Small organisations fail more readily because thin reserves make ordinary shocks existential and fixed administrative burdens fall on few people.
Aldrich and Auster separated the two hazards in 1986. Age and size are correlated, so early studies could not say which was killing organisations. Size brings buffers: reserves, redundant staff, the ability to survive losing one customer or one person. Regulation and reporting, meanwhile, cost roughly the same whatever the headcount.
In practice
- A three-person firm loses one to illness and stops trading; a thirty-person firm reassigns the work.
- A compliance requirement written for the industry consumes a fortnight a year at any size, which is nothing to the large firm and a tenth of the small one's capacity.
- Standing
- Distinguished from the liability of newness, with which it is usually confounded because new organisations are also small.
- Subject
- Organizations & Bureaucracy
- Essay
- How organisations behave when nobody is steering