In my decade plus of experience in the working world, I’ve managed to work for large and small companies. I’ve noticed how different
organizations seem to operate.

Some groups are small, lean, and mean. They don’t have much to work with, and everything they do is extremely focused on their
product(s). These companies are intense and, I think, fun to work for, but they can’t survive many hits. As a result, if they manage to hang on, they probably have a very capable team that can work wonders.

Then there are the larger organizations that don’t seem quite so
focused on what they deliver. Once you’ve spent a few hours in
meetings trying to optimize your software build processes to take full advantage of the various international tax benefits, you may realize that a lot of work performed by people all over is done to get around obstacles that we set up for each other. You also quickly realize that there is nothing more tedious, and less worthwhile on the whole — especially to technically-minded people.

I have never seen that at a small company. Small companies don’t have the resources to worry about that kind of thing or the scale to make it pay off. They focus on the product or service that they’re delivering and not much else.

However, all of the larger organizations that I’ve worked for have been much more profitable, and I wonder why that is. There’s a simple explanation — the bigger companies do more valuable work. Extremely valuable work would allow a company to grow faster than others and support the larger overhead of organizing so many more people, processes, etc. Given what I’ve seen at large companies, I’m not so sure this is the only, or best, answer.

The value of work or a product is dictated by reality. How much time does the product save? What are the side-effects of using said product? What are the risks? The net consequences of all concerns indicate the intrinsic value (regardless if that’s reflected in market value).

We set up rules to guide us toward maximum value. Distinguishing good rules from bad rules isn’t always easy. Bad rules can masquerade as good rules for a time, and good rules can go unnoticed. As a result, this discovery is a meandering process, but ideally the rules guide us toward maximum value.

Effective rules might include the US Constitution. They’ve produced a fairly stable country that has managed to be very productive. English Common Law might be another example. It’s a pattern of behavior that has positively influenced every place that it has touched.

For reasons stated above, the rules regularly fall short of optimal. When they do, they force the people and organizations that are required to follow them to trade off real value creation for compliance to the rules to minimize penalties. As the gulf between the enforced rules and the optimal rules widens, those people and organizations are forced into a particularly difficult spot.

On one side, reality can’t be ignored indefinitely. People need to breath, drink, eat, sleep, etc. If those needs can’t be met, people will get sick and die — at an arbitrarily large scale. Accumulated wealth can act as a buffer against bad decision making, but it won’t last forever.

On the other side, the man-made rules can be ignored to the extent that the enforcing organizations can be avoided or manipulated. Many times man-made rules are also created in such a way that they don’t apply to the smallest of organizations.

When caught between these two sides, the combination of acting against reality, not complying with bad rules, or both, will start killing companies. The ones that seem to survive are either so small that the rules don’t apply or they can avoid detection by enforcement bodies; so large that they can take advantage of relatively expensive techniques to comply with or avoid the rules; or so large they can directly influence the rules or their enforcement.

Given this, in an environment where the rules are good, one might expect to see companies of all sizes flourishing or at least surviving to some extent. In an environment where the rules aren’t as good, I would expect to see some fraction of middle-sized companies disappear. The smallest companies can escape the rule or detection, the largest companies can financially or politically maneuver, the middle guys take the hit.

How do the large companies have an advantage? New fixed costs are a relatively smaller proportion of their revenues and (presumably) profits. This includes complying with regulations, legal battles, lobbying, and moving offices or plants. New taxes are maybe generally less of a burden to the large companies, but the accounting research needed to minimize tax burden via international accounting also acts as an alternative fixed cost, yielding the above advantages.

These all might be described as political economies of scale. The advantage isn’t in discovery or creation, but in being able to maneuver the political landscape. I believe this is almost exclusively the domain of the large organizations.