The feedback loop is tight, with little distance between the generals and the front line.
And speed compounds.
If one company can test an idea in a quarter while a bigger rival is still chasing sign-off from eighteen mid-level managers, it’s going to be the more innovative one. By the time the megacorp has a draft proposal ready, the smaller player has already cycled through half a dozen iterations. That doesn’t guarantee success, but it does shift the odds.
Most breakthroughs aren’t the result of a single lightning bolt, they’re the steady accumulation of lots of small experiments. In other words, innovation is often a numbers game.
For investors, that’s the opportunity. The merits of an investment don’t depend on what a company has achieved in the past (though that’s certainly a useful guide) but on its potential to grow in relevance from here. And the gap between current reality and future potential is widest in the places where creativity still has room to breathe.
This is why culture matters so much. It’s tough to separate those who genuinely nurture it from those who just pay it lip service, but if you can spot the environments where individuals still matter, where someone with a good idea can push it forward without getting tangled in a web of process, you really can tilt the odds in your favour.
It’s not about forecasting the next big thing. It’s about recognising the conditions that allow the next big thing to emerge.
Do people own their work or just protect their turf? Are decisions made close to the action or pushed up the line? Does the company still experiment or has it settled into “best practice”? These small clues can tell you more about future returns than any backward looking financial ratio.
Of course, smaller companies make for far less comfortable investments. They lack the dependability of larger operations, they can make plenty of missteps and sometimes look chaotic. The challenge is telling the difference between aimless flailing and deliberate exploration. One burns cash. The other creates options.
In the end, Whyte’s warning is simple. The bigger an organisation gets, the more it gravitates toward caution and the more it dulls the instincts that create progress in the first place. Small caps don’t have that luxury. They survive by staying curious and moving quickly, not by defending a comfortable status quo.
And that’s exactly why the smallest players often end up making the biggest leaps.
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