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I think this can be generalized to say that start-ups have a different cost-benefit analysis - one where losses are capped at the (relatively small) value of th
by allyt 18y ago
I think this can be generalized to say that start-ups have a different cost-benefit analysis - one where losses are capped at the (relatively small) value of the company. On the other hand, large companies have to be risk-averse because the worst-case is several magnitudes worse. When you're working at ConEd or AIG, the "tiny probability/worst-case-loss" factors start to matter, because "worst-case" can include investors losing life savings, federal investigations, and jail time for your boss's boss.
- lutorm 18y agoFunny that some of those large companies you mention didn't seem to get the memo about being risk-averse... ;-)
- deleted 18y ago[deleted]
- fallentimes 18y agoDuring their executive retreats they decided to be risk seeking instead. I wonder if the problem at the recently troubled companies (AIG, Merrill, Lehman etc) was not enough checks in place or not enough power allotted to the employees who knew something was wrong.
- mixmax 18y agoSame as always: greed
- eru 18y agoIdeally a system should use greed (and other emotions) instead of having to guard against it.
- andr 18y agoFrom memory: the Excel bug that caused Moody's to give high ratings of mortgage securities (one of the probable causes of the whole mess) was known, but management decided not to fix it. So, greed can override checks and balances.
- nradov 18y agoThe bug wasn't in Excel. It was Moody's own fault, not Microsoft's.
- Dilpil 18y agoThe issue was not a bug, it was a fundamental misunderstanding of how real estate markets work. Moody's had a model for pricing mortgages which assumed real estate prices never went down. It was basically the real life equivalent of the famous "Assume a spherical cow..." problem.
- pg 18y agoI don't think greater risk accounts for all the slowness of big companies. Some (probably most) of it is simply breakage caused by their large size.
- mixmax 18y agoThe major factor at work is simply a lack of personal responsibility towards the end product in a large company. In a startup there's noone to blame but you, and thus no need for politics. As anyone who has worked in middle management or above in a large company can tell you half of the job is making sure you can always find someone else to blame, while taking credit for the successes of others.